Anyone flip houses? Or, ranting about a job part 2

I'm still looking for a job. I do have a strong background in contracting and renovations (although not licensed). I had thought about buying bank houses to flip, but most of the places I lived meant that they were $200k repos that comped with $300k used homes. Big capital, modest payoff. Now that I live in PA, it seems there are a lot of repos for $8k-15k that easily comp for $40k. Less net payoff, but at least an attainable investment.

Self-employed, maybe set up an LLC?

Any resources you can think of?

This is hard process that nobody seems to want to share. It'd be fun to shadow a successful sheriff sale/bank buyer, heck I'm willing to bet there would be money to be made in teaching people these skills.

I asked a buddy who is a lender in a far away state. At least if he knows anything about it, its not like I'd be stepping on his business' toes. There is a guy nearby here who does it and I thought about asking him if he needs a renovator/laborer, but he is on vacation for a month.

Guys that flip houses usually want the work done as cheaply as possible. Your situation with no license or insurance, should meet their needs. And you will get some training on how it is done. Win-win? My son has an unusual job- he finds houses for flippers and collects a commission when they buy. He does nothing with the houses other than find and research them. Doing pretty well right now.

Doing the grunt work of buying and rehabbing is straightforward, but in this kind of situation you better know how to sell the damn house quickly after you're done too and be aware of current design trends while you renovate to make the house marketable. How are your sales and design skills?

Using your PA example of a $15k house that'll sell for $40k when finished.... Is there enough meat on that deal to make a living? Yes you can probably rehab it for the $25k price difference, but having just gone through the design process on my own house there doesn't look to be a lot in the budget for replacing anything major or fixing any potential structural deficiencies.

I don think there are any downsides to setting up an LLC if you're going in to business from what I know about them. It's mostly about protecting yourself right? Why not then?

Watch the shows on HGTV and you'll see some of the pitfalls. A lot of flipping is getting it for the right place (even paying cash), rehabbing it with the sale in mind, and selling it quickly. The longer it takes to sell, the more your profit evaporates. It helps to know some good local realtors who you'll want to see the house when you're ready to sell, and possibly some good realtors who can find you bargains.

To be successful, you have to be disciplined, think well on your feet, have a good sense of the local market, and be able to deal with stressful situations.

$15k to $40k with a house, no matter what sweat equity you put in, will probably amount to not much return IMO.

At that price range, even "free" labour isnt the problem, its that materials to build houses are expensive, same with renovating.

On top of that, there are some things (drywall) that is easy to notice an amatuer job vs a professional.

Yeah I think $15k-$40k will do 1-2 rooms of a house.

Learn the regulations and laws in the state. Invest in a real estate license, find a growing area with low prices and start fixing and selling them.

Just like the advice here about making money on cars. The money is made on the buy, not the sale. My dad's best friend made a lot of money on the whole no money down, other people's money gig, buying cheap houses, split into multi-unit rentals and rent for section 8 housing. He only fronted cash for the first house, split it, got it re-valued, and refinanced for more than he had in it. Rented it, with positive cash flow, used the extra cash from the refi as a down payment on the next one. Had 40 some odd houses at one point.

trigun7469 wrote: Learn the regulations and laws in the state. Invest in a real estate license, find a growing area with low prices and start fixing and selling them.

This. Especially the part about the real estate license. In that price range, you don't want to have a realtor sell the house for you.

My WAG is that you can only put about $5k-8k in a $15k house to make the flip worth your time. That's why most flippers tend to concentrate less on E36 M3, sorry, up and coming areas because the materials cost the same no matter what price house they go into.

So I just went through this myself. Saw a house locally that was listed at $45K, but going to Sheriff's Sale soon. I thought I could get it on a short sale from the bank for close to $30K. It would go for even less at the Sheriff sale, but you need cash within 3 days...which I didn't have. But the bank wanted to avoid that and would make some money from the financing, so they were willing to hear my offer.

The house was not in the best neighborhood, but it had some positives such as being close to major highways, walking distance to the busline, a small flat yard, off street parking, etc. I thought that I could rent it or sell it pretty easily once it was rehabbed.

The issue was the return on investment. I saw a minimum $15K in materials that it needed to get up to code and look presentable if I did 100% of the labor. The floors had sagging issues and there were issues in the wet basement, so that could easily swell to $25K all told. That put the investment at $55K, plus a lot of hours for me. Comparables were $55 - $65K, so I am talking about essentially losing money or breaking even at best. Even if I got it for $20K, the profit margin was slim, and any unseen issue would have killed it.

So, you have to run the numbers and make sure that there is enough margin to make it worthwhile. In your case, just making enough to pay the rent and put food on the table may be OK. Your best bet is to do the work for someone else, learn the tricks of the trade, and then jump on the right opportunity.

Add to all of this that you have to deal with capital gains taxes on any property you flip like this.

First of all... there will be little to no renovation involved. Smaller markets like this a grab and go. I'm not talking $40k comps for a nice, pretty, decorated house... those are more like $100k.

In smaller money markets, the way you do it (as I understand) is you get a dumpster for $150 and a 5-gallon bucket of paint for $100. Gut it, clean the heck out of it, paint it up pretty, and sell it to someone who wants a cheap, empty home. I wouldn't be buying them with foundation, electrical, or plumbing issues unless they are priced accordingly. Guy I was talking to today says he and his wife can be ready to sell in a week tops.

I'm great with design and well above average in sales, but that isn't the big thing in this market. There is no point in spending $5000 fixing up a kitchen on an $8000 investment, especially because MY design might not be their choice, therefore polarizing buyers.

I think of it like buying a Miata without an engine or transmission. I could drop in an LS1 and sell it to the narrow market of people wanting to buy an LS-swapped Miata, or I could find a cheap Miata engine and flip it quick.

KyAllroad wrote: Add to all of this that you have to deal with capital gains taxes on any property you flip like this.

hence the LLC. It would be all on the up and up.

Basically you're charging someone 10 grand to get a cheap, clean place without the hassle of sheriff sale or dealing with a bank. Is that what I'm hearing?

Find a home worth $100k, being sold by bank for $90k, buy it for $89k, put $1,000 into it, sell it for $99k.

Future home owner feels like they are getting a deal, you haven't really put any investment into the house, and the slim margins aren't enough for flippers to compete with you.

In reply to PHeller: That's pretty much it for all house flipping.

I certainly don't have 100k of cash sitting around. Most of these bank sales (at least around here) are cash only. They often go for less than half their value. Once they are deeded individually, its just like any other home sale for the buyer; banks, escrows, inspections, etc.

I would be going to basically a foreclosure auction; could be sheriff sale, could be bank-owned, whatever. You bid, you pay cash, its yours.

I'm basically capitalizing on the fact that 95% of home buyers aren't GRM-types. They buy the traditional way. I would be buying the cheap way and flipping. The goal would be to get some capital to where I could move into different markets where houses sell at auction for $100k, then I can justify $10k of remodel/fix to sell for $200k.

Seems like a tough way to make a living. In the somewhat likely event you end up sitting on a house that doesn't sell quickly, it might get difficult to put food on the table. If you can provide labor for someone else, it might give you some insight as to what is (and, more importantly, isn't) a home you can make money on, while "keeping the lights on" with your personal finances. If you can earn enough to put a little aside, by the time you have a solid notion of what you are doing, you might have the cash to finance your own deals.

Whether flipping houses or just generally working as a contractor, most successful people I know started out working for someone else, then began working for themselves on the side, then transitioned to being fully "independent".

I was all fired up about "flipping" houses. Neighborhood just over the county line had a house sell for 195k. Flippers put maybe $30k in and resold for like $330k.

One house down, someone did something similar. House has been on the market since summer and it is fastly approaching the original sale price. Someone is losing their ass.

I don't flip houses but I do work for folks who have. I'm working with a a guy who was very successful with flipping during the housing boom, but lost everything 2 years ago when the market crashed. He is now building his business back but it's slow and more expensive. In 80% of foreclosure/tax/Sheriff sales I work on, there are underlying title issues (unpaid liens/taxes/assessments/etc) that must be resolved before you can sell the property to a 3rd party. That alone could eat up several thousand dollars. I'd seek the advice of an accountant and an attorney. You'll need one to set up the LLC anyway. Locally there is a severe lack of housing in the under $150k range and a flipper can do fairly well, however, what appears to be a quick clean and paint can turn into a strip and rebuild in a day. Rarely, if ever, do you get to inspect the house (other than walking around it) prior to purchase. Not having a lot of reno experience, and knowing the potential legal issues, if I had the inital capital, I'd consider a career change.

chrispy wrote: Not having a lot of reno experience, and knowing the potential legal issues, if I had the initial capital, I'd consider a career change.

Wait, so if you had the initial capital you wouldn't attempt flipping houses, or you would? I'm confused.

Sorry, even knowing the pitfalls, I'd consider flipping if I had the capital. Needed more coffee.

oooof. tough biz. I guess just like any other once you know what you are doing, but I see this like a 15 year old kid with a pocket full of money showing up at a car auction.

If a man with money meets a man with experience, the man with experience will get the money and the man who had the money will get some experience.

we do. it's not simple, stuff comes up, you find rotten pipes where they enter the concrete floor, etc...

the biggest thing is to get it cheap enough to where you think you're going to clean it out and slap some paint on it, but have $ left in case something bad happens, like that nice new main panel with romex coming out of it actually has illegal open splices to the original knob and tube wiring just out of sight.

we sat on one for over a year. comps were 95-105k, a month later when the project was done they were 80-85, with the house sitting there all pretty, and 10-20k less profit on the back end. then they tore up the main road it was off of for an entire year. nobody wanted to look at it because it was a pain to get to. as soon as the road project was done, we got a contract for 85k(full asking price) almost right away.

don't underestimate widening a couple doors, adding a wheelchair ramp, making the bathroom usable for a wheelchair, and selling it as accessible housing. as the population ages and as we move toward people with disabilities living independently versus in large group homes, accessible housing will command more $ than a similar non accessible home. keep that in mind for the future.

patgizz wrote: don't underestimate widening a couple doors, adding a wheelchair ramp, making the bathroom usable for a wheelchair, and selling it as accessible housing. as the population ages and as we move toward people with disabilities living independently versus in large group homes, accessible housing will command more $ than a similar non accessible home. keep that in mind for the future.

Yup. I'm 24, almost 25. Fiance is one year older. We're both in great health. When we buy a house, a wheelchair accesible house (or easily made so) is very high on our want list, due to her mother. Not a necessity, of course, but at the very least there needs to be a bathroom on the first floor, and we have to be able to put a ramp in to get into the house--even a temporary, portable one.