Hello everyone! Sorry about the delay in posts, I have been super sick for the past 8 days. Allergies and ear infections are not my friend. But I am back and feeling much better now.
I've had several questions about the financials and the planning for the flip house, so I thought I'd share some of those details with you.
When we decided to try our hands at flipping a house, the first thing my husband and I did was find a partner. We are lucky enough to have some great friends that know how to do EVERYTHING in a house... seriously, nothing scares them off. I had done lots of upgrades to our house, had a lot of tools, knew how to make things look pretty... but did we know how to run electric, plumbing, etc? No way. But our partners do. This is important because with the first few flips, we know that we're going to have to do the majority of the work ourselves, if we want a decent profit. This other couple is also great to be around. We have had so much fun working, it almost doesn't seem like work!
After making sure we were all on the same page with what we wanted to do, we started a company. This is where my hubby's skills come in to play (well... this and demo). He took care of all of the paperwork we had to do, set up a bank account and made us all sign stacks of paperwork.
Know how much money you have to work with and get pre-qualified. A mistake we made first was going with an online mortgage broker. He sucked... for real. After a ton of set backs and unnecessary fees, we dropped him and went with a local bank. The fees were much less, closing costs were less. It's totally the way to go!
Then it was time to start looking for a house. Here are a few things to keep in mind when deciding on purchasing a house to flip:
- What kind of neighborhood is the house in?
- What have comparable sized homes (comps) within a 1/2 mile radius sold for within the past year?
- What type of sale is is? Foreclosure, REO, Short Sale, etc?
- How much is the asking price? Will they go lower?
- How much work needs to be done? Cost? How long will it take?
- What price can you get out of the house, once it is fixed up?
Once we knew what questions we needed to ask on EVERY property, we started looking. We found several potential properties on www.hudhomestore.com. This site shows homes that are being sold by HUD and it is free to use.
The way it works is they first open the sale of the homes to homeowners, then after 15 days they open it up to investors. They also do a great job of disclosing EVERYTHING that is wrong with a property, which is nice.
We found a real estate agent (that we trusted), spent 2 weekends looking at houses and ended up finding 3 houses that we were interested in!
With HUD, you make an offer on the home through your real estate agent when bidding is opened up to investors. You are notified within 24 hours if your bid was accepted or not. We made a bid on the first house on the day that it opened up to investors and found out the next day that it was accepted!
- The asking price was $47,500
- Our offer was $45,000 - Looking back now, we all agree that we paid too much. I think if we had to do it over, we would have offered $37,000.
- We had to put 20% down. That was $9,000.
- Our budget for the house is $10,000 and it looks like we are going to be right on with this (this includes all new stainless steel appliances and holding fees, such as mortgage payments, utilities, etc).
- The house last sold for $94,000 in 2014.
- Comps in the area range from $87,000 to $112,000.
- We estimated 12 weeks of work on the house before being able to put it back on the market. We're thinking now that it going to be more like 8 weeks!
- With the exception of laying carpet in the bedrooms, we are doing all of the work ourselves.
- Our plan (right now) is to list the home for $99,900. After selling and closing fees (we're assuming on the high end $10,000 for all of that). That leaves us with $89,900... subtract the expenses of $55,000 ($10,000 renovation fees, the $9,000 down payment and the remaining balance of the mortgage $36,000) and we're left with approximately a $40,000 profit. We'll have to pay taxes on this, but you can subtract mileage, equipment and all kinds of other things.
Here's how many hours the four of us spent (all together):
Week 1 = 120 hours and 55 minutes
Week 2 = 122 hours and 40 minutes
Week 3 = 125 hours and 55 minutes
Week 4 = 17 hours and 15 minutes
I think that's pretty good considering each of us also works a regular 40 hour a week job. Obviously most of the time is spent on the weekends. Week 4 is significantly lower, I was sick all week and got 0 hours. With it being the holiday week, we all just took a break, which was needed.
You can read the recaps of the weeks by following the links below. Week 3-4 will be combined and be published this week.
Week 1 recap
Week 2 recap
Let me know if there are questions that I haven't addressed! I'll be happy to answer!
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