Buy old houses/apartments, repair, and then sell for porfit

**johnbears** · 04-09-2010 05:04 AM

Or to buy real estate, improve conditions and rent for higher?

can someone tell me how profitable this business model is in the real estate market?

**DerekS** · 04-09-2010 10:14 AM

Every real estate market is different, so this question can't even begin to be answered until we knew which market you're in.

To do this well (as with most things) you need extensive experience, access to capital (which is tough nowadays), and a network of contractors (and enough rehab knowledge to know when you're being played and when they're being straight with you.)

Money can be made and there are a lot of properties "on sale" right now. It just takes lots of research and access to cheap labor to make the most of each project.

If you're looking for the kind of turn-around timeframes/profits that we saw during the heyday of flipping ('04-07), think again. It takes a lot more time to move units now, so budget accordingly.

**rogercbryan** · 04-09-2010 10:50 AM

There is a lot to consider here...

1st if you do not have the cash to buy the property outright then you are going to have a monthly mortgage payment. You'll need to have enough cash to float this while you are also paying for the repairs.

2nd to many people forget to include closing costs in all this. You're going to pay them to buy the place (2-7%) and then to sell the place (2-7%). While you can avoid a broker each state has mandatory title fees that add up as well.

3rd you have to know what you are doing. It is very easy to loose a lot of money in this business. You need to have a reliable contractor or you need to have the skills to do all the work yourself.

This business can make you a lot of money but you'll need to have money to get started. If you don't have enough money to put 20% down, pay for all the remodeling (cash), and have 90-180 days mortgage float capital then don't even think about giving this a try.

**noob** · 04-09-2010 01:39 PM

Don't do it. There are much better ways to generate cash in this economy. The real estate biz isn't as awesome as it seems. Once you step into it, you'll quickly realize how much you have to actually do for how little return and how slow the returns are.

**johnbears** · 04-10-2010 11:46 AM

I can find cheap labor.

I can also get some money and I would probably do it with 2 friends so they would also put money up (equal amount I suppose).

My questions is, what fixes/renovations give a building the greatest amount of value?? For instance, Would installing solar pannels increase the value of the property quite a bit?

**DerekS** · 04-10-2010 01:17 PM

Originally Posted by johnbears

For instance, Would installing solar pannels increase the value of the property quite a bit?

Absolutely not. If you're trying to make money flipping, the green stuff doesn't help much. If your target market is the eco-concious young (or older) buyer with incomes consumate to the product's price- then go for it. That segment is MINUSCULE compared to the average buyers market out there. There are merits to green insulation, gray water systems, geothermal hvac, solar panels, etc. But only to a targeted segment, and the increased costs of the materials make your carrying period a lot scarier. LEED certified building is the future- but for your average rip and run flipper/investor- it's the stuff to dream about (and learn about) now and act on later. Stick to the basics.

You also have to understand that there is a difference between "cheap labor" and "cheap labor." If you don't have any experience managing construction projects, you're asking for trouble.

Working with friends also often spells trouble. A clear trailboss has to be established, otherwise you run the risk of having too many cooks in the kitchen.

I could go on at length and rant forever probably but it's a beautiful Saturday afternoon, so if you have any more specific questions, I'd be happy to answer them.

**DerekS** · 04-10-2010 01:24 PM

Originally Posted by johnbears

My questions is, what fixes/renovations give a building the greatest amount of value??

I guess I should give the positive if I've already given the negative. The best returns come from houses with solid systems/structure and bad cosmetics. Duh, I know that's a no-brainer, but a lot of the skill involves finding the houses that look like they suck, but don't actually. (Trust me, it's harder than it looks, especially if you don't know about houses/construction.) Then next step is negotiating the best price possible.

Houses that need kitchens, bathrooms, etc (ie cabinets, tilework, mudwork/sheetrock, etc) are the ones that return the most (assuming the purchase price was low enough.) Houses that require extensive plumbing repairs, electrical upgrades (old 60amp service, fuses, Federal Pacific boxes, etc), waterproofing, mold remediation, foundation repairs/structural upgrades, are ALL MONEY SUCKS. You can make money on them if you steal them, but you've got to have solid contractors who can bid the job FIRST, allow you to back into a number (which plays into negotation), and NOT bump you once the job is underway. Budgets are blown every day by underestimated repair allowances.

**johnbears** · 04-12-2010 04:37 PM

Originally Posted by DerekS

I guess I should give the positive if I've already given the negative. The best returns come from houses with solid systems/structure and bad cosmetics. Duh, I know that's a no-brainer, but a lot of the skill involves finding the houses that look like they suck, but don't actually. (Trust me, it's harder than it looks, especially if you don't know about houses/construction.) Then next step is negotiating the best price possible.

Houses that need kitchens, bathrooms, etc (ie cabinets, tilework, mudwork/sheetrock, etc) are the ones that return the most (assuming the purchase price was low enough.) Houses that require extensive plumbing repairs, electrical upgrades (old 60amp service, fuses, Federal Pacific boxes, etc), waterproofing, mold remediation, foundation repairs/structural upgrades, are ALL MONEY SUCKS. You can make money on them if you steal them, but you've got to have solid contractors who can bid the job FIRST, allow you to back into a number (which plays into negotation), and NOT bump you once the job is underway. Budgets are blown every day by underestimated repair allowances.

Sounds like you know your business. Great insight (both negative and positve), thanks.

What is more interesting in flipping...house, apartment, or building?

Can you recommend any good literature about flipping?

**noob** · 04-12-2010 04:50 PM

Not sure if there are any literature we could recommend. I've had experience in almost every area of real estate and a bunch of my friends are in it as well (that's how I actually got involved). My old college roommate actually use to flip properties all the time and was very experienced in rebuilding properties himself with 99% of the work needed done. Long story short, after flipping somewhere in the neighborhood of 30 properties, he no longer does real estate today. He runs a full time restaurant. Now, I'm not saying this to tell you to go into the restaurant business or anything. But by on my experience in this area and his, the amount of work needed and the returns in the long run, isn't worth it in my personal opinion. Obviously it depends on your market and location, experience, and what you ultimately want to do. But like I said in my previous comment above, there are much better ways to make money than doing real estate. Obviously this is highly subjective but let's just say I probably won't do real estate again, of any kind. For the record I did profit a lot, and I still own properties and rent them out today, but that doesn't mean it was something I enjoyed and think is worthwhile.

**johnbears** · 04-13-2010 03:57 AM

Originally Posted by noob

Not sure if there are any literature we could recommend. I've had experience in almost every area of real estate and a bunch of my friends are in it as well (that's how I actually got involved). My old college roommate actually use to flip properties all the time and was very experienced in rebuilding properties himself with 99% of the work needed done. Long story short, after flipping somewhere in the neighborhood of 30 properties, he no longer does real estate today. He runs a full time restaurant. Now, I'm not saying this to tell you to go into the restaurant business or anything. But by on my experience in this area and his, the amount of work needed and the returns in the long run, isn't worth it in my personal opinion. Obviously it depends on your market and location, experience, and what you ultimately want to do. But like I said in my previous comment above, there are much better ways to make money than doing real estate. Obviously this is highly subjective but let's just say I probably won't do real estate again, of any kind. For the record I did profit a lot, and I still own properties and rent them out today, but that doesn't mean it was something I enjoyed and think is worthwhile.

Funny you say that. Most of my familiy is in the restaurant/Take Away Business (Parents, Brother, Uncle, Cousin, etc) and I am trying to get as far from that as possible lol. You can make great money but the stress that comes with running a restaurant is not something you want to do for a long period. After over 10 years working in that business, 3 of my family members have a depression. Mind you - they did their share of hard work and 15 hour days. There is just so many things that comes with running a restaurant.

What I like about flipping in Real Estate is that you can make money without that stress. I hear that it is possible to make $50,000 to $100,000 per flipping within 6months on a $1,000,000 property. Does this represent your experience?

Also, can you be more specific when you say "you'll quickly realize how much you have to actually do for how little return and how slow the returns are". That is a relative statement.

**DerekS** · 04-14-2010 07:57 AM

How interesting a project is depends on you and your tastes. I personally like old houses (1940s and older) because I love their inlaid hardwood floors, unique wood trimwork, layouts, etc. Houses like that are expensive to rehab correctly because repairing plaster, scraping/refinishing french doors, etc costs alot more than screwing up sheetrock and finishing it or just throwing up a new 6 panel door from Home Depot. Most of the more profitable flips I've seen have been more banal, boring houses that were rehabbed in a very universal way (which is why flip experts say not to put "emotions" into flips and just think about the budget.)

I helped re-tenant and rehab an entire apartment complex in 2007 which was interesting because of all the moving parts involved (it was so bad initially that we hired Baltimore City Special Police to shake people down on the property to see if they were selling or holding drugs on the property.) The owners spent a lot of money dealing with BS though, which obviously requires a bigger budget.

It really comes down to your budget, your team, and circumstance (ie whatever is on the market within your timeframe.)

I understand what Noob is saying, but I'm of the belief that real estate is essential to a long term income strategy. Flipping houses became a disaster over the last few years, but the old mentality of buying, hold, and rent (and eventually sell) has made many people I know very rich. The stock market has its merits (and has outperformed the housing market historically) but it's less hands on than evaluating a local real estate investment. A proper investment portfolio should have both present in the mix.

In terms of passive income, real estate affords you many rewards (appreciation, income, depreciation, mortgage interest deductions, other tax shelters, etc.) But, it is the kind of business that can be hands on to the point that people just don't want to deal with it. I'm going nuts with a couple of the rentals that I manage as of late. Dealing with the general public day in and day out at all levels can be extremely mentally straining (people lie to you, call you incessantly, make appointments and don't keep them, argue of minutiae details, etc.)

So it really just comes down to personal preference and how you want to shape your lifestyle. In terms of literature, I can't really think of anything. Honestly, I think most RE books are BS. You learn MUCH MORE going out and watching people in all aspects of the business function daily. If you have the time, sign up for a real estate licensing class. They usually cost between $300-400 and will eat up between 50-75 hours of your time (depending on your state.) You will learn the foundations of real estate practice (nothing about the specifics of investment but MOST of the important legal terms, ways to take title, how to interpret contracts, understanding your local laws, etc.) You don't have to actually get the license, just sit through the class and soak up the knowledge. Then go out and learn the rest from the guys in the trenches.