Im looking to buy a property that I have a great price on. I want to rehab, fix, and flip but my credit isnt that good but I have cash to purchase

Asked by J.henry, Philadelphia, PA Tue Dec 15, 2009

Need advice about what process I should go thru in order to make a porfit off this property. any suggestions?

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Dan Chase’s answer
Dan Chase, Home Buyer, Texas City, TX
Tue Dec 15, 2009
You already received several good replies.

I would ask why you would want to sell it. "I have the money to buy out right but no funds for rehab" Is it able to be lived in? Could you live in it and apply your "rent" payment each month to repairs? If you could it would be a good way for you to buy a really cheap house in this or any market. Think about after 2 or 3 years of living there. You would have saved a lot of money on rent. That money could have been put into repairs. If you did the repairs yourself it might even be paid for outright. You will probably never find a better house deal for yourself than this is.

Once you bought and paid for the house could you get a loan to cover repair costs? That might be a good way to go. Yes, you could repair it yourself. Yes, it could take years to get done. Yes, it would be annoying during that time. But think about the end. You would have a house you own outright for $67k or less. Maybe $40k or less doing it yourself. Buying the tools is a lot cheaper than labor is. You can go to home depot or a local high school or voc.ed. to learn how. House repair is more about measuring and working hard than being difficult.

If you flip the house you might gain some money.
If you buy and slowly fix it you will have a house for a lifetime.

" I have a great job and make great pay but i just started to pay things back. I really want to rehab and flip so i can make a profit to furthermore pay my debt"

(PLEASE CONSIDER BELOW)

You will be able to pay off the debts you owe and still buy and keep the house if you do things slow and simple. Please consider this and do not lose the opportunity to own your own house very reasonably just because you have other debt. You should be able to do both. If you apply your rent money to the house (needing repairs) you will lose nothing. You will gain a house. You can use your remaining income to pay off debts.It will just take time. That looks like a good deal all around.
0 votes
Don Tepper, Agent, Burke, VA
Tue Dec 15, 2009
BEST ANSWER
Advice: Wholesale it, rather than rehabbing and flipping.

If your numbers (ARV--after repair value--and the needed repairs) are correct, here's what you do:

(1) Put it under contract for $22,000 (or as low as you can get it).

(2) Wholesale it for $45,000. And you make $23,000 without purchasing, without risking any of your own money, without borrowing the money from a hard money lender or private lender, without spending 2 months on the rehab, etc. That is: If you'd be happy with a $23,000 profit for a couple of day's work.

Here's how the numbers play out. You say the comps are $150,000-$175,000. Let's take the lower number to be conservative: $150,000. A rehabber will pay you 65% minus rehab costs. But let's be conservative again, and just go with 60% of ARV minus rehab costs. That brings your number down to $90,000 ($150,000 x 0.60). Now subtract the rehab costs. That number probably is about right, so we'll go with that. Subtract $45,000 from $90,000. That means a rehabber will pay you about $45,000 for the property. So: You put the property under contract for $22,000. You assign the contract for $23,000. And you've just made $23,000 and the rehabber has picked up a property that he can rehab and sell for $150,000.

Don't get greedy. If the comps are as high as $175,000 . . . and most rehabbers actually will pay 65% of ARV minus repair costs . . . and you could put it under contract for $20,000 . . . then you'd be talking about $113,750 minus rehab costs of $45,000 . . . or $68,730 that a rehabber would pay. Subtract your contract price of $20,000, and you might be looking at an assignment fee of $48,730.

But don't get greedy. Leave plenty on the table for the rehabber. And you can make a profit of $23,000 with none of your own money invested (remember: you're not buying it for $22,000 . . . just putting it under contract). And that's a very juicy deal for any rehabber, so you shouldn't have a hard time finding someone eager to buy the contract.

Contact me if you need clarification on the process.

Hope that helps.
0 votes
Sean Dawes, , Philadelphia, PA
Tue Dec 15, 2009
Don does make a great point. I just did not want to mention wholesaling as basically you are just making money for flipping a contract on a family member when they could just list it with a realtor and walk with more or sell it themselves and make some more money.


Sean
0 votes
J.henry, , Philadelphia, PA
Tue Dec 15, 2009
Thank you Sean and Anna. I appreciate the help.. Don Im very interested and I like the response is there a number I can contact you at if I have questions?
0 votes
Sean Dawes, , Philadelphia, PA
Tue Dec 15, 2009
J Henry,

Have you ever rehabbed a property and flipped it before?

I am saying this as it is not as simple as buying and wala, instant profit.

You will need to have trustworthy contractors, perform a home inspection so you know what you are getting into. All too many times have I seen people buy properties that needed only "$20k" to renovate and then relist on the market to then find out that it need major renovations and they were over under already.

If anything, the only thing I would suggest is bringing in a partner. Bring in an investor to partner up with, they will rehab and relist and your family can walk with maybe more cash from the sale and you can make some profit from coordinating this all.

I am not an attorney so you should always consult one when looking into joint ventures or LLCs and how this is done.


Sean Dawes
0 votes
Anna M Brocco, Agent, Williston Park, NY
Tue Dec 15, 2009
If you have another party or parties involved make sure you have an agreement in writing and notorized--protect yourself--and be careful try not to dig into more debt. Debt is always easier to accrue than it is to pay down.
0 votes
J.henry, , Philadelphia, PA
Tue Dec 15, 2009
Thanks for the advice but I only have about 3 months to make choice if I want to buy the home. that was the window given to me by my family.. im really in it for a quick flip and a profit. I want to know if I can do this with bad credit and if so what way I can do it. I dont want to pass this deal up... Is there anything that I can do? maybe get a 3rd party involved and split the profits? something?
0 votes
Anna M Brocco, Agent, Williston Park, NY
Tue Dec 15, 2009
Sean is correct--improve that credit and pay off your debts--since it's family owned, can they hold off on the sale.
0 votes
Sean Dawes, , Philadelphia, PA
Tue Dec 15, 2009
Can hard money lending work, yes.

But do I suggest you do it? No.

It seems you are trying to find ways to get out of debt which is good but risking the cash you have now isnt the best route to go.

I would take some of the cash you would use for buying this home and pay down debt. I dont know what you have but lets say you have credit card debt which has to be near 12%. You could be paying $100 a month in interest to carry that debt. Pay it off, save the interest, your debt/income ratio will improve and thus your credit score will improve.


Sean Dawes
0 votes
J.henry, , Philadelphia, PA
Tue Dec 15, 2009
Well I want to buy it because it seems like a good deal with a nice profit potential. My issue is I have applied for loans b4 (personal/auto) and have been turned down. My credit score is pretty low being foolish at a younger age and not repaying debts, I have a great job and make great pay but i just started to pay things back. I really want to rehab and flip so i can make a profit to furthermore pay my debt.. Are hardmoney lendors a good idea?
0 votes
Anna M Brocco, Agent, Williston Park, NY
Tue Dec 15, 2009
Unfortunately only you can make that decision--to buy or not. Just exactly how bad is your credit-have you checked with any qualified loan officer(s)--maybe you can do an FHA loan--if you haven't do so.
0 votes
J.henry, , Philadelphia, PA
Tue Dec 15, 2009
Comps in the area are from 150k-175k. Purchase price is under 22k. needs 45k in repairs. property has been in the family for some years now and they would like to sell it to me.. I have the money to buy out right but no funds for rehab . looking for advice on funding for bad credit.
0 votes
Anna M Brocco, Agent, Williston Park, NY
Tue Dec 15, 2009
Depends on location, how much work is needed--cosmetic or extensive, what you're paying for it, how long can you carry it financially before it is sold, etc. What is your Realtor advising you to do--who determined that it is in fact a great buy--did you look at recently closed comparables in the immediate area, etc.
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