Author Topic: How Much Profit Do Flippers Typically Seek for SFH?  (Read 1601 times)

EmFrugal

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How Much Profit Do Flippers Typically Seek for SFH?
« on: May 19, 2018, 12:13:25 PM »
Long story short, my parents are trying to unload a house that is literally falling apart. They have lived there for 30 years and in the last 15 years could no longer afford to make all the necessary repairs. It needs a new roof. There is water damage, mold in the basement, and electrical issues among other cosmetic things. The house is 3,000+ sq ft with 4 beds and 4 baths.

They still owe $128K on the mortgage. In it's full rehabbed condition I am guessing it would sell for $475K. I don't think they can handle a loan for repairs before listing it, which is why I am assuming investors will buy it.

I've spoken with one potential investment buyer who is seeking about $100K profit to split between himself and his partner. He is estimating 12 months for repairs + remodeling all bathrooms and kitchen. He anticipates putting in $125-$150K worth of work.

We have not listed on the open market yet but are moving in that direction. I was just curious from other investors if $100K profit is what we should assume is typically sought? This is in the Piedmont are of North Carolina for reference. After the sale, this is very sadly the only savings my parents will have. And at least half will have to go toward long term care for my father. Complicated, depressing mess for a different thread, but wanted to at least seek out some initial thoughts.

Let me know if you need additional info. Thanks.

*Edited To Add: Is there due diligence research you would recommend to get the most from the sale? We're planning to get actual estimates for roof replacement, mold remediation, etc. I was thinking this would help us come up with an actual repair/remodel estimate to use as negotiation power. This is a super emotional and stressful process so I definitely appreciate third party input.
« Last Edit: May 19, 2018, 12:27:07 PM by EmFrugal »

Papa bear

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #1 on: May 19, 2018, 12:51:45 PM »
I'm all in the rental side, but my friends who flip will try and keep their total costs under 70% after repair value (ARV). So in the case of your parents' house (back of napkin):

ARV - 475
70% of 475 is 332.5
Less repair costs 150
Purchase price of home 182.5.
Profit 142.5 less carrying costs (taxes, interest, realtor fees, etc
Net profit probably more than 100k

Numbers all change based on location, value of home etc.




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tralfamadorian

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #2 on: May 19, 2018, 01:51:45 PM »
*Edited To Add: Is there due diligence research you would recommend to get the most from the sale? We're planning to get actual estimates for roof replacement, mold remediation, etc. I was thinking this would help us come up with an actual repair/remodel estimate to use as negotiation power. This is a super emotional and stressful process so I definitely appreciate third party input.

I agree with @PapaBear rough math on what many investors would aim for.  However, luckily for you, the flipping market is still red hot. I would focus less on getting estimates and more on casting a wider net of potential purchasers. Some flippers have their own crews and purchase materials in bulk (lesser repair costs); some are willing to take a smaller margin. Advertise the property on biggerpockets. Advertise on the craigslists of major metros in the area. Reach out to all the REIAs (real estate investing association) of those areas. Tell them you have a "deal" (that's the industry terminology) with 6 figure potential flipping profit and are looking for a serious buyer.

There should be lots of interest in your parents' property. Get those investors bidding against each other rather than you worrying about repair costs. Make sure offers have a significant earnest money deposit and a very small inspection period (this should help weed out wholesalers).

EmFrugal

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #3 on: May 20, 2018, 11:45:50 AM »
Thanks for this feedback from both of you! It is really helpful.

Fishingmn

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #4 on: May 21, 2018, 09:28:15 AM »
Personally, I'd just list it on MLS. That way you get the widest exposure possible which is the best way to assure you get fair market value. You might be surprised to find a retail buyer willing to take on a big project at a large discount. They can always get a rehab loan to build the costs of repairs into their financing.

I'll bet you clear way more that way even after paying a realtor. You could always list it on a short term agreement to test that out. If repair cost is $150k you could add another $50k and list it at $275k. Even after paying realtor fees you'd potentially clear $250k which is way more than the flipper scenarios. And if it doesn't sell at those prices do a couple incremental reductions until you get an offer.


EmFrugal

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #5 on: May 21, 2018, 02:12:35 PM »
Thanks Fishingmn. I've spoken with a Realtor and we're going to start the process of getting it prepped as-is. Hopefully we can get a decent offer, taking it's condition into account.

cooking

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #6 on: May 21, 2018, 03:30:21 PM »
There are many good comments here.  One thing that wasn't mentioned is the fact that sometimes non-investment type buyers have a hard time getting a mortgage on a property in poor condition.  This is the thing that flippers often use to their advantage, since they're typically all cash buyers.  Since you're putting it on the MLS though,  and many investors acquire properties through the MLS, investors will be aware of it. The bigger universe of buyers there should end up getting you the best price in the end.

Please let us know how it all works out, as so many posters forget to do that!

AMandM

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #7 on: May 25, 2018, 01:39:02 PM »
OP, as the mother of a young couple (well, half of it) who just bought a fixer-upper, I just want to say thank you for not looking to sell to a flipper.

My daughter and son-in-law bought a house like yours--the seller had been born in that house, which she inherited from her parents, the original owners, and it hadn't been at all maintained. There was water damage, scary wiring, frozen plumbing, missing floors, broken windows... But it was what they could afford in a town where they have compelling personal reasons to live, and they are doing the work to make it lovely again. Plus, the seller got more than she would have from a flipper, because buyers who will live in the house don't have to make a profit. And she's happy that another little girl (my granddaughter) will get to grow up playing where she did.

EmFrugal

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #8 on: May 28, 2018, 04:07:56 PM »
Thank you again for all of the thoughtful replies. We are still exploring our options and have not officially decided which path to take. The issue is that we don't have time for the house to sit on the market forever because the sale need to quickly go towards my father's long-term nursing care. If we did not need to sell the house due to the safety issues, we would try to get Medicaid to cover his care. But because the house cannot be maintained by my parents any longer, the funds will be used for his care until they run out.

Right now we are talking with two Realtors (one of which is also an investment buyer) and another who is not. I do feel that the first offer from the investor was too low, so now I am trying to figure out the path that will net the most for the house but also with the urgent time constraints in mind. I hope to have the right answer by the end of the week.

lhamo

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #9 on: May 28, 2018, 04:19:34 PM »
You are going to buy your mom a small condo or something to live in with some of the proceeds from the house, right?  Selling the house sounds like the right thing to do since they can't keep it up, but she should not have to be totally impoverished due to her husband's medical needs.  Be sure to watch the taxes and management fees -- she needs something she can afford on only her SS payment, or whatever she will have coming in on her own once your dad has passed.

genesismachine

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #10 on: June 01, 2018, 01:13:58 PM »
I would highly advise selling. I don't know about your area, but where I'm at, real estate is crazy right now. A fixer on our block just sold for $375k (we bought our place 3 years ago for $228k).

That was an insane price, as comps in very good condition were probably in the $450k range, and you'd have trouble staying under $450k even doing your own work.

I think you might be surprised at how high the offers will be. As long as it is livable and can qualify for a mortgage (which it probably is, if there are people currently living in it), unsophisticated buyers are paying top dollar just for the privilege of fixing a house.

EmFrugal

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Re: How Much Profit Do Flippers Typically Seek for SFH?
« Reply #11 on: June 02, 2018, 03:16:25 PM »
We've decided to accept a higher investor offer. My mom did not want to list on MLS because she didn't want tons of people coming through the house. Plus there is the massive hassle of having to clean out all of my Dad's OCD induced hoarded newspapers, t-shirts, and crap. The OCD and mental
health issues is why there are no savings. My mom has tried to hide my dad's problems for their entire marriage. She also didn't want people in her community to know how bad the condition of the house is. The investor will give her 45 days to close and handle all clean-out of any possessions (and hoarded crap from my Dad's OCD) she doesn't want to keep. This was just the best decision we could make given all the complicating factors.

Our plan is for my mom to rent a small apartment that will handle all the maintenance, etc. She is 5.5 hours away from us so we can't do day to day maintenance for her. Plus this allows her the flexibility to move should my Dad pass. She does not want to be in her current town very long-term. I think she is ready to let go of her old life and move forward without anything tying her down. So owning again right now doesn't make sense.

I want to get her half of the home sale assets in a conservative investment fund and have her live off of her salary until she fully retires and starts to take SS. She is almost 65 for reference. My father is 68. We'll set up a similar fund for him and make sure he has someone responsible to manage it. My hope is that she can work for a few more years as a teacher and sock away some more money until she can't work full-time anymore. Her medical benefits are fully funded by her employer, which is a big plus.

My dad should be set for about 5 years in assisted living after the house is sold. If his portion of the money runs out sooner or he outlives it we may need to explore more complicated measures like a legal divorce so he can qualify for Medicaid and not use up my mom's savings.

Thanks again for the insights. My fingers are crossed that all goes smoothly over the next few weeks. Lots of transitions will be happening.