question on flipping multi units - Posted by Matt B

Posted by Bob Eberle on January 06, 1999 at 07:33:48:

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question on flipping multi units - Posted by Matt B

Posted by Matt B on January 05, 1999 at 09:06:55:

Every spare second that I have I have been working my butt off to get my first flip. I am still so cramped with time because of the dang “job”. (Not making excuses, just stating a fact. It hasn’t stopped from spending every spare second doing what I need to be doing for my real estate future.) I have burned through about 20 prospects so far, made offers on 2 after gathering all the facts that I could. (I’m a newbie, so I have to get every bit of info that I can first, but at the same time, I don’t take forever to gather it. The best use of my time has got to be making offers.)

I bought Ron LeGrand’s course, which has been fantastic in getting me all the info that I need to get all the other info that I need. Ron says that I should be looking at single family homes for my first few deals. They should be AT LEAST 2 bedroom homes. I have been heeding that advice so far. However, I have found a few duplexes that seem to be ideal flip candidates.

One duplex that I found has been fire damaged. Comps for this duplex are in the $40,000 range. After going over it thoroughly, I calculated the repairs to be $12,000. I spoke to a friend in the area who has bought and sold a few properties. He had used a couple of Carlton Sheets techniques, so he is a little more open minded about creative real estate. He knows the owner of the property (as an aquaintence) and is fairly certain that they would accept $3-4,000. There is no mortgage on the duplex, but it may have liens associated with taxes. (This friend of mine does not think so, but that is certainly not enough to base a decision on.) This friend of mine says a reasonable after repaired value on this property would be $32,000, based on the income that rents would generate. Even using that low figure, using Ron LeGrand’s formula for calculating the maximum allowable offer, I come up with $10,400. From that I would then subtract my $5,000 profit and come up with an offer of $5,400. Sound like a good deal? I would, of course, have a preliminary title search done to ensure the absence of liens and such. Is this worth pursuing?

Another duplex that I have found also has comps of $40,000. It is in need of $6,500 in repairs. (I should mention that I have done a HECK of a lot of research to get accurate numbers for every dollar figure that I mention.) Again, to err on the side of safety, using my friend’s figure of $32,000, my offer, after subtracting my $5,000 profit is $10,900. Looks like I could do this, based on talking to neighbors about the seller, as well as other market research. (Did I mention that I’ve been doing my homework?)

So my question is do I pursue these deals as a newbie, or just concentrate on single family homes until I get that first one under my belt and understand the process? I think these are good deals, but having never actually completed one, I don’t know if I’m missing something. I have one “we buy houses” person who has said that they buy multi units. If they don’t come through, what are the chances of quickly flipping these by placing a “handyman special duplex, cash” ad in the paper?

I will appreciate any and all input from people who can offer some insight here. I am ready to go, but am making sure that I don’t jump in blind.

As a side note, I have tendered my 2 week notice to quit my job thanks mostly to this web site. I have a few investments that will carry me for a couple months, so the pressure’s on to get “flipping”! I’m filing my incorporating papers as soon as I get a form that I don’t have from the state. Flippity-do-dah!!!

What I Would Do… - Posted by Sandy FL

Posted by Sandy FL on January 05, 1999 at 12:19:01:

… FIRST …is to place the ad in the paper for
"Handyman Special - Duplex. Cheap. All Cash."
THEN make your offers a little after that. Probably no one is going to trample you to buy these before you do. Make sure you have enough potential investors who are interested in duplexes before you sign a contract. And even when you sign the contract you will have a weasel clause in there. But I think there is a market for these duplexes – heck I would buy 'em from you! I would rehab 'em and hold 'em… if your numbers are legit, and you think they are. Did you read the article on this site about fire damaged properties? I would think estimating the repair of fire damage would be the trickiest part.

Good Luck Matt!

Sandy FL

Re: question on flipping multi units - Posted by Al Miller

Posted by Al Miller on January 05, 1999 at 11:33:14:

My advice is dont do fixer uppers. If you get one deal it off to a fixer upper person. You should net the same amount and save yourself all the work. Go where the money is. Right now in most areas its
houses.
A home is the American dream. Not a duplex or triplex
or big units.
Dont become a construction worker. Find good deals. There are hundreds of realtors at your disposal. Start working them for deals. Theyre free and most love
principals to work with.

Re: question on flipping multi units - Posted by Bob Eberle

Posted by Bob Eberle on January 05, 1999 at 10:09:02:

Just a thought… but since your starting out you might want to consider holding these properties for a while to build up cash flow. The thing that concerns me the most about your post is that giving your 2 week notice part with a couple of months of reserves, while not having completed your first deal yet. Just my opinion, but I think that you should have enough set aside to at least hold you over for 6 months to a year before quitting the J.ust O.ver B.roke

I did the same thing your doing and if I had it to do all over again I would have waited till I had more of a reserve. Fortunately I survived. However I see alot of “I’m quitting my job to become a full time real estate investor” comments lately, and the only thing I can say is before you do… make sure you have all your ducks in a row. Don’t buy a couple of courses and run out and quit your job. When you have cashed a couple of checks and you have all of your support people lined up that you’ll need and enough money in the bank to carry you over then go for it.

Joe Kaiser said one time… if your gonna own rental properties you should have (something like) at least $25k in the bank before you do. Why? Think about it and you tell me.

Re: What I Would Do… - Posted by Matt B

Posted by Matt B on January 05, 1999 at 15:18:50:

I did read the article on fire damaged property as soon as I found a couple of fire damaged properties. I used that, as well as a friend who works for a disaster recovery service to figure fire damage repairs. I also ran it past my investor friend to see what he came up with. I then consulted with another friend who works for a contractor. (Didn’t you believe me when I said that I did my homework?) I have made meticulous effort ensuring that I have the right numbers. I really want to get this right. By the way, Sandy, these duplexes are in the Pittsburgh area of PA, which is where I live. Still interested in buying? Might be a bit of a drive for you!

Thanks for the tip on the ad. I have been following Ron LeGrand’s course very closely and he says to wait after you have an offer accepted and the property tied up with a contract before you start advertising. This is to make sure that someone else doesn’t come along and snatch it away from you. There is, of course, protection from losing any money other than your $10 earnest deposit written into the contracts that came with the course. This is so that if you can’t get it sold, you aren’t liable for anything but the $10.

P.S. Sorry about the lack of paragraph separtion in this posting, Sandy. I’ll make sure to bring along a pair of reading glasses to Dallas for you. (I had to make that crack… I tease my “older” investor friend about his reliance on reading glasses. Hopefully, you’re not as vain as him.)

I don’t think you understood - Posted by Matt B

Posted by Matt B on January 05, 1999 at 11:46:28:

I do not intend to do any rehab work myself. I intend to get the property under contract for a wholesale price, then flip it to an investor for a wholesale price that includes a profit for me. I don’t intend to hold any property for at least 6 months after I get started successfully flipping properties. I did think that SFHs were the way to go, and I believe that is what you are saying. Think I should abandon the idea of going after these duplexes for now?

25 K in the bank… Why? - Posted by Lee

Posted by Lee on January 06, 1999 at 02:08:32:

I have thought about it, what gives with $25,000 in the bank?

PS.
I like the $1,000 per month (+ or-) “Positive” cash flow I have had for the last… Oh, 13 years now, from my one property…

So what is the logic of having 25 K in a hole, oops, I mean in a bank?

Lee

Re: What I Would Do… - Posted by Sandy FL

Posted by Sandy FL on January 05, 1999 at 16:30:46:

I meant IF they were in my area I would take a look at buying them from you … and yes I believed you when you said you did your homework, based on the long-winded, unparagraphed email that you sent me. Haha!

I don’t see why you can’t place an ad to test the waters and see if people will ring your phone off the hook for the chance to buy a handyman proeprty which is a duplex-- I think they will. You don’t have to give up all the beans to them, just capture their phone numbers when they call, (do the RL thing-- find out their buying criteria) and ask them if they would be interested in ______ neighborhood. Find out how serious they are, if they can pay cash, and tell them you will call them with the address in a couple days. I am not the flipping expert, ask Steve Cooke or Jackie about that … but its never a bad idea to sell before you buy, and you need to build a buyers list anyway. If you like it better, run the ad without the word ‘duplex’ in it.

By the way, I’m 36 - JPiper is the reading glasses guy around here. heh heh

Sandy

Re: I don’t think you understood - Posted by Al Miller

Posted by Al Miller on January 05, 1999 at 14:53:50:

I misunderstood. A deals a deal. If duplexes are selling Id do it.
Have a realtor run comps of Solds for the last 6 to 8
months and see how many have sold.
Good luck.