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Affects of House Flipping on Credit

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Jacque383
Regular Contributor

Re: Affects of House Flipping on Credit

Hi 10FingersInk,

 

I will do some research and make some phone calls for a hard money lender…But let’s look at the numbers...I’m not trying to be discouraging in any way, but if this is your first flip I think you should know the facts....After that if it’s a risk you want to take, that’s fine, but here’s what I’m getting…

 

Most investors use the old (ARV X .7) - repairs formula. So therefore, if you turn the formula around and solve for the % of ARV. Using the most conservative numbers you would have: % = (Buy Price + Repairs)/ARV. The answer is (175,000 + 80,000) / 350,000 = 72.9%. If you use the higher repair cost and lower ARV you get an answer of 84.6%.  This is just one way to look at the deal….Lower numbers might work, higher numbers, not at all, the deal is pretty skinny.

 

Here’s a different way of looking at it….

 

ARV (conservative) = $325,000

 

Commissions/Holding & Closing Cost = -$35,000

 

Repairs = -$100,000

 

Profit = -$50,000

 

Max Purchase Price = $140,000

 

There are other factors that may increase that purchase price. Re-analyzing the comps and repair estimates could lower your cost, thus raising your max. purchase price. If it is a very desirable property and I thought I could get a faster sell (In New Jersey? ) at the ARV price, I may lower my profit(there’s not a lot of profit here already?) , raising the max. purchase price.

 

I ran it using hard money at 65% with 5 points at 13%, 6 months to get it rehabbed and sold, which is very conservative if the house is currently unliveable. I came up with a number of 127K max price. That would give you about 45K net profit.

 

These numbers are EXTREMELY conservative for hard money the first time out. You might be closer to 6 points, 14% interest, which would make the deal a no go.

 

For me, the deal might work with the conservative numbers, but not the higher. Otherwise the deal is just to skinny… It always help to see the property and know the area well, but it’s really not necessary, the calculator doesn't lie.

 

You really should keep the numbers as conservative as possible. Lots can go wrong during a flip and you need some room, just in case and trust me it will. In repairing an unliveable house you will, without a doubt run into things that you couldn’t see needing to be repaired. I’d count on at least, a minimum of 20% - 30% in overages.

 

And I know what you’re thinking on 6 months, your going to get it done sooner and sold. Trust me, 6 months is being conservative, especially on a 1st time flip.

 

Whatever you do make sure you get a home inspection. It will give you a place to start. They might pick up on things you won’t be able to see.

 

 

I will email you hard money lender information….



Message Edited by Jacque383 on 08-02-2007 06:32 AM
Message 31 of 36
Anonymous
Not applicable

Re: Affects of House Flipping on Credit

Hi, I have been reading all of the posts and really learning alot!  I would love to be involved in buying homes and flipping them for a few reasons:
 
1.
Message 32 of 36
Anonymous
Not applicable

Re: Affects of House Flipping on Credit

Hi, I have been reading all of the posts and really learning alot!  I would love to be involved in buying homes and flipping them for a few reasons:
 
1. 
Message 33 of 36
Anonymous
Not applicable

Re: Affects of House Flipping on Credit

Hi, I have been reading through the posts and learning alot!  I have been working as a contractor for the NAVY for the last 14 years in security.  I do like my job but have been looking for something else as my oldest child starts kindergarten this year and the youngest will be two later this month.  I need a more flexible schedule but I don't want a job that I dread doing every day.  I am currently in the interviewing process for  a background investigator which would be a contractor position and I would work out of my home.  A car, gas, car insurance, laptop, and cell phone are all provided for.  The job is investigating security clearances.  All the references, employment entries, residence entries, and personal references have to be verified or interviewing of the people.  The other part of the job would be typing up the reports for each case.  They don't care how you make out your schedule as long as you are getting your work done.  I could set up two or three days of the week to go out for verification and interviews then the other two days I could type up my reports.  I could also type reports later at night after the kids go to bed and free up some of my day time.  I could also make sure my schedule is always clear around the time I would need to pick my child up from school.  This really sounds like the ideal job as it would fit my situation very well.  The only thing I am concerned about is getting a Top Secret clearance for the job.  I currently have a Secret clearance with my job now but getting a TS has a more in depth investigation.  I have a good credit score with no late or missed payments EVER!! but the debt/ratio is high.  I know in my current job that high debt is a factor for getting a clearance but usually only a problem when they have been delinquent or past due on bills.  I was recently told that it didn't matter that they just looked at how much debt you had.  Does anyone know if this would prevent me from getting this job? 
 
After reading through these posts, as I was looking for a question relating to mine, I got off track because I not only have wanted a new job just because of a more flexible schedule but I want to do something I really like.  We built a home almost three years ago and kept our first home as a rental.  Just two weeks ago after our renter moved out we decided to renovate the home.  We are painting the entire inside, scraped the popcorn ceilings, removing carpet, stripping wallpaper, replacing interior doors, trim, molding, and laying down laminate wood flooring.  We are learning quite a bit through this process.  Everyone, even our realtor, kept telling me that I should become a realtor because before we decided to build our home we spent more than a year looking and during that time I knew more than the realtor about the homes, floor plans, pricing, etc..  When I was little I used to always say that when I grew up I wanted to be a realtor and if you asked my why I would have simply explained that I would be able to look at houses all day!  I love looking at homes because it is like opening a present.  Usually expecting something great but once inside just o.k. and sometimes not expecting much but then once inside really surprised.  Back to our renovation project on our rental house I have discovered that I look forward every evening going over there to paint another wall and be able to see my accomplishment.  I feel a lot of pride and satisfaction that we are doing this by ourselves and it coming together so easily.  I started thinking I would really like to do this for a living which leads to my BIG QUESTION!!! 
 
If I were to get this new job and had the flexible schedule how realistic is it to buy at two homes a year and flip them making at least 15K profit after taxes, renovation costs, and capital gains?  If I were able to do this and know I could do it then I could probably do this as my career!  I know the profit depends on what kind of home you buy, cost to renovate, and mark up to sell but is there any kind of average profit a person could expect?  If I knew I could make at least 30 - 40k net annually then I could do this as my career.  Do you have any tips or advice for me?  Could you also send me the spreadsheets?
 
Sorry for such a long winded post. 
 
Anna
 
 
 


Message Edited by Anna on 08-04-2007 12:17 AM
Message 34 of 36
Jacque383
Regular Contributor

Re: Affects of House Flipping on Credit

Anna,
 
First off you need to remove your personal email addresses off the post. You can send that kind of information through the email here on myfico. 
 
Congratulations on your job. I can't answer your questions, but it certainly sounds interesting.
 
As for flipping alongside your present job. That's a wonderful idea. It's how I first started. The best thing to do is to read as much information as you can. I would also advise joining a real estate investment club. You will find a wealth of knowledge, as well as contacts in that industry.
 
Since you're just geting started in real estate, and need to build your confidence and knowledge before moving on (but still need to make some extra cash), I suggest you start with flipping contracts.
 
By doing this, you'll be able to earn while you learn the ropes in real estate, and you don't have to worry about risk if you do it right.
 
What is fllipping contracts? Very simply, it's contracting to buy a property, then selling your right to buy to a third person. And yes, it is perfectly legal in all states.
 
 
Here's a quick flip example:
 

You find a house that is run down and vacant; there's no for sale sign in the yard.



Through persistence and a little detective work, you locate the owner and negotiate a "risk-free" contract to buy the property at 50% below the after repaired value with a very low earnest money deposit ($10).


You contact an investor who rehabs houses in the area, offer to sell him the house for $3,000 more than your contract amount. When he agrees, you fill out a one-page "Assignment of Contract" form and get $500 in earnest money.



A few days later, the transaction closes at a title company or an attorney's office, depending upon which states you live in, and you get a check for $3,000 PLUS your $10 earnest money.

 

A word of caution . . .

 

You'll need to be very persistent--it's NOT always easy. Some months you may find two, three, or more houses you can flip. Other months you may not find any.



You'll constantly develop new leads. Some leads will work out; some won't. Some sellers will be very motivated, and some won't. But remember, that time has a way of changing everything. You must learn to stick with it, even when you are discouraged.

 

Where do you begin?

 

Start with the end in mind, so you'll know what to do after you find a motivated seller with a house you can buy well below market. If you try to find the house first then figure out what to do with it, you're in for a nightmare.



The first thing you need to do is line up your real estate investment team. You'll need rehab investors to buy your contract, a title company to close the contract or perhaps an attorney.

 

After this you'll just need to get out there and work to find yourself a house. If you'll read the posts above you can get more advice on how to get started.

 

Best of luck to you.

 


Message Edited by Jacque383 on 08-03-2007 10:53 AM
Message 35 of 36
Anonymous
Not applicable

Re: Affects of House Flipping on Credit

Hallo Jacques,
 
would you kindly email me the spreadsheet.
 
Thanks,
 
Bee
Message 36 of 36
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