Flipping Property
Flipping Market Update
Over the last 6 months, it seems that every new customer I meet wants to do flips. None of them want to talk about rental properties, they all want to flip houses. These are new investors that have never done it before and they have little if no expertise. It is amazing.
Unfortunately, now is NOT [...]
Over the last 6 months, it seems that every new customer I meet wants to do flips. None of them want to talk about rental properties, they all want to flip houses. These are new investors that have never done it before and they have little if no expertise. It is amazing.
Unfortunately, now is NOT the time to start flipping homes. The market is very fickle right now. One week the market is hot, the next it is cold. As I write this, it is very cold. All of my flip customers have houses that are sitting and most of these customers are experienced rehabbers.
You don’t want to be holding a property for months waiting for a buyer, all the while the interest is eating up your profit. Wait until the market firms up, then call me and we will take a shot at teaching you how to rehab and sell homes.
Fully Rehabbed Huge 4 Bedroom+ Home in NE Minneapolis
My customer just finished this rehab on one of the largest homes I have seen in Northeast Minneapolis. It doesn’t appear that large from the outside, but it is over 2200 square feet. It has 4 bedrooms plus a den with 2 bathrooms. It also has both a front porch and a back sunroom/porch.
Here is [...]
My customer just finished this rehab on one of the largest homes I have seen in Northeast Minneapolis. It doesn’t appear that large from the outside, but it is over 2200 square feet. It has 4 bedrooms plus a den with 2 bathrooms. It also has both a front porch and a back sunroom/porch.
Here is just a brief list of what was upgraded:
- New Roof
- New Windows
- Refinished hardwood floors
- Many walls and ceilings were re-plastered or re-sheetrocked to remove any imperfections and surface cracks.
- New bathrooms with tile floors, new fixtures
- New kitchen cabinets, counters, tile floors, and stainless steel appliances
- Everything was repainted
See more details here: 2922 Polk Street NE, Minneapolis.
FHA 90 Day Flipping Rule Waived
With so many foreclosed properties on the market right now, the time has been ripe for rehabbers to get into the market. They can take these properties that may be otherwise unlivable (and can not have a mortgage put on them), buy them, fix them up, and then resell them making a profit. It is [...]
With so many foreclosed properties on the market right now, the time has been ripe for rehabbers to get into the market. They can take these properties that may be otherwise unlivable (and can not have a mortgage put on them), buy them, fix them up, and then resell them making a profit. It is a win for the rehabber, the buyer of the new beautiful house, the neighborhood, and even the economy (as we put people back to work and buy materials).
One speed bump in the sale of these newly rehabbed houses to the end buyer has always been that if the buyer is using FHA financing, (with certain exceptions) FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. With many of these rehabs taking 60 days or less, this can mean that you must lose an additional 30 days of interest while you wait with the property empty until the 90 day mark. The loan process can not even begin (and the purchase agreement can not be dated) until day 91.
Many of the rehabbers were unwilling to wait the 90 days to resell to anyone with FHA financing. HUD realized that this restriction was shutting FHA buyers out from newly renovated homes, many of which were priced for first time home buyers. This week HUD announced a temporary waiver that removes this restriction. The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
The waiver will take effect on February 1, 2010 and is effective for 1 year, unless otherwise extended or withdrawn. This is good news for everyone.
Flipping Seminar Coming Next Tuesday
Please plan to attend the next Investment Property 201 seminar on Tuesday, May 26 at 6:30 in Burnsville. We will be discussing how this current foreclosure market can be used to your advantage to flip properties for a profit. Go here to see more about the Flipping Homes Seminar.
Please plan to attend the next Investment Property 201 seminar on Tuesday, May 26 at 6:30 in Burnsville. We will be discussing how this current foreclosure market can be used to your advantage to flip properties for a profit. Go here to see more about the Flipping Homes Seminar.
Anatomy of a North Minneapolis Rehab
Over the last several months, I have been working with many investors that want to rehab properties in North Minneapolis. As I have mentioned before, you can purchase some of these houses for $30,000. Lately, I have received many questions about how these rehabs work.
It has been a while since I wrote about Flipping houses. [...]
Over the last several months, I have been working with many investors that want to rehab properties in North Minneapolis. As I have mentioned before, you can purchase some of these houses for $30,000. Lately, I have received many questions about how these rehabs work.
It has been a while since I wrote about Flipping houses. Unlike many Realtor blogs, you will never see posts about “my new listing”. This blog is for you: The new or seasoned real estate investor. I thought it would be interesting to show you one of these North Minneapolis rehab projects.
Background
Just like other areas of the country, Minneapolis has been hit hard by foreclosures. In my opinion, North Minneapolis has been hit worse than other areas with some streets having 5-10 REO (bank-owned) properties on them. These large numbers of REOs are driving down the REO house prices in these areas dramatically. Houses that sold for $150-$175k a couple years ago are now vacant and selling for $30-$50k. Most of them have had their copper stolen and all need some work (but that work varies from simple paint and carpet to something short of a tear-down).
This situation has created a unique opportunity for real estate investors to profit from this glut of bank-owned properties. Most investors are buying low, fixing up the property and unlike a traditional flip: renting it out, and expecting to wait 3-5 years to cash out.
Search Process/Criteria
You would think that with the sheer volume of REO properties on the market in Minneapolis, it would be easy to find a property to buy, but we are searching for just the right combination. Here is what we are looking for (in order of priority):
- Total cost of project including: acquisition, holding, rehab, and overhead costs < $95k
- ARV (after repaired value) = $125k or greater
- Decent floor plan/layout
- Close to properties of our other real estate investor friends.
That’s it. Note that I did not say anything about size, bedrooms, bathrooms, garage, basement, etc. Number 4 is simply to have someone to ask “what’s the neighborhood like”? Ultimately, if we hit #1 & #2, everything else does not matter. In fact, even a 1 bedroom house finished at $95k with $850 per month rent will cash flow!
North Minneapolis Rehab Example
Mr & Mrs Customer G purchased a 1.5 story single family house on 33xx Girard Ave N for $35k. This was a very typical North Minneapolis rehab. It needed new windows, new bathroom, new flooring, all new plumbing, plus new paint throughout (and other miscellaneous items). Fortunately, the kitchen only needed new counters and appliances, saving about $3000 in cabinets. The total renovation costs were $41k bringing the total project including closing and holding costs to about $80k. Best of all, the property was filled by the general contractor/property management group with a tenant that signed a 2 year lease and will cash flow about $400 per month. The property had a final appraisal of $159k, giving the buyer less than a 50% LTV ratio.
See some of the before & after pictures here:
What an outstanding deal! The buyer has a completely renovated property, fully rented for 2 years with decent cash flow and a mortgage for only 50% of the value. Keep in mind that this was a turn-key rehab. The buyers bought the house and 6 weeks later the contractor had renovated and rented the property. The buyers only took their down payment and closing costs out of their pocket (in fact-talk to me about how you can get your down payment back).
There are many similar opportunities out there right now. Contact me for more information.
Don’t get emotional about rehabs
Even though I have looked at 100s of houses in my career, I still get excited about finding an Investment Property that could be beautiful after a rehab. Maybe I am still stuck in 2002 when you could flip houses and sell them as fast as you could buy them. I suppose some would say [...]
Even though I have looked at 100s of houses in my career, I still get excited about finding an Investment Property that could be beautiful after a rehab. Maybe I am still stuck in 2002 when you could flip houses and sell them as fast as you could buy them. I suppose some would say it is because I am passionate about MN Investment Properties.
About 5 days ago, I was out with a customer looking at bank-owned properties in Minneapolis. We looked at about 15 houses and found 3 properties that looked like good candidates to “flip and hold” (rehab and rent). Our contractor was with us
reviewing the houses and preparing estimates. Most of these investment properties required $30-40k worth of work, including bathrooms, kitchens, plumbing, windows, and general repairs. The three finalist REO properties were priced under $50k.
Both my customer and I were excited about Investment Property #1. It was a large 4 bedroom house (in Minneapolis) with beautiful hardwood floors throughout, large pictures windows on each side of the house, original dark woodwork, and the leaded glass windows were intact. After discussing the type of flip we wanted to do on each property, I was crushed when our contractor told us Investment Property #1 was the worst rehab deal of the three.
As we went through his estimate, I agreed with all his numbers and rehab suggestions. Despite being almost move-in ready cosmetically, the house needed 20 windows @ $400 each, all new plumbing @ $8000, the heating system reconnected @ $2500, new kitchen @ $4000, etc.
I forgot all my school of hard knocks training, my years of experience with flips and rehabs, and all my preaching to my customers to analyze the property’s financial numbers. I tried to argue with him about the value of the neighborhood, the number of bedrooms, the size of the backyard, the fact that it was a 1/2 block from the school, etc. Despite my best efforts, he whipped me back into reality like a freshman on the school yard with the following comment: “I don’t get emotional about properties, its all about the numbers”. Ouch! I was hearing my own words coming back to haunt me.
So here I sit licking my [ego] wounds. He is right, though. You must stay unemotional when analyzing investment properties. You can get excited about them when the numbers check out and you put in the offer. Analyze the numbers, use conservative estimates, get good quality bids from trusted contractors, and if necessary, bounce the deal off a trusted advisor. When you fall in love with a house, it make it difficult to stop thinking about it (even when it is wrong for you)! Staying emotionally detached will allow you to walk away from a property or deal when it doesn’t make sense.
