OK, here we are so far.
WE...
- decided on budget
- determined type of property available with budget
- reached consensus on size, bedrooms, baths, etc.
- decided on a specific location
Now we need to identify a property. This is the hard part, in my opinion, because we (Roberto and I) are looking for something with a dual purpose...being a profitable flip OR a profitable rental. If you ask 10 agents, you'll probably get 3 good answers because most don't have real time experience dealing with their own flipping or rentals, but this is what we do.
- Is the property already discounted or at market price? This is what I mean. If, for example, I am looking at a property that is already priced $20,000 below comp. properties, that is the sort of discount we look for in this specific price range. Typically bank owned, short sale type listings offer the best deals, but not always!! Keep your options open and consider everything instead of assuming it's bank owned or nothing.
- This is for flipping. What will it cost to get top dollar for this property? What type of updates or upgrades are needed? Consider your immediate market. If you are doing a flip in an upscale area where it's generally expected that high value properties have wood floors, stainless appliances and granite, what does all of that cost? Will these improvements increase the price to pay for itself + extra $$ for your efforts? Are you going to have to hire most improvements? This needs to be factored as well, because labor costs will consume your profits. Each investor has different margins, some want to make $50,000 profit while others are content making $30,000 or even $10,000, so these numbers are investor specific.
- This is for rental. Again, we do a similar assessment regarding repairs/upgrades for rentals because properties in upscale communities can get better returns and quicker turn around (time to lease) with bling. But, now you have to determine if the improvements will pay for themselves. For example, if a 2/2 property with 1,300 sq. ft. with no upgrades leases for $1,250 per month, will it lease for $1,400 with some upgrades? Lastly, what type of returns do you want? Are you looking just to make the mortgage payment plus a little extra OR do you expect specific performance? We won't purchase anything without getting a 10% Cap. Rate.
As you can see, there are many variables to consider when dabbling in rentals OR flips, but it's not super difficult if you recognize what you don't know and ask questions along the way.
