This week consisted of analyzing a lot more deals, the second week of dealing with the phone ringing everyday and refining my marketing machine, talking to a few motivated sellers, figuring out what I’m going to do with the 7 vacant lots I bought in December that still haven’t sold, discussing the benefits of lending with a few friends and family members, and evaluating what I would consider a long distance flip. With such great weather here, this was a very busy week of flying at work so it was an extremely busy week! I would like to use this blog post to go into the analysis and thought process behind considering a long distance flip (with a full time job).
Quick Update on the Foreclosure Auction House
I walked through this project on Friday afternoon and I am happy to say that it is coming along very nicely. I have only been to this project twice since it started which is incredible compared to the two a day trips I was making on the previous renovations I have done. How has that been possible? By hiring a responsible and quality general contractor to run the project, that’s how! Even though this is our first project together, I am extremely happy with how things are going so far and I have high hopes for this business relationship going forward. The demo is complete, the cabinets have been refinished, HVAC serviced, exterior wood rot and door trim repaired, and the whole house is almost done being painted. The flooring will be delivered on Monday and will start getting installed on Tuesday. I’ll grab some photos as soon as I can so you all can see the difference, no more classy artwork on the walls. I hope to get this house on the market by the end of the month.
Flipping From a Distance
Let me start with a little background about this house and why I would even be considering it. I have been thinking of doing some long distance flips recently but mainly in my previous market of Southern Maryland. I know the market and my real estate agent has been sending me some properties lately. I put an offer in on one last week but we didn’t get it. The property I analyzed this week is in Mobile, AL and was sent to me by a wholesaler. The numbers looked good on paper so I figured I would dig into it a little deeper. So, what are some considerations I thought about prior to taking on a project outside of my farm area?
- Finding a contractor
- Running comps and ensuring I had the right ARV
- Running the day to day operations on site when I have a full time job
- Ensuring this wouldn’t take away from everything else I have going on
- Finding the funding (although this would be addressed with any flip)
It’s funny that when I thought about it in my head, it seemed daunting at first. However, when I sit down and write out these considerations it doesn’t seem so bad. I thought the list would be 10-15 items long but there are really only 3 challenges. Finding a contractor, running the correct comps, and figuring out how to handle the day-to-day issues on site. So, I will tell you how I handled each of these starting with the first one I took care of.
This project is about an hour and a half drive from me with no traffic. I knew I wouldn’t be able to go to this house every few days with everything else I have going on, nor do I want to. If I had my way, I would go out to look at the house during due diligence, put it under contract, and never have to go back again. Being active on Bigger Pockets has helped me to create relationships with other investors in my area and some surrounding markets. A few months ago I made contact with an investor in Alabama and we have shared messages, spoke at REIA meetings, and gotten to know each other a little bit. So, I asked her if she would be interested in running the day-to-day operations on this project to get some more experience and allow me to focus on acquiring more houses. I will be compensating her for her time and incentivizing her to maximize the profit and minimize the timeline. She will basically be the liaison between me and the general contractor to ensure the project gets done on budget, on schedule, and to the standard that I expect. I would classify her as the project manager; a lot of investors have someone on their team just to do this job.
Running Comps and Confirming ARV
This is an extremely important part of the flipping equation and should not be looked at lightly. A flipper needs to be accurate in this calculation to ensure they will make money. Things will inevitably come up during rehab that give the budget a hit and are unforeseeable, but if you analyzed the resale value properly you should be able to weather that. The risk comes with a change in the market after you buy or a house that gets sold below market value nearby negatively affecting your property. If you don’t know the market, I would recommend using a real estate agent to run comps for you off the MLS and give you an idea of what you could expect your renovation project to sell for. In my case, I used Zillow combined with a local agent to confirm the ARV of this house. However, the difference between Zillow, Trulia, Redfin, etc… and the MLS are night and day. The thing I love about the MLS is that it contains all the photos of the sold listings as well as being able to show me the contingent sales in the area, something you will not see on Zillow. This is invaluable when you are trying to compare apples to apples for comps.
Finding a Contractor
This could be a full blog post on it’s own and it likely will be in the future. Finding a contractor to complete this project on time, on budget, and at the level I expect is going to be the biggest issue we face. I still have no idea who I am going to be using and now that the house is under contract, it’s time to start the bidding and interview process. I have come up with the scope of work and each GC will be getting the same document during the walk through so they can all bid the same exact project. I will get references, licenses, insurance information, and signing a contract. And most importantly, I will actually call their references to get some reviews. I can’t tell you how many times I have worked with someone and they’ve been surprised that I called their references because no one else had in the past. I will update all of you on this as we go along and you can follow me throughout the search.
The model of long distance house flipping has already been proven many times over but I am excited to prove it to myself on this project. This will be the first house I have purchased from a wholesaler (although I have analyzed a ton) and my first flip outside of my farm area. It’s exciting and stressful at the same time but I think this will be a very profitable house. I will share the before photos and the plan when I get it all worked out.
With the phones ringing off the hook from my marketing and 4 flips in the works right now, I foresee this being the extremely successful year I have committed to. Thanks for following along and if you know anyone who may like this post please share it on Facebook, Linkedin, or whatever other crazy social media you use. I am trying to get more likes on Facebook so if you haven’t liked my business page please do, here is the link.