Preparing for first flip, need advice

First off I would like to thank everyone here on REIClub for all their insight so far. I’ve been fortunate to have found this forum! I have secured two private investors that are willing to invest in deals that I found and execute. I am interested in doing fixes and flips and I feel that the best way would be to start out small of course. I’m looking to do a single family home 60k max with 15k max repairs and flip it for a minimum 25k profit. I’ve come across a few potential deals but they have all been to good to be true. Deals isn’t what this post is about though, I just wanted to give you an idea of size. These investors want a very detailed plan once I find the deal with a solid exit strategy and figures on how there investment will be returned. I am very familiar with the overall fix and flip concept but I need to make sure I am clear on everything so I can move forward when I find a great deal.

My understanding of the process is this, once I find a deal, run comps, visit the property with a contractor and do my due diligence. A purchase contract is signed between myself and the seller, at this point I give them my downpayment. In this case since this deal will most likely come from a wholesaler it’ll be a cash sale and 10% will be due. Then the purchase contract is sent to the title company along with a copy of the check and we wait for a closing date to be chosen(it’ll be within 10 days, the investors I am working with would be paying cash and there would be no financing involved) Then I show up to the closing with a real estate lawyer and the reminder of the principle plus closing costs in a check. In return I receive the deed to the house along with all sets up keys.

Now I own the house, I immediately bring in the contractor that I brought with me to look at the house. They do the work that is needed and I check in on the project every coupe of days. Once the work is done, I get the home cleaned by a professional cleaning service and I put it up for sale. I would be selling in on my own, using online services to get it on MLS. I figured I could so this easily since I would putting this home up for less then FMV. When I accept an offer from a buyer I bring a real estate lawyer to closing and they take care of my side of things. At closing I had over the title, keys and I receive a check for the agreed on price.

Questions I have:

How much do R.E Lawyer cost for closing services?

Do you get a home inspection on every property you flip and how much are they?

Can you get a contractors bid on a home before you’ve purchased it? If so for a small job like 10 or 15k would you just find a smaller handy man or contractor to do it then going with a general contractor that will be more expensive?

What is the best home owners insurance for flips?

What about title insurance, is that part of the closing costs or an extra cost?

How much are title search services?

What is a good exit strategy? Making sure there is at least a 30% cushion when you buying?

Is there anything I am missing or have forgotten?

Thank you all in advance for your help! In excited about doling my first deal and I just want do it the right way.

My RE lawyer generally charges $400 for closing. That includes his title search fee as well as the time taken for closing.
I don’t get professional home inspections. I do it myself or call my repairman to check it out if I have questions about an issue. I think $400 would be a good estimate for an inspection. I base that off one I paid for a personal house we bought about six years ago.
You can get a contractor to give you an estimate on a home before you buy it. If he’s charging you, you would just want to make sure it’s pretty likely you’re buying that house. Up to you obviously if you want to pay for a contractor or a general handyman for the project. Some contractors think they’re worth gold. I don’t pay enormous labor costs for our cheap rentals so we use a handyman.
For insurance, you’re going to need to make sure the insurance is valid if the house is vacant. I have landlord policies with Foremost and we have to tell them if the houses are occupied or vacant. If you were planning on reselling the house, I’m not sure if you could use a policy like that or not. You can check into “builder’s risk” policies. They should cover the house while it’s vacant, but it’s more expensive than the LL policies.
Title insurance is a closing cost separate from what I listed earlier for the closing attorney costs. It is usually a percentage of the value of the property. For our cheap rentals, it’s a couple hundred bucks.
Buying at a 30% (or greater) discount isn’t an exit strategy. It’s a buying strategy to set you up for financial success with the project. Examples of exit strategies would be selling to a retail buyer or selling to an investor so they can hold it for a rental.

An issue I have with the way you listed your plan is that you aren’t going to give the seller a down payment check upon signing the contract. Once you negotiate earnest money, I would tell them you are going to give the closing atty an earnest money check for the property. You don’t want the seller holding this and that’s not how it would be if you were using a Realtor.
Are you also considering the taxes involved in flipping? Mcwagner usually says flipping genereally results in about a 45% total tax bite on the profits.

Thanks for the feedback Justin, a 45% tax bite? I thought you just pay fed and state income tax plus transfer tax. How does that amount to 45%? I was thinking more like 15%

This is what I found from one of his past posts. Hopefully he doesn’t mind me re-posting.

I think you are getting ahead of yourself on the other things. First off you need to create your plan:
I am looking for a property that can be purchased for 60k, with a maximum of 15k in repairs.
That’s a good start but it’s not a plan. It’s an idea. And then you get distracted with closing costs and other things. The first thing to do is develop a plan as your investors have requested of you.

The Ideal property will be:
a 3/2 rambler house
a roof no older than 10 years old
No foundation Cracks
…

The Scope of the work will include:
New Flooring (Laminate 3.99/sqft) throughout the living room/dining room
Whole House Painting ($200/per room)
Update Window Dressings
…

That’s going to be a detailed plan. And as Justin pointed out knowing your exit strategy first is going to help you build your plan. To a Landlord, to a FHA Buyer, to an existing homeowner.

Do you get a home inspection on every property you flip and how much are they?

I don’t flip but I pay $400 per inspection.

Can you get a contractors bid on a home before you've purchased it? If so for a small job like 10 or 15k would you just find a smaller handy man or contractor to do it then going with a general contractor that will be more expensive?

Why not instead of having a Home Inspection you have the Contractor do the walk thru as the inspection.

What about title insurance, is that part of the closing costs or an extra cost? How much are title search services?

I am not a cash buyer, my mortgage man includes these fees in my mortgage/closing costs.

Is there anything I am missing or have forgotten?

Probably Lots, but then that’s the fun of doing something for the first time, making mistakes and learning from our experiences.

Thanks for all the advice guys, really big help! Does anyone have a business plan that they’ve used that I can look at as an example? Just to get an idea of what needs to in it. Lastly, in terms of a exit strategy, how do you design your exit strategy? Do ypu actually research the area you are wanting to invest in and see if there are a large number of title 1 loans or FHA loans? Do you speak with other investors that invest there as well and see what the exit strategy is?

I’ve got a business plan I can email you. The beauty of the plan is it will force you to think of these things. You’ll need to get that stuff stuck in your head so you can speak intelligently about it.
Your goals will help define your exit strategy. Your investors will have a say there too. Our goal was to amass a rental empire that would sustain our family. I’m not planning on selling because I want the cash flow. Years down the road I can sell them off. Part of our plan has been packaging several properties in the same area to appeal to investors. A backup plan would be to either sell on owner financing or sell to retail buyers.
Remember you have to develop a strategy for your needs. Just because you and I may invest in the same area we may have vastly different goals.

now it’s 20% and with state, local and income tax it amounts closer to 50% of profits… Yackkk