5 things you must do when buying rehab deals to flip

There is big money in rehab flips. There can also be big loses too. The following can help increase the probability of success and minimize mistakes and unfortunate surprises.

  1. 70% max LTV – Make sure you have plenty of room to make mistakes, go over budget on rehab, cover payments on long holding costs, etc. Many markets you can find deals around 50% LTV these days. Find great deals, not good deals, great deals.

  2. Conservatively estimate ARV (After Repair Value) – The market seems to change almost daily now. You cannot trust comparable sales from 6-12 months ago. Try to stay within 3 months, stay within ½ mile of your property and very comparable homes. Active and pending do not tell the story, solds are much more trustworthy. And always take into consider the REO sales, not just retail.

  3. Get multiple rehab bids – At minimum 3 rehab bids. I know rehabbers that get 7 rehab estimates, then bid them against each other to get the lowest price.

  4. Align your goals – Contractors want to do the least amount of work and make the most amount of profits. Agents want to do as little as possible and earn as much commissions as possible. Pay your contractors well and give them bonuses or profit splits for finishing on time and on or under budget. Otherwise, penalize them. This will ensure they give you an accurate rehab bid and they will make value added repairs. Also, get your agent involved early. They are experts in the area and know what materials and items sell houses. They can advise you on materials and value added repairs. They will tell you what will help them sell the house fast and for a higher price. Pay them well, bonuses to agents who perform always result in extra profits. If you give an agent a $1000 bonus to sell it by this date and this time, these hungry agents will kill to make it happen.

  5. Reserves & Backup Plan – There are always surprises, delays, over budget items, extra costs, etc related to rehab. Do not get stuck running out of money, always borrow extra or make sure you have reserves to cover these issues. So what if it does not sell? It never hurts if the property cash flows really well so you can rent and hold the property. Multiple exit strategies are always good. Other backup plans are to lease option, discount and sell to an investor, refinance and hold, etc.


This subject better be right up my alley since were set to do close to 20 of these full rehab flips this year!

Fix & Flips are about building value! There can be some big money projects but we average netting when all is said and done roughly 10 to 15% of our re-sale FMV as profit.

We look to buy below 60% of after repair FMV but this can vary a little based on the projected sale price of the project.

We buy our properties from Wholesalers, from banks as REO’s or from the auctions (REDC). With wholesalers we generally only have a number of hours to inspect the property, make a rehab plan and project a budget to be able to commit to buying the property.

Most wholesalers who work a lot with investors expect the investors word to be golden so we don’t commit to purchase unless we want it because if we say “Yea we want it” we are expected to close on our word.

When we buy a REO or Auction property we have only got maybe 10 days to figure all of our cost’s out and decide if we would buy or bid on a property.

I have to know every little detail of how it get’s finished myself before we can create a construction budget because every thing missed cost’s money and if you put to much money in the budget un-necessarilly you end up potentially pricing yourself out of the investment because your numbers don’t work!

This is a project example:

Purchase price $90,000
Down to hard money $22,500
Closing cost’s $3,100
Hard money set up $1,000
Rehab cost $44,400
Carrying cost $5,600 Includes Insurance & Utilities @ 4 months

Projected price $185,000
Realtor Fee’s $12,950 7%
Closing cost’s $3,500

Total cost $144,100
Sales cost’s $16,450
Projected profit $24,450

Total cash in project $76,600

We are averaging selling our projects within 20 days of listing and we are averaging completing and selling 2.5 homes with the same cash investment every year.

We estimate our ARV as a projected re-sale price by looking at comp’s less than 90 days old and prefer to pull 3 sales which have closed in the last 30 days, which support our projected sale price as we complete all our rehabs in an average 8 to 9 weeks.

We really want comp’s within 1/4 mile but will look at 1/2 mile or 1 mile if necessary, however we are real experts in our rehab area and know from experience where our project falls as a professional rehab.

We always compare apples to apples as same size, same bedrooms and baths, same lot size, same amenities, and same garage size.

REO’s in our area are selling for an average of 15 to 20% below FMV so we are well aware in our area of the actual value of a REO.

As a construction professional we handle our own rehabs sub-contracting to a series of contractors making up our needs, normally 3 bids are sufficient if your looking for a good contractor. If you are contracting your project to a General Contractor or Remodelling Contractor keep in mind your paying 20 to 25% of your contract cost’s in the contractors overhead, profit and contingency reserve.

Be aware that good contractors are busy and respect there time, 3 bids is enough to project cost’s and you can negotiate everything until you reach a contract.

Contractors are mandated by law to do exactly what is within the contract, make sure you and your contractor create a scope of work that is complete and precisely describes each item your contractor will do. Also make sure a critical path schedule is completed and projects your completion date and the day or week critical items will be completed onsite.

Make sure cleaning and trash removal is spelled out in your agreement so as to avoid cleaning up after contractors yourself.

We find that a bonus to the contractor does not motivate the job as a whole and does not motivate the tradesmen remodelling your project, instead we like to have food catered or barbecued onsite for all the crew members to motivate them and drive them to completing work ontime and under budget.
(This one Friday deal really motivates the job about half way through)

Our sub-contractors work with us on all of our projects, so they know there budget prices and timely work is bread and butter for there company and they will get a lot of future work for a good job.

We also had better know exactly what your going to do to the property without asking your realtor as the cost differences can be huge after the fact and a complete budget has to be estimated in advance to purchase the project.

Most real estate agents don’t know or know very little about remodelling or rehabing and although we have gotten good advice on exterior paint colors or combining hardscape and planting ideas this seems to be an exception rather than the rule.

Our bonus to our agent is "If you do a good job and sell it quickly you have a shot at selling one or more additional properties this year, if not they get no further listings and your on to the next realtor.

You can say “Geez, that’s so unfair” no not really as most realtors do very little for the money, if more realtors were motivated to really go out of the way to provide exceptional service there is huge money to be made, but I find a lot of realtors lazy and unmotivated kind of going through the motions.

This is not personal to you realtors who really work hard at what you do, but most realtors sell or buy homes for Mr. & Mrs. Smith (End Buyer) and have no investing expertise or abilities to understand what we need as investors.

Reserves are great but like most of us have seen on TV’s “Flip This House”, “Flip That House”, etc. if you don’t know what your doing the additional cost’s can bury you, and drive you and your project to bankruptcy.

And there again if you don’t know your market and what you can achieve don’t do it, it is real easy to lose money fixing & flipping house’s, we are fortunate as we have the ability to pay off our hard money lender and sit on a property if need be, but we hope that never happens.

A back up plan is necessary but hopefully good planning, knowing your market and estimating accurate cost’s will mitigate the need for backup!

Gold River,

You seem to be a reasonably sophisticated investor with lots of experience. Even though I’m just a little guy doing 1-3 rehabs a year it seems you could increase your profits by 50% by dropping the realtor.

I understand how realtors can be useful when you have a tough to market property, but even you noted how little they actually do and, in my opinion, they add NOTHING to the value of the property. I would assume (maybe not a good idea) that the majority of your flips are desirable properties in desirable areas or you wouldn’t be able to sell 20+ per year. Additionally, it seems like you are putting significant dollars into rehabbing the property (near 50% of purchase) so I assume (again with the assumptions) you are putting these properties in tip top condition and they probably are BETTER than their competition,

Again, realtors can be useful for tough to market properties, but I avoid them unless absolutely necessary and put the commission in MY pocket.



My biggest problem is time! We do a lot of fix & flips every year which is great but my problem is I run and operate a group of corporations that although medium size bring me a great return every year.

With that said I am working right now 15 hour days 5 days a week and I find myself working Saturdays and some Sundays, now keep in mind I really love my “Work” so much so that it’s like not having a job at all.

Spending a dollar to save a dime is not very worth wild.

We are involved in all kinds of things including mining, aggregates, heavy equipment, mining equipment, development, home building, mining services, information technologies, financial services, construction services, education services, security services, and real estate holdings so I don’t get a lot of free time and I flip houses with a few partners (friends) as a hobby.

So to take the time to privately sell these properties is not in the cards but we do end up selling one or two a year that a buyer calls our “For Sale by Owner” sign prior to listing, wants the property, negotiates price and goes into escrow prior to listing.


Gold River thanks for the great post and insight. How are you funding your deals? Hard money, banks, your own money? Which state are you doing most of your deals?

GoldRiver- you’ve really laid out a bar for me to aim at to be at your level in a couple years with the amount of business you’re doing! Thanks for all the great flipping advice, and I was wondering the same thing as easysideguy!?

jmd-from what you’re saying, it sounds like I’m at about the same level of investing as you right now, and to address your post, I don’t like paying out commissions to realtors either, which is why I got my RE license myself, so I do all my own marketing, open houses, and whatnot. it also puts buyers at ease when they find out that the seller (me) is a licensed sales agent. I also totally understand GoldRiver’s point about not having enough time to handle all his props, and I DEFINETELY want to be at that point in a couple years where I DONT have the time to resell my own props!!


We use hard money to purchase the actual property.

Purchase $90,000
Down Payment $22,500 25% down
New 1st TD $70,000 Includes $1k Hard Money Set Up Fee

Hard money @ 18% per anum.

Payment $1050 Per Month to Hard Money Lender. (6 Month Term)

We supply all of our additional capital for the rehab and the carrying cost’s.
From time to time we may also act as our own lender paying cash for a property and rehabbing.

We average between $50k and $75k per property in our cash contributions depending on property conditions and rehab plan. Like I say were flipping the same cash two and a half times a year.

Our actual returns on the money can be 50% to 100% a year!

We are fix & flipping in Nevada and Arizona.


The note on that last post should have been $68.5k.


Great, great advice. The realtor comments seems the same anywhere & everywhere. Realtors fall as most sales groups into the 80/20 rule 80% of the sales preformed by 20% of the agents in the office. To many part timers or playing dress up and go to coffee meetings with other agents. I would add to make sure your property will sell FHA. Thats about the only loan going these days that will get new home owners into the property. Few new buyers have the 10-20% for conventional funding.

No way in this world would I work that hard again. I used to and while its great and your making money its simply no way to spend your time. I’m a husband and wife show with 4 kids and I’ve decided that 2 years ago I wanted quality vs. quantity. I’m not arguing with your success. Its fantastic.

However as you know there are 2 sides to the coin. Because I kept it small, kept it in house, kept everything just to us instead of hiring or outsourcing…I’m doing less deals, making more money, and I have TIME to do whatever I want.

Just saying,