1st Potential Deal for Newbe

Rehabbing, Fix and Flip, Rental Properties
1

I would greatly appreciate any advice on my 1st potential deal. I haven’t done any deals yet but am experienced in building modular homes and dealing with contractors, budgeting etc so I feel confident that once I get started I will be able to handle that end of the business. I have all the typical questions of a newbe trying to take that 1st leap.

Is this the right one to start with? Where will I get financing? Am I missing anything? etc… etc…

The potential project
A single family home FSBO in desparate need of a renovation. A complete gut project. 3 bed, 1 bath home about 14oo sq ft.

Work to be done:
New Kitchen
New Bath
New Carpet throughout
New Siding
Remove a 6 x 8 addition and replace for laundry room
install new HVAC
Rebuild from porch roof - concrete pad ok
Light electrical
Light plumbing
General yard cleanup
Remove old sheds

Roof is fine

Asking price is 150k comps are 279-289k
I estimate the cost of the rehab to be 65k
I am adding another 10k for misc expenses, marketing permits etc.

Based on these numbers what would be the most you would offer on a project like this? Am I missing anything?

2

The “conventional wisdom” says, 70% of ARV minus any rehab, minus holding costs, minus any closing costs, so:

Max Offer = ($270K X 70%) - (75K + holding + closing costs)

In this example, the max offer would be $114K - any closing costs.

Personally, I would work closer to 80% for a max offer of $141K minus holding costs…

Keith

3

Thanks for the input Keith. The next step is to see if I can get the deal to work.

4

Keith is right.

I think there is a deal there.
At $141K, I would guess a profit of around $46K.

$280K - 141K - 65K- 28K(purchasing, holding, selling costs***10% of back end price) = $46K

If the house has been on the market for a few weeks…I would recommend offering as low as you can to continue the discussion.

Be sure that your back end sales price is at a level that the house will move quickly.

Good luck and keep us posted.