Let’s say you have the following basic numbers to work with…
FMV after repairs on a Rehab = $200K
That makes for a max Hard Money loan (@ 65%) = $130K
Now let’s say you make a list of your expenses:
Deposit = $2k
Closing Costs = $4,500
(6) Months of interest only payments = $5,100
Budget for Repairs = $15,000
Misc. Repair Buffer = $6,000
A 19% Profit from the FMV = $38K
This comes to a total of $70,600 in anticipated costs (including margin for profit). An actual $32K in actual costs if you don’t figure in your profit.
Assuming the house sells for $200K…
And assuming $70,600 margin lands on budget…
One would need a HMoney loan for $129,400. (Which is just within the 65% of $130K.)
As the purchase price goes up, naturally the Profit % goes down.
Now… my question is;
"Is it possible to purchase a home at or under the appraised post-improvement ceiling of 65% that a HMoney lender will loan?
If not, then the extra cash has to come out of my pocket. So, can a person buy a home that needs repair at a 35% discount from the anticipated post-repair value? I live in CA where $129K -might- get you a 1970 beat-to-hell trailer home on a .17 acre lot. (not kidding).
Any thoughts would be appreciated… I’m trying to figure out the numbers before I go putting in any offers that are too high and leave me with zero profit after expenses.
One small error noticed that will not help very much: The $2000 deposit will not be an expense but will come off the purchase price at closing.
All the reports I have seen say it is hard to flip property in Ca. Sellers market and all that stuff. You may consider a value added deal where you find a small house and add on or even add on and convert to a duplex. Also there are always people dying and getting divorced and getting behind on their payments, so there are some deals to be made but maybe not as many with a lot of sharks hunting as well.
Also with a quick flip in a hot market the holding costs may be a month or two less.
As far as flipping based on appreciation, personally I think the steam is gone in my area of SoCal. Any appreciation will have to be from improving the property… problem is people here want the same price for a fixer-upper as the finished home next door.
I figure I’m going to have to do more research on getting hold of foreclosures to get any kind of substantial margin on my purchase price. But with so many banks hitting the market with creative re-fi options in the mail… even that is something of a challenge.
In regards to divorce sales… anybody had any good fortune with that? Most divorces I’ve obvserved take over two years here in CA. Even then, at the end, the property isn’t always sold… one spouse merely buys out the other and does a simple title change with re-fi.
I did hear of a local property sold on a death notice. Investor bought it at $165K and it had value of $245K. (!!) But I imagine once the grief wears off… the out of state relatives will probably wish they had taken the time to put it on the open market through a realtor.