I have found a house that I believe has potential for rehabbing. This will be my first investment property. The After Repaired Value (ARV) is $75,000. My amature guestimates for rehab costs are $15,040*. I intend to use a realtor to sell it, and I intend to use financing from a HML. I expect to sell the house within 3 months, but I am assuming 6 months in my holding costs to be safe. I have used the following formula (from a book by Kevin Myers) to come up with a maximum asking price.
Minus Purchase Closing Costs $5,000
Minus Rehab Costs $15,040
Minus Holding Costs $3,000
Minus Sales Costs $4,500 (I intend to use a realtor)
Minus Contingency Factor (oops funds, for errors in my estimates) $2,250
Minus Profit $10,000
Maximum Offer $35,210
The asking price is currently $55,000, and it’s a foreclosure… My maximum offer seems quite a bit lower than the asking price, so I have a feeling that it will not be accepted. However, I may have over estimated some of the items in the repair budget…
*Do any of these items in my repair budget seem grossly over bid?
replace wood privacy fence $4,000 (it’s destroyed)
new water heater $300 (its missing)
new roof $2,000 (leaking and looks rather old)
kitchen $4,000 (including new cabinets, sink, dishwasher, and range)
bathrooms $1,000 (2 bathrooms, they will need new tub liners, mirrors, light fixtures, faucets, possibly new sinks, and one toilet)
[*]paint $1,000 (3 bedroom house, 1500 sq ft, paint inside and out)
Any advice would be welcome!