Advice Needed - Do These Numbers "Work?"

Rehabbing, Fix and Flip, Rental Properties
1

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.

ARV $75,000
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)
[]floors $2,000
[]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!

2

Travis,

Are you doing the work yourself? If not, your estimates are on the low side.

For example a water heater (50-gallon, electric) is about $240 in the box…install I would guess to be about $150.

The roofing materials (shingles, roofing paper, nails/staples, drip edge, flashings, etc.) will run right at $2k with no installation…

You’re a little high on paint if it’s just materials, a little low if it’s materials and labor…

Depending on what flooring needs done, you’re close if it needs both carpet and tile/vinyl. I had about 800 sq ft carpeted with labor for about $850 or so…

My opinion – others may vary. I think that if you’re doing it yourself fulltime, you can do it in 3 months – it will take most of the 6 months if you’re part-timing it!

Keith

3

Keith,

Thanks for the reply. I intend to do most of the work myself, with the exception of the roofing, fencing, and carpeting. Flooring I was planning to use “hardwood” laminate in the living areas and hallways, and new carpet in the bedrooms. Probably vinyl tile in the kitchen and bathrooms unless ceramic tiles are comperable in price. I will be doing this part time, as I currently have a full time job in the corporate world.

I apprecaite the advice. Any idea on the fence? Could the fence be eliminated to get my offer up to a more acceptable range, or would this be too much of a turn-off to buyers?

4

As for the fence - is the fence really needed? If not, take it down and send it to the landfill. If it is needed, can you replace some of the boards and paint it or is it a total loss? If it needs to be replaced, measure the total length and get an estimate from Home Depot…

The Pergo flooring is pretty nice. It has a long warrantee. The carpet should cost about $2.00 a square foot installed including the pad (hint: buy the upgraded pad – it give the carpet a lot better feel, will last longer, and will give the carpet a better overall feel).

Sheet vinyl is a lot less expensive than tile. In small areas (bathrooms, etc.), you can get away with a good quality ‘peel and stick’ tile (hint: use mastic in addition to the stick that comes on the tile!).

Maybe one of your buddies has some roofing experience and will give you a hand. It’s really not rocket science. If you have someone that knows how and you read up a bit, it can be done, especially on an uncomplicated roof. Otherwise, you can expect to pay $4-5,000 for a 1,500 sq ft house, maybe more.

Painting, you can certainly do yourself. Pick basic colors for the inside. Use good paint (like Ben Moore) on the outside or you’ll be doing it again in a few years. Make folder for each house and write down the brand and colors you use so you can touch up if needed.

Let me know if you need more assistance!

Keith

5

Again Keith, I really appreciate the information. By the way, I intend to sell the house, not lease it out.

The entire fence is in shambles and needs to either be removed or replaced. I would have to talk to all of the neighbors before removing it, as they could be upset over that. I’d prefer not to just remove it though, as it may be more difficult to sell the house without a fence. But maybe I’m wrong here, the neighborhood is I guess slightly lower than what you would call middle class, so maybe I’m over estimating the minimum expectations of the typical buyer in this area.

6

If it is the norm for the neighborhood, you might need one. Price out wooden fences and chainlink…you can probably do the fix on a wooden one…chainlink is a little more specialized with some tools that most folks don’t have.

7

The fence can likely be repaired, you can do it yourself if the posts are still ok. If the posts are good, its just wood, nails and stain.

8

If you really don’t feel up to the roofing, at least buy the materials yourself and then find some roofers that are looking for side work on the weekends. That should save you a few $.

kdhastedt is right. Roofing is not rocket science but can be tricky if theres valleys, dormers etc.

9

Well somebody else offered the asking price and purchased that house. The buyer was not another investor. This has happened a couple of times now. It seems that it’s very hard for an investor to be competitive with residents because we have to factor in the selling costs, and our profit when making our offers. :frowning:

10

TravisTX

Remember where your focus is. Continue to stride forward. I am sure you will come across the right place. It happens, this is just a very minor set back. Remember, you have no $ invested other then time. You have learned a great deal so far.

Bettysue