I’m looking at a bank owned house around my area and have done the digging into the numbers/situation. Now, I need all of your advice on the following deal…
House foreclosed for a default of $83,472 with accruing interest at a rate of 7.88% since 2004. The house just completed the sheriff sale without a bid on 12/12/06 and has been on the market since. The bank/FannieMae recently dropped the listing price from 79k to 69k. Comps in the market are $80k and the house needs about $6,100 in rehab.
What profit do you guys look for when you’re analyzing your deals? When I consider my numbers and extra costs (acquisition/holding/heat/electric/etc) I’m coming up with around a $9k profit on a $50k purchase (if they accept). Is this decent considering the work would take about a month to complete on my own.
Also, what kind of cost do you attribute to realtor fees when you sell the home? I’m considering 7% ($5,250) on a sales price of $75,000.
Your help and thoughts would be greatly appreciated!
The key to this game is obviously on the buy side - you’ve first got to convince the lender to sell for 29K less than the list price. Let’s assume they go for it … rounding the numbers here.
Purchase – 50k
Rehab 6k
Other costs 5k
Total investment — 61k
Sale Price 75k
Sales Costs 5k
Net 70k
Profit ---- 9k
So you’ve got a 9k profit on a 61k investment. Assuming 1 month rehab, 2 months marketing, 1 month escrow you’ve earned about 15% nominal return on investment. Close to 60% annualized if you can do identical deals back to back. Is that good enough? Only you can answer that. Is this a full time gig or are you doing it on the side? What other investment options do you have? How much risk will you accept? How sure are you of the numbers? Really boils down to your own personal goals and situation.
For me personally if I was looking at a 9K profit and had to do a months worth of rehab myself I think I’d pass unless I was just looking for a hobby. Which I’m not. But thats me.
$9k profit?? that’s gross profit; after taxes it will be far less (about half that). Plus a 4 month hold time is very optimistic. Repair cost easily increase by several thousand once you get into it.
for this deal, you need to pick it up for something like $35k (or even lower). by the time the dust settles and you pay the taxman, you should be able to put 10-15k in your pocket.