Big rehab project help

Rehabbing, Fix and Flip, Rental Properties
1

I am new to this rehab stuff,but i have been out there looking for properties and i need your help guys in making a firm decision. 3 unit rehab property,asking price 120k,ARV 200k,180k if i accept a loss in resell,but property has substantial freeze and water damage,copper is stolen,and it’s in very poor condition. It sounds good to me ,an advantage in negotiating with the bank,but i have no idea what my cost might be. Should i get a contractor in there to give me an idea before making an offer or is this something more for a pro and not a newbie.I still feel i can take the risk,will i be able to find a hard money lender or private money for such rehab,with no out of pocket costs,where they’ll only look at the deal. Please help… Thank you

P.S. rent for the area, $950 to 1100 for a 3 bedroom.

2

Hi,

I love the "Can Do" attitude, keep up the positive thinking!

If you have no construction experience and have no idea what you can do, with or with out a permit and how to contract, schedule and complete a project, don’t do it with out professional help! With that said you really should undertake a minor rehab deal on a single family or two before you try to remodel apartments as you have no idea how fast or slow a repair should take and can not judge whether the contractor or sub-contractor is doing a good job, whether the price is right and how and what is involved to get it done?

If you can find a “Hard Money Lender” who would make cash available for purchase and rehab they are only likely to loan 60% to 65% of ARV, and will hold the rehab funds on a draw basis, this means the available money for this deal would be $120k to $130k. They are unlikely to make rehab dollars available without either a lot of experience and a track record or your agreement to use a general contractor, but you ad 25% to cost’s for a contractors overhead, profit and contingency funds when you have to use professional outside help.

I would guess a major rehab (updating electric, plumbing and mechanical / HVAC) along with a full on replacement of sheetrock, insulation, siding, roofing and kitchens / baths with new flooring will run about $25k to $35k per unit for very basic finishes! (IE - Formica counters, vanities w/ pho marble, vynal kitchen & bath floors, apartment grade carpet, basic all white paint job, acrylic tub surrounds, and apartment grade appliances with basic cabinets)

Plus, your going to have carrying cost’s, utilities, insurance, taxes, security, overhead, etc.
Then how much are your cost’s to purchase? (2% plus lenders cost) How much to sell? (Realtor listing and your seller closing cost 7.5% to 9%) Your carrying cost could be $2k a month just for the hard money!

It is really unlikely you could buy this and avoid needing your own cash, I would guess you would still need $30k to 40k of your own cash just to pull it off?

This is a huge risk if you have zero experience, but I would encourage you to find a little single family needing carpet and paint and some handiman repairs and experience the basics of remodeling.

Good luck,

               GR
3

Gold River is right. If you have no experience this is not the place to start.
Even if you finish it and get it rented. Do you have any idea how to manage it and will you make any money? If they are all 3 bedrooms then you can get 3000/ mo. with 1500expenses = 1500 left over for debt service You will have 120,000 pp and lets say a minimum of 50,000 to rehab = 170,000 @ 7% for 20 years = 1329.50 1500-1330 = 170/mo if nothing goes wrong. That is a huge risk for 2000/yr. It is unlikely that you can get this financed even with hard money for the reasons that you can see. If this was in my neck of the woods I would offer less than 50,000 and be sure of the rehab costs down to the penny. I would also line up the exit strategy before I bought so that I can refi out of hard money or have a buyer in the wings to sell to.
Redhawk

4

Thank you very much guys, i will keep looking. I appreciate the times you guys took to explain things in great detail. GOD bless,thank you for all. I will follow the advice i get here and move on to another.

5

When I first started with Real Estate investing I also went through a learning curve on evaluating the numbers of a deal. I eventually created an Excel spreadsheet to help evaluate deals more quickly. Take a look at this video http://tinyurl.com/3x6p2dh and see how you could evaluate a deal like this in a number of ways.

The first two responders gave you great advice based on your experience.

Cheers.

6

I am also confused on your game plan. So you are planning to buy and sell or buy and hold? I would try to find a wholesaler in your area and get a property far enough back of market that needs very little work as the above poster said.
Low risk and 10k in profits cannot be beat!