Does this deal make sense

Rehabbing, Fix and Flip, Rental Properties
1

I’m looking at a HUD home with an asking price of $53,000 and $4,500 in escrow for repairs (primarily siding) for an as is price of $48,500. I went through the house with my realtor and detailed all the items that need repair. I then went to Lowes and priced all of it. The house also needs a roof (tear off because multiple layers). So, I had a roofing contractor give me a bid at $3,100. Combine the $3,100 with my estimate for other repairs for a total rehab cost of $8,448. I added another $800 for cost overruns. I figure 3-months to rehab and 3-months to sell. Six months of taxes and Insurance of $500. Closing cost of $1,500. Interest on loan of $1,575 (based on $45,000 @ 7% for 6-months). This gives me total rehab cost and holding cost of $12,823. I figure I should make $10,000 profit. My realtor completed a market analysis for me and after rehab the house should sell for $60,000. I will have my realtor sell for me so I will have 6% commission. With all these figure I come up with a price I’m willing to pay for the house at $33,500. This is approximately 70% of the as is price. My local bank is willing to finance 100% of purchase price and rehab cost. Have I over-looked anything? Does this look like a doable deal? Does this look like something HUD will go for? (but then again if HUD doesn’t go for it I’ll walk away and look for the next deal).

Sells price after rehab $60,000
6% commission (3,600)

                                                      $56,400

Rehab cost ($8,448)
Overrun ($800)
closing cost ($1,500)
Interest on loan ($1,575)
Taxes ($250)
Insurance ($250)
Profit ($10,000)

Amount willing to pay for house $33,577

2

G-manpoke,

It is very doubtful that HUD is going to accept 63% bid on the house, but anything is possible I suppose.

Here in this area (when the HUDs start selling again), a $53K HUD house would probably sell between $49K and 53K…someone will pay it.

Keith

3

Thanks Keith. Can you think of any cost I’m overlooking? If not I’ll put my bid in at $33,500. If HUD accepts wonderful if not I’ll move on to the next deal.

4

You’ll have some minimal utility costs during the holding period (water/sewer, electricity, etc.)…it’s been smokin’ hot here so my electric bill (mostly A/C has been about $50 a month and the basic water bill with very low consumption is still about $10 a month so $60-100 a month could run $350-600 for the holding period. I think you got the worst of the rest…there’s always surprises, hopefully the $800 in overrun will handle it!

Good luck on your bid!

Keith

5

You did a great job on the forecast. Sadly, the only thing missing is a seller who will seel at your offer price. Don’t give up though. You have the right idea.

Jeff

6

G-manpoke,

How did you make out on your bid? I hope you got it!

7

Hi RCinOH.

Someone else made an offer of $47,000. So I lost out on that deal. I suspect it was a person who planned to live in the house. Oh well off to the next deal.

8

That’s too bad…better luck on the next one! At least you understand that math that goes into it!

I hope they’re going to live in it because they paid 97% of as-is value!

Keith

9

Keith, they did pay 97% of as is price, but if they paid $47,000 and using my number of $8,448 plus cost overrunns of $800 they would have a little less than $56,000 in the house plus closing cost. If I would have bought the house and rehab it, they would have had to pay $60,000 for the house. So, if they plan on living in the house its probably not that bad. However, they will not make much money on this house unless the price appreciates, which is doubtful in the market I live in. I don’t know them but I wish them the best. All I lost was the time I sent evaluating the investment. Thanks again for everyone’s help on this. I’ll keep posting deals as when I find them.