First Deal Review / Please Help

I have read alot of what is posted here and the articles and have found my first potential deal.

 1. I have my money lined up through an investor. $37,000

 2. Real Estate Agent I work with. He found a FSBO that was their first poject. They ran out of money to rehab and want to sell. We will offer $25,000. Agent says appraisal will be $60-70K

 3. I did a walk through of the property and have a list of work that needs done. I am currently a contracter and rehab properties for an investor from Philadelphia as Section 8 turn key units. So my numbers are good at $9700 in repairs. 

 4. I will show the property to the investor on Wed. if he likes it then we will go ahead.

 5. I have a third party an Appraiser set up to come in after the green light from the investor to give me a solid number on a subject to appraisal, after my repairs. Also, i hope he can give me an idea if anything else can be done to improve value. This will cost $300 and seems to me a good investment as it will protect my investors money and my access to it in the future. 

The way I have worked the deal is:

$25,000 Aquisition cost
$ 1,000 Closing cost(est.)
$ 9,700 Repairs(I will do all repairs at fair price an profit $3000.00)
$ 1,000 Carrying Cost(4 moth estimated on avg. 2-4 months on market by RE agent)
$ 300 Appraisal

$37,000 Total Investment

$60,000 Sale Price based on $60-70K Value

PROFIT $23,000

Now I am hoping to keep cost down and may do less work or make less on the repairs in order to show my investor a return of $10,000. Also, to sale forless than the $60,000 to get it turned more quickly.

Will capital gains eat 40% off the top?

Better build in 6% commission for Realtors. What about insurance for a vacant property (during rehab period)? I’ve heard that can run up to 3x normal insurance rates. Are you including that in your carrying costs?

That is why this post went up thank you will go ahead and get a quote in the morning.

The Agents entire $4000 minimum commission comes out of my selling price huh?

I still feel confident that at $7500 in roughly 90 days is a good return on invesment for a first shot deal. Especially since the wiring and plumbing are ne and all I have to do is refinish hardwood and paint, maybe a little landscaping niothing crazy. I really just need to let my investor see a return and he’ll be on board for the lon haul.

Why don’t you just offer the investor a 12% return on his money with a guaranteed min of 3 mos. interest. If he loans you 40k, he will earn $400/mo as long as you are holding the property. When the property sells you pay him the $40k plus interest and pocket the rest of the profit.

 Being that I have already layed the deal out the way I have that is not an option however thanks for the advice I will consider offering it in the future but with my credit score being low the way I did it seemed the best way to interest my investor's. 

 I also feel that after 4-6 deals go through and my credit score improves i will be able to finance my own projects with either cash or loans or a combination. Any experience that leads me tp a profit in the end will be satisfactory as I get my feet wet and actually make the deal happen rather than read and post and hope. I just want to get into the game.

 I also plan to put half the money back into the RE business advertising and marketing and the other half save. I saw a post about CD's would it be good to put the money in a CD in order to get a loan to create positive items to offset the negative items or is there a better way to save the money while keeping it available?

A self directed IRA would be a good tax shelter and allow you to invest in real estate. There are stipulations of course and you probably won’t be ready for one until you get some cash anyway, but it won’t hurt to look into them now.

Thank you will look into the IRA.

I am meeting with a Lawyer who was reccomended by another Lawyer as a specialist. I have done work for these guys in the past and they haven’t steered me wrong yet also they are now interested in rental units! I’m excited the ball started rolling and is picking up momentum nicely. Thank you to all who have given advice so freely. I guess all I need now is an Accountant and my team will be somewhat well rounded.

remember when selling roughly 10% gets taken for closing costs and commissions. it could be less around 7 or 8% but factor that in also.

so 60k would net you back about 54k. 70 kwould be about 63k.

alot of people dont factor in closing costs.

This is what’s misleading about most of the flipping shows on TV. People announce they’re going to make this huge profit, but then don’t include any closing costs or Realtor fees. Plus they base their profit based off their asking price. I like the ones that show how long the property sits on the market and then show the projected profit tick away each month.

Once again thank you.

Good points will take all into consideration this afternoon as we walk through the property. I may have to walk away from this deal. It really surprises me how quickly a property with $20k in equity can get eaten up after everything is factored in. I still have several other properties to consider so all is well.

Another question I have is after all is said and done and everything comes out of the profit the gov’t will want 40% for the capital gain. I will be talking to a lawyer and accountant but would like to know if my assumption is correct.

You will have to be in a rather high tax bracket to be taxed at 40%. If you sell the property within 1 year of the purchase, you will be taxed at short-term cap gains rate, which is equal to your current tax bracket (normal earnings + the profit made on this deal).

Good luck with your first deal!

 That's good the guy I am rehabbing properties for as i work on my own deal mentioned 40% he must do well. Working on the details now but things look good. I am not going to make as much as I'd like but the property is in good shape and will be easy to rehab. So I look at it as an opportunity to make my investor money. That should interest him in the next deal.