Doing a HML could be a problem. Most HML want only to do 70% of ARV. Looking at $440k ARV that becomes $308k - not enough to do your deal.
On the loan you typically pay 4-8 points plus 12%-18% interest. So the HML costs for 3 months will be conservatively:
If you look around hard, you could find a lender who will do more and better, but you have to look for them, and the ones with the cheaper rates normally want a longer closing time - 30 days or so. For a 1-5 day close, most HMLs terms are much tougher with points and interest. To do something like this, you should already know some HMLs and what their terms are. To sign up a deal and then go scrounging for money - at the same time you are hassling with title, escrow, inspections and everything else on a 5-day deadline is real tough - even for an experienced investor.
Also, there are other soft costs I don’t think you are accounting for - taxes, utilities and the like that you will be responsible for.
Also, the “standard” formula for “good deals” doesn’t hold up with yours. Using your figures:
$440k ARV (always use lowest for safety)
$308k 70% highest price investor wants to see
- $25k Repair/Holding/Transaction Costs
$283k Highest purchase price to be considered.
The reason is right now it only seems like $5k in fixup, and quick sale, but so many times you get in there and find mold that needs remediated, or electrical problems you didn’t know about, or a zoning problem…? the next thing you know your rehab costs have doubled, or more, and you need the cushion to take care of that.
I would guess your true numbers would be closer to this:
$310k purchase price
$22k HM Costs
$18k soft and selling costs
$5K Rehab (probably more - but use your number here)
$45k Total costs
$400k Sale Price (Be conservative for planning - if you get more in this market - fine)
$45k Potential Profit - not dazzling for all this work and risk.
I invested in California for years and the big numbers can be beguiling. But still, the ratios matter. A lot of would be investors have crashed because they thought a potential $85k was worth it, but when you are talking about a $440k property that is only a $19% potential profit, and most first time investors overestimate sale price, while underestimate repairs, time spent and soft costs, thus drastically overestimating profits.
My first thing I would do is hit the phones hard and get some solid info on your local HMLs and find out what money they have available and for what terms for the type of transaction you are planning. See if they have prepayment penalities - many do for transactions taking less than 3-6 months.
Granted, I would probably do the deal, but realize it is not as fabulous as you first thought. And I would be working hard to get the price down to around $275k.