Is this a good enough deal?

Hello all,

New investors need help with an REO. I’ve got a tip on a 3/2/2 single family home in south Austin. Comps in the area are around 115k. There is a good probability the bank will take 80k but the property is in need of work. All cosmetic but approximately 10k in cost.

After running the numbers the worst case scenario such as holding the property for six months and selling at 110k would produce a 4k return. This includes commissions if we use a listing agent. Best case would be a sale at 115k no listing agent (no commisions to pay) and one or two month of holding for about a 14k take. Is 4k worth the headache to buy and clean this place up and risk it may be longer than 6 months to sell this type of property? The neighborhood is fairly well kept and new homes are being built the next block over.

Are there any other options we haven’t taken into consideration? Looking for ideas such as wholesaling or assigning to rehabber. Any input would be greatly appreciated.

Paul D.


The formula to buy is:

70% of ARV minus repairs = purchase price

In this case ARV (after repaired value) is $115,000

115,000 X .7 = 80,500 - 10,000 (repairs) = $70,500 maximum offer

If you can’t get it for $70,000 or less then it’s not worth your time.

Warning: deviating from the formula can be hazardous to your wealth.

$ 4000 is too thin for the risk you will be taking and that is not the worst case. Check days on market for other sales in the area. If all have sold in 45 days or less then you can feel good about selling fast and at $115,000 if that is the price per foot the area is getting. In my opinion you need a little more discount somewhere closer to $70,000 especially if you are using hard money lenders at high rates and points. Hope my opinion helps a little.

Does this formula still apply? I’m a newbie

Howdy Caution357:

The formula is for buying and paying all cash for a rehab. If you can buy and quickly flip and make a few grand with little or nothing down you need use no formula. With the 70% formula you have a huge risk. A vacant property with possible hidden rehab costs and possibly a long term hold until sell and eventually even renting if you can not sell not to mention the high costs of borrowing money.

I recently got a house under contract for $40,000 and used a $100 check as earnest. I sold it for $43,000 because I could not find a hard money lender to do the deal. I prefered to buy and rehab but I took the quick profit and payed a house payment. Not too bad for a few days work and only risking $100. I challange you to go out and do the same thing tomorrow. I know you can do it.

i’m trying to construct a 30 day plan now Ted. I want to have aqquired and moved a property w/in 30 days!

Way to go. If we can help futher just ask