I think I have my first deal. I live in Detroit, MI where the market is great. One of my bird dogs sent me to this house on the east side of detroit. The owner was asking for 27k for the property and I talked her down to $22,500. The ARV is 65k. The house needs about 10k in repairs. The neighborhood is not all the nice but I still think I can sell the property it if I pay the buyers closing cost.
There are no leins on the property and the owner is taking care of the taxes owed before closing. My HML is charging me 14%. So do you guys think this is a decent deal??
What are your plans for the property? Are you planning to flip it, fix and flip, or hold for rental? I assume that since you are dealing with a HML that you are planning on a fix and flip. If your numbers are correct, this is a good deal. If you can’t get what you think ARV should be out of the property and your repair costs are higher than expected, this may be a marginal property. I just had a bird dog bring me a similar property except that I have not gotten the repairs estimated yet. Price is a little higher but repairs may be lower. I won’t be dealing with a HML since I will be purchasing for rental though. The property should rent for $600 per month though. I’ll have to see how it plays out.
One thing you may try too is to get the seller to owner finance part of the purchase price at a low rate of interest or even 0 interest. They may be willing to carry even half until you get it resold. This will save you some bucks for sure. The deals sounds good. Let us know how it turns out.
Hi, can someone explain what HML is? sorry newbie question.
Also, being new at this, how can we gain experience from estimating repair costs? Should we hire someone to estimate the repair costs for us before the papers are even signed or should we just estimate it ourselves? I would hate to lowball an estimate when in actuality it is much higher which can really break a deal. Thanks
HML stands for Hard Money Lender. These are companies that will lend money based on the value of the property. Typical deals are up to 65 percent of repaired value for between 4 and 12 months at 12 to 16 percent interest and up to 6 points up front. Pretty high cost of money, but if you can’t do the deal otherwise, then it is necessary.
As far as estimating the costs of repair, there are several ways to do it. You might have a contractor give you a bid on the repair (either before you contract or after). You could have an inspection done and ask the inspector to give you an estimate of the cost of repairs. Or the third way would be for you to do the estimate yourself based on your previous experience. In any of these methods, you need to leave yourself plenty of breathing room. The first method is probably the most accurate, but might work because of time constraints. The last might be the most inaccurate, but the timing would be best. The second method is somewhere between the other two methods, but it is almost never done before the contract is signed.