Purchase, Rehab and Sell a property with the least amount of $ out of pocket...

Financing, Hard Money Lenders, Private Money
1

I have funding set-up with a hard money lender currently who offers the following:
65% of ARV
16% interest
6 pts

My question is how can I complete an entire project (purchase, rehab, resell) with the least amount of money (if any at all) out of pocket?

The following is a quick example of a property that doesn’t seem to work out even though it has an asking price of 60% below the market: (figures are close estimates)

ARV: $200,000
Loan amnt: $130,000 (65% of ARV)

Costs:
Repairs - $25,000
Quiet costs - $28,500 (loan points, realtor comm, holding costs, loan payments)
Purchase price of property - $100,000
Total costs: $153,500

Total costs: $153,500
Loan amnt: $130,000
Difference: -$23,500

Looks like I would make an approx profit of $46,500 before taxes but would have to put up the $23,500 during the project in order to make it happen.

The only way I figured I can finance all the costs including the purchase of the property is by finding a house at 30% of market value?

Am I correct in this, or am I miscalculating something here?

Your assistance or advice is appreciated!

2

First your loan rate seems a little high, normally hard money is roughly 18%.
Out here in the Southwest we pay a straight 18 with no points, but maybe a $500 to $1000 set up fee.

If you still have ability to do a little negotiating try to reduce the points, the interest is pro-rated on a daily basis while the points are a straight flat fee.

Take your $130k loan, minus points you clear $122,500 so it takes $2,250 out of pocket plus your carrying costs.

Your loan should be $1733 per month plus water, electric, sewer and trash.
Probable do not need the gas on as it’s warm enough now to work ok!

Rehab should not take you more than 6 to 8 weeks, stick a for sale sign on the property with your number right from the start then list with a realtor if that’s your plan at the end of the last week.

All of your utilities are probable not more than $75 to $100 a month.

You will need at least 3 payments and your utilities and your $2,250.

Probable $8,000 will carry everything for a total of 3 payments and 4 months as your paying in the rears.

Realtor and closing costs to your buyer come in the rear!!!

Close
1st pmt 30 days in
2nd pmt 60 days in
3rd pmt 90 days in
4th pmt 120 days in so if you have a buyer by this point you probable can get by paying a balance from your buyers closing.

Check your average days on market and figure you have to carry it that long.

Big thing is do it nice and right but don’t over do it!!!

Stay on your budget, this is the biggest cost overrun for rehabs!!

If you need more help let me know?

3

Gold River - appreciate the response and it is a big help in clarifying my head and the #'s.

Couple follow-up questions for you or anyone out there:

  1. Where are you getting the $2,250 out of pocket up front from?
  2. I assume the realtor comm and closing costs will come from the profits after I sellthe property to end user?
  3. If I need to refinance the house after the rehab is complete and stop the loan process, what amount would I be taking a mortgage on?

Thanks again.