Paying 229,000
Needs between 100k-110k in repair/ renovations
Repairs should take around 2 months
ARV- between 430-450k
Agents gets 6% when I sell
Using cash so no finance charges
sales time has been between 3-6 months for the comps.
Insurance is 5500 a year
Property taxes are 4600 a year
Thoughts?
I might add this will be the first real estate project where I have had to make any renovations at all
Let’s look at it:
ARV $430K
Minus Rehab $110
Carryig costs (6 mo rehab and 6 mo sell) $10.1k
Realtor Fees (6%) $25.8k
Total rehab, sales and carrying costs: $145.9k
12 months rehab and costs for zero profit if everything goes right: $284.1k
Your Purchase Price: $229k
Potential Profit: $55.1k
55.1k profit for putting almost $400k of your money at risk for one year with the understanding that with declining housing prices in many areas combined with increasing rehab costs could very well eat into your potential profit. Personally, I wouldn’t even consider it for less than $175k.
Why do you use a year as the time from purchase until sale? In my mind it appears to be about 6 months.
I put up 339k and sell for 420k = 55.8 profit (after realtor fees) in 6 months (2 month rehab, 4 month sell). Do that twice in the year and I am looking at a 33% roi annually on my initial investment of 339k.
Do I think the DOW(what it appears is representative of my where my money currently lies) is going to go up to 16000 in the next year? not really…
Thanks for the replies
Actually, you’ve made no accounting for the loss of income felt by using the $340K or so for 8-12 months and you need to figure in the cost of utilities (gas, electric, water) for 8-12 months during the rehab. Both of these things will also cut into the profit.
My two cents…for what they’re worth
Keith
The money is in the market and I don’t believe anything great is going to happen in that time. I’ll be living in the house once it is renovated so instead of paying utilities somewhere else I will be paying them there instead. New estimates came in today. It appears that repairs will be between 85-90k.
Additionally I had an agent do some more detailed comps (the original ones were done by my inexperinced self) and he put the price of the home between 500-525k when it’s done. I think I set the price with comps so low due to my belief that a pool doesn’t add vaue (my realtor says around here it adds quite a bit) and my comps being done on homes not constructed of the same material. The home I am renovating is made of some sort of expensive brick (the name escapes me).
I am still using cash so there are no finance charges.
So now that I have done some actual estimates and here are the new numbers-
ARV- 500k
Purchase price- 229k
Renovations- 90k
Taxes + Insurance- 10.1k
utilities- 700 per month for 6 months= 4200
realtor fees- 30,000
net profit- 136,700
Looks a lot better now that I have the real numbers instead my my estimates. Right? It appears I am buying at 64% ARV without having any finance charges.
The “gold standard” for rehabs is: Max Offer = (ARV X 70%) - Rehab/holding
That would equate to ($525K X 70%) - ($90K + 10K + 4.2K + 30K) = $233,300
That means at $229,000, you’re right on the money.
Keith
i would borrow more OPP and use less of my own… so i could do more deals.
but the deal as you have it looks decent to me. your fallback is that you have a place to live if it doesn’t work out, and it’s paid for.
Quick update and a few questions-
First off this house is going to be upscale and one of the best in the immediate area when completed.
My reason for using cash is simply that my loan offers were ridiculous and I didn’t want to lose this deal. The best I was offered was 14.9 percent with 4 closing points, draw fees, inspection fees and 20% down. Plus it’s my first so not having monthly payments will be nice so I can take my time. If I take on another project before selling this one I have some private hard money at 7% yearly with no origination.
I close on monday!
My budget has been increased to 110k so I can add on a multi room stereo system, alarm system, an outdoor wetbar/bbq area and a new pool house, but I was able to insure the house for only 2400 for the entire year and my property taxes should only be 3700. At least that was less than I expected.
questions-
My master bedroom is good sized, but for some reason is the only bedroom without hardwood floors. Am I making a mistake thinking that some plush carpeting would suffice in place of the hardwood?
Off of the master is a walk in closet/womens vanity with tons of built in’s and 2 good sized closets. The actually bathoom portion is only 8 by 14. In a perfect world a his/hers vanity, nice shower, seperate whirlpool tub and a partitioned off toilet would all fit in. Unfortunately that doesnt seem like it will work. Am I fooling myself into believing a tub/shower combo will do the trick in saving space without sacrificing luxury? Do I need his/hers sinks if the changing room already has a womens vanity? The budget is 12000 dollars from the studs.
Lastly does anyone put multi room sound systems in their renovations? If so do you have any recommendations or advice? The prices aren’t too bad and it just seems it would add credibility to the high price I hope to sell for.
Thanks
Also 2 rooms have wood panneling which I’d like to either remove or fill the cracks, texture and paint. Anyone have any suggestions for what to do?
I feel that tearing it out and putting in drywall would just be a pain and unneccessary, but what do I know…
I would think hard about the stereo and alarm system. Unless every other house in competition with yours has them I’d use that money for stuff buyers can see and feel… like HW floors in that bedroom.
I would also think hard about the total rework of the master bath layout,. Think about keeping the existing layout but installing upscale tile (marble or travertine) and fixture, again, unless all your competition has it.
Regarding the wood paneling I would remove it and replace with sheetrock. You state you’re in an unpscale neighborhood and texture paint or crack filling are my opinion of low class.
The trick is to be better than your competition at a cheaper price, but not so much better that it seriously cuts into your profit. I’d want to increase that $55k profit potential to allow for unforseen problems or price reduction, if need be. If the need never arises, it goes in your pocket.
It sounds to me like your about to make THE BIGGEST mistake a new investor can…
Your going to OVER SPEND on renovations making the house what YOU want instead of what you need to make a profit.
Alarms and stereo systems are NOT deal breakers for a buyer. A potential buyer is NOT going to pass on that home because it didn’t have a stereo system :shocked
Alarm systems are very straight forward installs, even AFTER a home is built. Alarm systems can be completely wireless now. Installation can be done in 2 days at a very reasonable cost. I’d pass on both.
Filing the cracks in paneling on a high end rehab :shocked :shocked :shocked
Are you kidding me??? If it’s high end, filling those cracks and painting over it WILL make people wonder what else your trying to hide. It has got to be done right.
You better sit down and THINK about this as an INVESTMENT.
It sounds to me like your spending on items that YOU like…that’s great if YOUR staying in that house. If it’s a rehab/flip you better make sure your not GUESSING what will add value. You better KNOW!!!
I noticed that in your first post you had ARV at $430K , Now that’s up to $500k???
Also, your rehab estimates in your first post were $100K to $110 and now they’ve dropped to $90K and your ADDING things like a out dorr wet bar a new pool house???
If you cost over run this project (VERY LIKELY) and the market continues to fall (VERY LIKELY) you could EASILY be looking at a LOSER if your not VERY careful.
From my calculations I see you making MAYBE $40K to $50K profit on this IF you stay on budget. THAT IS TIGHT on a house selling for almost half a million dollars. I wouldn’t go NEAR this thing if I was using those numbers.
I’m not trying to break your @*lls. Just trying to get you to REALLY LOOK at your plan here.
Good luck
The numbers one more time before I start construction-
paying 229k
renovations- 110k
Taxes + insurance- 6100 for a year (3050 for 6 months)
utilities- 2400 for 6 months
So by my estimates…
344,450 initial cost
30,000 to the agent upon sale
500,000-374,450= 125,550 net profit
I know someone is going to say be sure of the ARV, so to appease you all- a house with 600 less sq. ft, a smaller lot, no pool, and a RETARDED kitchen with a fridge that doesnt physically fit just sold for 428k after only 3 weeks on the market.
Am I missing something huge here with the numbers? I can’t think of any other major expenses…
I agree on the drywall instead of the paneling as well as not installing a sound system (thanks for setting me straight). The alarm is necessary in New Orleans even in nice areas.
Lastly, A great backyard with bbq area will sell a house around here. The name of the game in New Orleans is room for entertaining and this property is made for that. The bbq area is going to be done re-using bricks from planters I need to take out anyway so it shouldn’t be too expensive aside from the gas grill and a plumbing line.
one more question- wood floor in kitchens? How do you all feel about that?
I’ve done a lot of Hardwood floors in Kitchens, they look great and add a real warmth to that area of the house. They are also very reasonable price wise.
I buy mine pre-finished from lumber liquidators and have them installed for about $2/ sq. ft. The material itself runs around $2.50/ sq .ft if I stay with red oak. Beautiful finished floors all done for $4.50/ sq ft. HUGE visual impact too!
The only point I’ll make again is your initial ARV was listed as $430K now it’s $500K THAT’S A HUGE DIFFERENCE!!! If your original number was correct this project is VERY thin. That $428K COMP is THE NUMBER all your potential BUYERS are going to be looking at!!!
The bottom line is this…I use ROCK BOTTOM COMPS. I want to be that $428K comp…not your $500K. You can always start out on the high side but in this market that’s a losers game. You’ll be better off staying on the low end.
There’s how I’d play this project…
You KNOW that a smaller home just sold for $428K… Do JUST what you need to make this house TURN KEY, then BLOW IT OUT for $425K!!!
If your in it for $229K I’d set my rehab spending limit at $70K. That brings you to $300K.
You can do a TON of rehab with $70,000!!! Price it aggresively and sell it yourself. If the house is REALLY that great of a deal it should sell WITHOUT A REALTOR for $425,000 and you NET…$125,000
If it’s REALLY a steal at $425,000 you’ll get multiple offers and probably end up with a higher final selling price.
I will warn you…FINANCING YOUR END BUYER IS GOING TO BE MUCH HARDER in this market!!! A friend of mines last flip had no fewer than 12 potential buyer REJECTED in the UNDERWRITING stage of the mortgage process. By being the lowest priced home in a particular neighborhood you are actually HELPING the buyer get that mortgage. No bank is going to loan a LOSER money, but having an UNDERPRICED HOME is a HUGE benefit when it comes time to FINANCE that property.
Update with a few questions-
So I finished Demo, knocked down all the walls, tore out most of the master bath, had electrical put in, and cleaned everything up. I have replaced all the panelling with drywall and am about a day away from being able to paint it. Realistically I could finish the upstairs totally in about 10 days of hard work if I had all the sinks, toilets, etc.
I need to sand and stain hardwood, put up baseboards and crown molding, repaint everything and totally install the master bathroom sink, tub and toilet (all with existing plumbing). Not so bad for 3 or 4 handy young men.
Downstairs is from the studs. I am leaving in the existing plumbing, and electrical is done so it shouldn’t be too tough. HVAC is coming this week. My real concern has now become buying hardwood flooring, cabinets, lighting fixtures, and countertops. I need to match everything and having no experience in this I find myself in quite the dilemna. My taste is pretty good generally, but I’m just not sure if I tust myself with a bathroom and a kitchen. Plus I am just not sure which color to stain all the hardwood upstairs.
The house is brick and was built in 1955. The upstairs floors appear to be oak (but again I don’t really know too much about it). As far as painting the interior I was going to go with the white trim, tan wall thing that everyone seems to love. Unfortunately I Am realizing rather quickly that I know very little about interior design. 8’6 ceilings throughout.
Also could someone please clarify which order I should be doing the kitchen/drywall/flooring thing.
My take is that I should do drywall, kitchen/baths, painting, flooring, appliances/fixtures in that order. Correct?
Any advice on any of this would be great. I have been checking comps lately and am really excited about what I’m seeing. 2200-2500 sq. ft. home that have ben renovated high end have been selling for between 420-450k. Three in the last month alone!
I have this wild timeline of finishing in a 4 weeks and despite recommendations from others long ago I have 3 employees, one of whom is getting his contractors license and one of whom is getting his real estate license. All are very handy and have been working exclusively on the rehab for over a week now. The drywall came out looking GREAT as did all the demo. Is it unreasonable to think that we couldn’t install the hardwood, bathroom tiling, most of the kitchen and bathrooms with assistance from a plumber when needed?
Sorry my ramble has gone on so long. I just have so much to learn and although I know you all can’t tell me everything at once it doesnt hurt to ask before I go out and learn it on my own. Thanks again.
I jsut wanted to say that you really sound like youa re kicking @$$ snd taking names on this project. As far as what color to do things, keep it all neutral and middle of the road. As you said it’s working, so if it’s not broken, why fix it?
Stay positive and post a pic of that check in a few months, it sounds like it will sell quickly. :bobble
Regarding interior design:
One of the other threads on this site had a great suggestion about colors, styles, finishes, , design, etc. Go to several open houses of the most popular builder of houses in your area, especially if they will be your competition. These builders spend big bucks on designer, and consultants, focus groups, etc to determine what looks great and will SELL.
Copy their ideas.
jmd_forest
just a quick update for anyone who wants to know-
Tile is in, drywall is done, paint is up, hardwood and trim goes in this week. I should be totally completed on July 1st. I’m about a month behind schedule, but to be fair i’ve taken a lot of vacations and my othe business is really kicking into full gear. Overall I am about 15k over budget, but it still looks good. The numbers as they stand.
paid 229k
renovations 125k (inc. insurance, utilities)
should sell between 450 and 500k judging on recent sales.
Overall this experience has been a lot of fun. I probably could have saved some money by using contractors for a few things that I did with my friends/employees instead, but I really have a better grasp on renovations now then if I’d sat back and let a contractor take care of eveything.
Throughout the course of the project I was able to figure out who my best employee was. He now is in charge of finishing the project and I have him on a pretty good salary + incentive package based on the net profit the company makes.
I’m borrowing 300k at 7% a year with no other fees. I’ll be getting that on the 3rd of July so the next project should be starting soon.
I’ll let you all know when this house is done and when I get my next one. Overall it looks like my real estate company is going to do great despite that fact that I knew next to nothing going in. It’s fun to take calculated risks and I hope to continue doing it my whole life be it in real estate or in other endeavors.