Ok, here is the deal
ARV: $73,000
Sales Price: $57,500 (including 6% for closing)
Repairs: $2500 (seller contribution)
I know that the rule is usually 70% of ARV, but what about when you roll the 6% for closing into the loan amount? When I rolled the 6% in the loan that puts me at 79% of ARV. I calculated it without the 6% closing and that puts me at 74% of ARV. Is this too much of a spread???
Basically I can get a house totally remodeled and the roof is new for 57,500. Three houses on that street sold from 73-79K. What would you do?
Nervous 1st Time Investor…
The hard part of a deal like this is the spread is very thin. If you are going to flip the house you will also need to consider whether or not you list with a Realtor. You could easily have another 6-7% in fees and then chances are you will have to pay some closing costs for the buyer.
If you could enter into a Lease Option and then you don’t have to pay closing costs just an option fee. Under your lease option you could do the repairs and then sell or rent out.(if it’s not listed it will be easier). Make sure you you can sublet if you choose to keep it. With the lease option you would have the chance to do a double close and save most closing fees on one end.
The Wiz has Great knowledge of Trusts and this property might be a good candidate. When you don’t have double closing costs you may be able to make a slim profit on a deal like this.
Finding a lender on this type of transaction will be the most difficult part. Too much LTV for hard money and it could fall under speculation when you talk to the banks.
Good Luck!
NDI
It’s definitely too thin to sell outright, but it might be a good rental. All of my books/courses say the absolute MINIMUM profit should be $10,000. I don’t see how you’d be able to get that in this situation.
The big question I have is why doesn’t the seller just do the repairs and sell it retail for themself? They’re already contributing to the repair cost!
It’s not that uncommon, many people do not want to put extra money into a project, I don’t think the see potential. You will find this especially when the homeowner has no clue on how to fix the minor items. Another reason is that at closing they don’t feel the money comes directly out of their pocket. When they fix before the sale they know the money comes out of their pocket.
NDI
looks too thin. You might only make a couple of grand if your numbers are off by a bit. If you are REALLY, really sure that you can get $75k on the sale and reapirs are only $2.5k, then its a maybe. How quickly does stuff move in your market in that price range
All of a sudden, I noticed something that none of us considered before… Is this the CONTRACT price or the ASKING price? There’s an enormous difference.
If it’s Asking price, you can always submit an offer for 10-15k less, and see if they nibble on it. This tactic is how most REI deals are found, not simply by paying the ask price.
All of a sudden, I noticed something that none of us considered before... Is this the CONTRACT price or the ASKING price? There's an enormous difference.
If it’s Asking price, you can always submit an offer for 10-15k less, and see if they nibble on it. This tactic is how most REI deals are found, not simply by paying the ask price.
You mean that somebody actually pays the asking price?
Walk away from the deal. Always beware of constuction repairs. I f you are not a contractor or do not have a good contractor that you can trust, that $2500 repair could really be $5000 repairs. On your first or second deal, take the easy cut and dry deals before you venture out into the crazy low end deals with all kinds of repairs. By the way my name is Charlene Biggs. I am the CEO of Vivid Investment Services, LLC. I am a contractor/investor with real experience steming from a 10 year back ground in Construction. I also am also one of the top Tenant locator in the Atlanta area.