BiggerPockets

Brian,
I see a couple of ways you might do this. One is to use hard money to buy the house. With the cash in hand, you might be able to do this if you can find a really good deal. Sounds like your strategy is fix-and-flip, so those formulas apply. The basic formula is that if your purchase and rehab costs are 70% of ARV, you use hard money, and you sell it within six months, you stand to make between 10% and 15% of the ARV in profit. You will need to have about 10% of the loan amount in cash for the carrying costs. And, you'll typically need to pay for the work first, then get reimbursed. Other members say HMLs are only doing about 65% in CA, so that's another 5% you'll need, if you're right at 70% with purchase plus rehab.

So, lets work this through. You mention the houses are about $100K. You want minimal fixup, so lets budget 10% for that. That's $110K for purchase plus rehab. Divide that by 70% and you get just over $157K. That's the MINIMUM ARV you need to make that deal work. Remember, you do not control that. The market does. So, you have to figure that out before you start. At that, you stand to make about $16K-$24K. Figure on the low end, especially the first time.

To pull that off, with a 65% loan, you'll be able to borrow about $102K. Out of that you'll pay closing costs and points, figure 5%. So, you get $97K toward the purchase. You'll need to kick in $3K. Now you'll need to pay for the carrying costs (mostly interest, but also insurance, utilities, and perhaps other costs.) Lets figure 7.5% for the interest ($7500, I'm rounding) and another $2000 for other costs. You will also need to pay the $10K in fixup costs. Altogether, that's $22.5K total in cash needed. Fortunately, you're in good shape for that.

Now, say you sell for $157K. You'll eat up about 8% of that on commissions and closing costs. Theses days you're likely to have to pay some buyer's closing costs, so figure 10% total. If you FSBO it, you might save 3% of that. So, after costs, you're left with $141K. You have to pay off yoour $102K loan, leaving you $39K. After you reimburse yourself for the $22K you shelled out, you're left with $17K. And, you have to pay tax on that. And, that's if things go well. Doesn't take too much of a glitch to eat into that $17K.

If you want a $50K profit, your ARV needs to be higher by about another $40K. If everything else stays the same, and ARV is $200K, you net $190K after the sale costs, $78K after paying off the loan, and $55K after recovering your expenses. I have no idea if its possible to buy a house for $100K, do minimal fixup, and turn around and sell it for $200K. That's a heck of a deal if you can get it.

Another option, though not with REO's, is some sort of owner financing. Lease option. subject to, straight owner financing. That would significantly reduce your money cost.