Rehabbing?

Question

Ok I know alot of people say nows not the time to do rehabs because of the market. But thats what I really want to do. So heres my situation.

I don't have a mortgage or rent to pay and I have found a property thats in a good area and is a pretty good house. 3 bedroom really 4 but wold make the  4th a bathroom I think its down stairs and theres no bathroom down stairs. Any way it has a nice layout and every thing. I figure it needs some were around maybe $40,000 in repairs at the most. There asking $40,000 for it right now its a hud house after figuring my numbers I feel I need to get it for around $15,000 or$20,000 no more than that and the ARV comes out to around $95,000.

Sorry this is so long but would you guys recomend doing a rehab for my first deal. I would plan on rehabbing it and then retailing it.

Tom C · Answer

If HUD has it listed for $40K, you will not get it for $15 or $20K, unless it has been on the market for a very long time, meaning well over 1yr.

Alex Aronson · Answer

How much profit have you thought about trying to get from this project.

The way I do my analysis is like this.
Retail price is 95K
Subtract 10% for error = new goal retail price of 85,500
Subtract another 10% from my new goal retail price for closing cost and commissions
Subtract how much profit I want
Subtract how much rehab is going to cost
Subtract holding cost (utilties, insurance, PI, taxes, ongoing yard maintenance).
After all of that, you should be able to deterim the most you will pay for a property.

Most banks do not have an appitie for real estate investors unless they already have a good relationship with them.  You might want to try a commercial bank that deals with flipping property like ReCasa Financial.  Business like that will fund your purchase, soft cost, and rehab cost at 100% as long as the cost do not exceed some % of the ARV.

If i were a bank, I would be concerned about your cash reserves since you do not have a track record.  Older homes offer much larger challenges when it comes to knocking out walls and stuff.

If I were a lending institution (which I am not) I would feel better if you had a puff and power rehab (paint, carpet, fixtures) you were going to do as your first rehab.

Dwayne Stutzman · Answer

Alex thats ok for the questions.

Background - new investor

scope of work - new roof , add a bathroom down stairs, some drywall , paint, new windows, redo kitchen, no duct work for upstairs so add duct work for heat upstairs,

house built - early 1900

work done - by contractor

cash reserve- none

hold for a year- if have to yes I don't have any mortgage or rent to pay and have a full time job in construction.

finance- looking at getting a construction loan from local bank

taxes, utilities- taxes are 1200 a year utilities would be minumal.

the ARV is pretty acurate it sold for 97,000 in 2004 and a house like it is selling for around the 90's or more in my area.

days on market- depends most are I would say around 120 days or more but some go quicker depending on the house.

Alex Aronson · Answer

Sorry for all the questions, but more info is needed?

What is your backgound?  
What is the scope of work to be done?  (cosmetic such as flooring, drywall, paint, fixtures or major such as tarring out a wall, adding a bathroom, redoing electric)
What year was the house built? 
Will the work be done by you or by a contractor?  
How much cash reserve do you have to hold the house with?  
Can you hold it for a year?
Do you have any net worth?
How do you plan to finance it?
What rate can you get?
Do you have an idea as to what insurance, taxes, and utilities are going to run you each month? vacancy insurance is much more expensive than regular home owners insurance.
What are the average days on market for that area?
Are you sure the house is worth 95K after repaired?