Real Estate Investor · NJ · Member since 2011 · 16 posts · 2 votes
There is a property were they are asking $90,000 it needs almost $200,000 in repairs Potential After-Renovation Annual Income: $100,000+ it will need hard money financing... If I can borrow enough money to buy the property, fix it up, and sell it under market value for a profit would that work? If I can borrow enough money to buy the property, fix it up and hold it would that also work? Also what are things to consider? Thanks in advance for all the advice and info.
j, this has got to be some kind of commercial office building or warehouse...
lalana, hardmoney is great if the numbers work after paying all the points and interest, but what happens once that loan is called due?? hard money is very short term (usually 1 year at the most)...you'll need a good bank to handle the refinance. is there a demand for this building where you think you can profit by selling relatively quickly? it's difficult to flip a commercial property bc buyers will want to see the past few year's operating expenses, rent rolls, etc. in fact, most banks will require this to fund the deal for your buyers if you decide to flip, so you'll be effectively limiting your pool of buyers to cash buyers if you only own the building for a few months..just something to consider besides the obvious questions like, "are you sure of the ARV and are the repair costs accurate?" don't forget, anything done on a commercial building is more expensive than residential
Not sure exactly what you are asking...certainly if you can buy it rehab it and sell it for more than you spent, you can make money on it...though that's pretty obvious...
The question is whether that's really realistic...
Some things to consider:
Any property that is listed for $90K and needs $200K worth of work has to be in TERRIBLE condition. We're clearly not talking about a gut rehab on a low-end property (which wouldn't cost $200K) and we're also not talking about a cosmetic renovation on a high-end property (wouldn't be able to pick it up that cheaply), so what kind of property can you buy for $90K, put in $200K and still make a nice profit?!?!
All I can think of is a relatively high-end property (or high-end property) that has a lot of structural issues, mold or some combination of those. And if this is your first flip, you probably don't want to tackle those things.
If it's not one of those types of properties, I'd suggest verifying your numbers. What do you plan to do for $200K? What is the ARV of the property?
Also, consider that in many parts of the country, higher-end houses (in my area, that would be anything over $500K, but certainly varies area to area) can be VERY difficult to sell in this market.
Will this be considered a high-end house when you're done with it? If so, what makes you think you can sell it in this market?
What type of financing do you plan to get? You mentioned hard money. To borrow $200-300K in hard money, your monthly payments will likely be on the order of $3000-5000, and you'll probably have to come out of pocket at least $50-75K on the purchase side.
You also implied that you're considering holding it as a rental (you said, "Potential After-Renovation Annual Income: $100,000+"). Seems very unlikely that a property that you're all-in for under $300K will rent for more than $8000/month, but if so, that would be very lucrative -- ASSUMING you could get conventional financing.
There's no way you'll be able to get long-term hard-money, and even if you did, with debt service between $3000-5000/month, you might find yourself in a bad situation if you have a few months of vacancy.
Do you have comps on this property? An appraisal? Do you have bids from contractors? A $200K budget can easily overrun by $50K...are you prepared for that contingency?
Anyway, without a lot more information, it's difficult to give you concrete advice, but just based on my experience, the information you have provided leads me to believe this deal probably is a bit tougher than you're making it out to be...
j, this has got to be some kind of commercial office building or warehouse...
lalana, hardmoney is great if the numbers work after paying all the points and interest, but what happens once that loan is called due?? hard money is very short term (usually 1 year at the most)...you'll need a good bank to handle the refinance. is there a demand for this building where you think you can profit by selling relatively quickly? it's difficult to flip a commercial property bc buyers will want to see the past few year's operating expenses, rent rolls, etc. in fact, most banks will require this to fund the deal for your buyers if you decide to flip, so you'll be effectively limiting your pool of buyers to cash buyers if you only own the building for a few months..just something to consider besides the obvious questions like, "are you sure of the ARV and are the repair costs accurate?" don't forget, anything done on a commercial building is more expensive than residential
Thanks guys for your excellent input! That was the thing really I dont know who would purchase it after the rehab. I understand the numbers in investing in properties and making sure its a good deal. Yes this particular property is a commercial deal with lots of "potential" but like what was mentioned about the lenders I might pass due to the fact that I am unaware of who the end buyer would be. I know a possibility would be to shop it around, it is located by a college and transportation, in a really good location but this one may be a job for an expert or with an expert in such a property. I am going to just keep purchasing 1-4 unit's cash, rehab and rent them keep the rehab projects and refinance the one's I would like to keep and keeping 1 out of each 4 is a great way to write off certain tax deductions also. 3 properties that I would flip for immediate cash and 1 I would hold for passive income. Building a real estate investment Portfolio, then with the money begin to buy commercial myself. Not sure... any suggestions on that? I love commercial buildings that's where I am headed to so I'm getting my feel. Any comments and or expert advice on investing in real estate, building my portfolio, rehabbing, the latest techniques about real estate investments, entering the commercial market, or anything? Always up for some know knowledge...
Bryan How did you get into commercial real estate? Any advice for a newbie... All insight is greatly appreciated. Who know we may run into eachother on a deal or two when I get in the commercial field! Congratulations on your last deal!!! Love it~!
lalana, my advice would be to start small...i started with single family homes..only recently have i looked to expand into larger multifamilies...still haven't ventured to traditional commerical tenants and offices though..i prefer apartments bc someone will always need a place to live...commerical is a while different ball game
Hello Bryan, thanks for your reply and input. I am very proud of you making that move. I also prefer apartment buildings not really trying to get into office space, Just apartment buildings. Commercial yes it is a different ball game but I believe when you do it right it's a HOME RUN :) Many Blessings and much success!!