Is this a good deal?

Question

I am interested in putting in an offer on a foreclosure.  The Single Family Home is a 4 Bed / 2 Bath, and is listed at $48k.  It needs $30k in repairs, and the ARV is $140k.

I have contacted a private investor that is willing to provide 90% of the purchase price.  He requires a 6% loan fee (half on the front-end, half on the back-end) and 1.5% interest only each month.  The loan is for 6 months but is renewable if necessary.

Would you accept this offer or contact a hard money lender?

Thanks

Sean Kuhn · Answer

Brant, that's very common now a days for it to be listed way under market value. I recently found a rehab listed for 72k and offered 94k on it. The next bidder up was 115K I found out later.

Brant Hampton · Answer

Thanks for the replies

@Will - The house is listed at $48k and only needs $30k in repairs, but my agent suspects that it will go for much higher.  I'm currently trying to determine my max offer.

Will Barnard · Answer

Brant, first off, I want to question your numbers simply because they are so good. Typically, too good to be true.

If it is listed at $48k and only needs $30k in rehab, is the exit value really $140k? That is an all in of 57% which is a steal of a deal at list price! So I question the ARV and perhaps the rehab.

If the deal really is at those numbers, you should be able to find a lender with better rates than 6 points and 18% annual interest. Most hard money lenders will do a deal with this much spread for 12.5% or so and 3-4 points or less, some of which based on your experience level. Shop around and more importantly, make damn sure the numbers you posted are for real ( for your protection)

Tom Gunnison · Answer

18/6? No way. You should be able to find cheaper money than that. Call as many hard/private money lenders and see what you can find. Good luck!

Matthew Paul · Answer

No