Hello BP! I am a new member to BP and just sent out an introductory post. I needed some recommendations on the best way to proceed with a potential property that I have found with regards to flipping it.
The property is a foreclosure selling for about 50% of the property value of the area. I estimated this by working a realtor that is part of my team. I have funds for a conventional loan but not enough for repairs that will be needed. I have seen the property from the inside with my mentor who was in the construction business and owns 37 rental properties. We believe the repairs will cost about 40% of the current asking price. All in all, it looks like it could profit out to be 12-15k as a conservative estimate.
What would be the best way to proceed with this property or rather what should my next steps be?
I have not put my offer in yet because I have not yet come up with the funds for the repairs. I am also not very handy and that's why looking for s partner that is local, handy and can potentially come up with funds for the repairs.
Let me know if I am approaching this wrong way. All the help is appreciated!
It would be much more useful to us attempting to help if you provided actual numbers rather than just percentages. Your answers will be better too!
That said, if the property's acquisition is 50% of the value and the cost to renovate is 40%, you have 90% costs already. With holding costs and resale costs, you would not have any profit, in fact, probably a loss.
Noone will want to front all of the money as well as do all the repairs and give you profits.
It doesnt make any sense.
@Logan Hicks ...newbie here and trying to clearly understand your point...would it have been a better sell if she said she would serve as project manager on the flip?
Welcome to Biggerpockets @Varun Narayanan ! All the best on your real estate career.
@Will Barnard I believe Varun stated that the 40% was on the current asking price so it wouldn't add to the 50, it would be 40% of 50%. But definitely, actual numbers would be preferable to speaking in percentages like this.
@Varun Narayanan What about living in the property and saving yourself from paying rent elsewhere which you could slowly put into the repairs on this property you're interested in. Otherwise you need to get your hands on some money for repairs through some form of loan or income, so you have to consider what those options may be… Private, conventional, renting out part of the home, looking into Hardmoney lenders prior to the purchase of the home, ? Other.
Thank you for your responses, appreciate it! @Lydia S. and @Will Barnard, i should have posted specifics of this property. Here they are.
a. Asking price is $34,900 - property has been on the market since Sept 2015. I intend to put an offer in starting at $27,000 and will to go up to $31,000.
b. Thought was to go with a conventional loan for the home - i have enough to put away for 20% dp and closing costs
c. Biggest repairs needed are roof (est costs 6k - 8k), 4 windows need replaced, entire carpeting to be removed (about 1100 sq.ft) and replaced, living room ceiling has been damaged due to water that ran down due to damaged roof. All in all, forecasted expenses are 12 - 16K
d. I do not have the funds to front 12 - 16K, so looking for ideas on how to come up with that and where do i begin to ask. Have a good credit score over 700.
e. Estimated resale values in that area are 60K (conservative), but could fetch 65 - 70K
This is the information i was going with - if there is any info that i missed, please let me know what i need to also look for/think about
based on your numbers, that deal seems way to thin and leaves no room for contingencies for any issues that will most likely pop up durng the renovation. Also, with the condtion of the house, it may not qualify for a coneventional loan. Have you spoken to any banks yet?
The point andy is usually there are two types of investors, standard investors who are passive, who are willing to put all of the money, in exchange for being given half of all the profits or more depending on the individual, and there are active portfolio building investors, who are constantly building a portfolio of loans.
The second are exceptionally UNLIKELY to finance 100%.
The overwhelming majority of loans come from the 2nd. A handful compared to industry come from the 1st. The 1st never want to have to lift a finger.
@Jim Brown I have not spoken to the bank yet. I have an appointment in Monday afternoon to go over this. Could you explain why you thought there was too thin a margin and no room for contingencies ?
OK, based on your numbers provided, if you bought it at $30k and put $15k into it and sold it for $65k, your purchase and rehab to exit price % is 69.2%. On an exit value below $100k, you are too thin on your gross spread. One small thing goes wrong and you stand to potentially break even at best, two things go wrong and you lose money. On any project where the exit value is $100k or below, i strongly recommend that your purchase plus rehab is no more than 65% and with an exit of only $65k, I would not go too far over 60%. Such a figure allows you to make the reward worth the risk and also allows for minor errors or unforeseen negative occurrences.
If you are all-in at $45k and sold for $65k, your gross spread is only $20k and then you have to pay resale costs, acquisition costs, debt service, and holding costs. On top of that, lenders do not like loans this small as it is a lot of work for very little money so finding a buyer in that range is much more tough without owner financing.
way too thin of margins! And I think your repair costs are low as well. If you went forward on this I bet you lose money.
Agreed with all above, this is Not a deal. But perhaps more importantly, you can Not finance this property with a leaking roof with a conventional loan, as is the case with most properties needing rehab.
I am also in the Altoona area and know that margins are thin for our area. I haven't completed a true fix and flip yet but I have been looking for one. I am interested to know if you completed the sale and rehab on the house you mentioned. How did you obtain the funds for repairs? I work with a local bank here that lends the purchase price and rehab costs. I would like to hear your story on this house. Thanks.