Short Sale ??? ... Should I ?

Question

Hello Every one.

I was offered a Short Sale already listed in the MLS in an area that I am interested in, but Not sure if I should do this since it would be my first deal ever. The List Price is $305,000. The Comps Average is $540,000 with 4 properties sold in the last 3 weeks. I plan to offer $250,000. And I have analyzed the deal for Flipping very conservative with Running costs for 6 months and Repair costs of $140,00 ( including 5% contingency). I estimate my ARV will be at least at $530,000 . Leaving $140,000 of profit.
Am I missing something ? It Looks to sweet to be truth..
Can you please give me good tips on things that I should be careful about in the Short Sale process in NY?

Thank you

James Taylor · Answer

Ok, Let me try to put in this small space the most relevant numbers

I over estimated some numbers, and I know that my gain would be based not much on savings, but on cost avoidance.

So here we Go :

After Repair Value

$525,000

Current "As   Is" Value

$305,000

Estimated Repair   Costs

$143,624

Purchase Price

$300,000

Estimated Hold Time   (months)

6

Total Financing Costs

$31,941

Total Monthly Holding Costs

$1,873

Total Buying Transaction Cost

$2,750

Total Selling Transaction Cost

$27,650

ESTIMATED NET PROFIT

$7,799     ( ROI 1.51%)

PURCHASE   & DEAL ANALYSIS

After Repair   Value

$525,000

Purchase Price

$300,000

Estimated Repair   Costs

$143,624

Total Financing   Costs

$31,941

Total Holding Costs

$11,236

Total Buying   Transaction Costs

$2,750

Total Selling   Transaction Costs

$27,650

Richard Wormwood · Answer

My personal rule of thumb that has been verified by other investors is a 10% contingency.Not to mention, most short sales come with a minimum 3-month hold and sometimes even longer.If you don't mind, posting your numbers could better help the people here to verify the deal for you.

James Taylor · Answer

Hi Brett,   Thank you very much for your advice.

I just finished re-running a third round of analysis, because I was missing a portion of the financing costs. I did it using a couple of different Repair estimators, complementing the comps with Zillow and RedFin, and I also added more repair costs for drive way,  in addition to incrementing the contingency because through Google maps I noticed the driveway was in very bad conditions and I also discovered that there is a in- ground pool in the back yard, not mentioned in the MLS, which is a bit suspicious.  So I added the costs for demo/covering it.

The profit went down substantially..  It is still positive $12,450 .  But I am afraid now there is no much room for mistakes for a newbie.......  ;(    And the exit strategies from a Short list don't feel that good to me.

I am afraid, I will have to pass to this one.

thank you again, and have a great day

Brett Goldsmith · Answer

May be worth asking what the bank thinks the home is worth and the history of the transaction. Ensure to see the home, do inspections, and continue to do more research on all angles of the deal.

In the short sale world you don't want to be involved in non arms length transactions or any grey area behavior.