600k is that too much for a first time investor?

Question

I found a deal that has potential for a lot of profit.  I am having trouble finding financing.

It's a large house and a great lot.

4750 square ft

3 bed 3 bath

2 acre lot about 30 minutes from Denver with an incredible view.

I would like to frame in a 4th bedroom.

The house needs about 80k worth of work.  I've talked with a couple agents and I want to offer 500-520k. I do believe I can sell at 700-720k

I do not have the property under contract yet.

Is this too much to bite off for a first time investor.  Any ideas on how to get it financed?

Bill S. · Answer

@Collin WIlkinson so I agree that it's too skinny for a first time person or even a seasoned person. You probably would want to start with 10% profit minimum (after all expenses, ie holding, resale and rehab). On a large deal, that's a lot of money but when you consider the risk it's actually not. Also I know of no hard money lenders that would finance your deal as you described unless you had a lot of cash ($200k-$300K) or equity in another property to leverage against.

I also concur with the caution about the largest house in the neighborhood and the softening of the market in that price point.

Keep looking.

Chris Lopez · Answer

@Collin WIlkinson It's hard to give specific feedback on your deal since your post doesn't have many details.

You have two trends that may hurt your ARV:

• That price band of the market has softened
• If you buy now, you're selling in the winter, which is a weaker time in the market.

Now, those reasons won't kill the deal, but make sure you're realistic about your ARV. Many flippers are taking a haircut, especially now that market is seeing some increased inventory.

If you sell for $700k, subtract 6% for selling/closing costs (maybe lower if you get your buyer's agent to list for 1%) = $658,000 - 12,000 ($4,000/mo for carrying costs (x 3 months)) - $80k in repairs = $566,000 is what you net. Perhaps a 40 to 60k gross profit? Then subtract taxes.

It comes down to if those numbers are good with your risk tolerance and expected return.

Financing shouldn't be an issue, just work with a hard money lender. If it pencils out, you'll have no problem finding a hard money lender. Reach out to @Justin Cooper with Pine Financial. He's a good one.

Luciano A. · Answer

@Collin WIlkinson

If you were my brother I’d tell you to go at it with caution. That is a large house. You don’t want the largest house in the neighborhood. Depending on age of the home once you pull permits and start taking down walls or open things up you will have to bring things to code which can blow your rehab cost. If you have access to large amount of cash try buying a few rehabs and flip a few at a time if that risk doesn’t scare you. Just make sure you have good contractors who understand investors and are not charging retail especially if this is a higher end area. Contractors tend to bump up their price when they drive into a nicer area.

Collin WIlkinson · Answer

@Matt M Ok that's what I was thinking about too after doing more research.  It is in evergreen co

Matt M. · Answer

Short answer - Yes. The deal is way too slim by a long shot, especially for a first time investor. Your hard money costs will be substantially higher that what chris said. Plus you'll have insurance, property taxes, utilities, etc.

What part of town is the home in?

Collin WIlkinson · Answer

@David Abbate. Thank you.  I will do my due diligence.

David Barnett · Answer

@Collin WIlkinson I'm a little more risk averse and would likely start with a smaller investment.  With those types of numbers, if you miscalculate anything, it can put you out of the game from the very start.  Especially if that price point softens, comps change, etc.  I would start at a lower price point, get a few deals under your belt and then "graduate" to some of the bigger and higher cost properties.  However, you didn't mention your income/financial resources and whether you could weather a storm, if it comes.

Aaron K. · Answer

What makes you think you can sell it for that much more?  Is the property in poor shape?  Often properties that are unique like this are difficult to value with comps so where did you come up with the $700k figure.

Collin WIlkinson · Answer

@Aaron K. I got to that figure because a few recent smaller homes sold for 695-710

Collin WIlkinson · Answer

@Chris Lopez thank you so much for the response.  I was thinking about holding the property until spring time.  I thought that might have an effect on the market and bring the buyers back at the start of the season.

600k is that too much for a first time investor?

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