What do you think about this deal

[Patrick Rowe]

I have my first rehabb under contract for $62,000 it's a 3br/2ba 1531 living area. I have a local bank that will finance 90% of the deal. There are housing in the area selling for $90 per square foot. My banker had the house appraised and it came in at $106,000 which equals $69 per square foot arv. I estimated around $10000 - $12000 in repair costs. My questions why is the appraisal come in lower and do you think this a good deal? There is one pending at $85 per square foot and it will close on the 3-29-13 l. Also there is on active at $90 per square foot and all properties are identical.

[J Scott]

I wouldn't use price/sf for residential ARV estimates. A 3 bedroom, 2 bath house that's 2000 sf isn't going to be worth 33% more than a 3 bedroom, 2 bath house that's 1500, all other things being equal. It just doesn't work that way in the residential market.

So, assuming:

- $62,000 purchasae
- $12,000 rehab
- $106,000 resale
- 12% of resale in fixed costs (just guessing, let's round to $13K)

The potential profit is:

$106K - $62K - $12K - $13K = $19K

So, if you're confident that your ARV and your rehab costs are accurate, if your fixed costs are in the $13K range, and if you're happy with a $19K profit, it's a good deal.

Just make sure that rehab number is correct...I don't tend to do too many rehabs for under $15,000 these days...