Is this really a deal or not?

16 Replies

I am a hesitant newbie from california and boy am I scary to loose my ***. Need some help here.   I found a property in Menifee Ca. It has several advantages. It is very close to the contractor I am working with and in a nice neighborhood. The home has been vacant for 7 years and now it is a short sale. The asking price is 220,00 It's a 2bd/2bath with 1255 sq. ft. I offered 187,000 and yes I know that is more than the 70% rule but I feel I continuely get out bid because I am bidding too low and then don't get another chance. although the residence is missing an air conditioner and furnace, the property is in very good shape. The Landscaping needs a total revamp. As does exterior paint and facia.

The loan I have gotten approval on bothers me a bit. It is for 200,000 with 25% down for 3 0r 5 years with 10.99-11.25 interest rate. Yikes. So I come in with 50,000, the mortgage would be 1450 and I pay 4-6 points. Now if I don't want a prepayment penalty then I can buy that by paying 1 more point. I hope I am presenting this correctly. Somehow this does not seem like a great deal. but what if it's all I can get?

I would be hesitant to make this purchase. Do you intend to buy and hold, or flip? With repairs, your total costs will be close to $200K. I know the area somewhat and if you intend to buy and hold you are unlikely to be able to get even 1% (2,000/mo.) for rent. So you will likely lose money every month. I'd recommend using the BP calculator to identify all of your costs.

Yes you need to spell out all the costs. The Renovation costs. The Insurance, The Taxes the Principal and Interest and any utilities you will be paying. The Holding costs. You need to know the comp on the rents if you are holding and if you are flipping you need to now the ARV

Spell them out so you can get an opinion on the buy   

This post has been removed.

Ms. Elizabeth: 

Just a suggestion please absolutely do not do this loan. The point and rates are hard money rates it's a very bad rate for you. 

The type of loan you should be looking for is a HomeStyle Renovation Loan your rates will be 5 - 6% and may be 1-2 % closing costs that is it. The numbers you are looking at will be very tough do do unless you have a huge margin and it's a flip.

Another place to look for money is private money lenders. Friends or family or other investors that will lend you money at 10 - 13% fixed rate secured with a mortgage and  note. 

Here are few thoughts. 

1. What is the reason you want to invest? (Short Term Or Long Term)

2. What is the goal Flip or Cash Flow?

3. If it's a flip then how much is this property worth once you have it rehabbed? How much is your all in cost including hold cost and cost of money?

Based on the just the numbers you posted it's not a good deal.

It's great that you putting so much effort in making offer but remember that don't do a deal just to do a deal. It needs to make sense for you. It's great that you have the foresight to post some of the details before you got in the deal. 

I intend to buy and flip.  I know that I can get the work done with 30 days. I have studied this area of interest for about a month now and most houses listed have been selling with 2  to 4 months.  The rehab and selling of the place does not worry me so much, what worries me is the loan.  Still looking for better interest rate and no prepayment penalty. 

OK well here's what I cam up with.  I found the calculator was not showing enough detail.  Some of my figures I think are high and so the pessimistic column looks very bad which is one reason I am hesitant.  When i used the BP calculator it stated I could make about 10,000 on the deal.  Looking at my figures can you tell me if I am way off? Sorry my excel document did not copy to this forum correctly.  Hope you can read it ok

8/21/2015
Real Estate Profit Calculator
Deal Analyzer for Residential Fix & Flip Properties
Property Address: 30111 Westlake

Optimistic Most Likely Pessimistic
SUMMARY:
Sales Price: $ 249,000 $ 240,000 $ 235,000
less Purchase Price: $ 187,000.00 $ 187,000 $ 187,000 $ 187,000
less Costs to Buy/Repair/Hold/Sell $ 48,485 $ 51,308 $ 54,332
= PROJECTED PROFIT $ 13,516 $ 1,693 $ (6,332)
DETAIL:
Est. # of Months from Purchase to Sale: 1.5 2.5 4.0
Costs to Buy:
loan origination $ 6,700 $ 6,700 $ 6,700
appraisal $ 250 $ 250 $ 250
credit report $ - $ - $ -
title insurance $ 750 $ 750 $ 750
escrow fee $ 1,000 $ 1,000 $ 1,000
recording fee $ 100 $ 100 $ 100
other ___________ $ 200 $ 200 $ 200
other ___________ $ 1,000 $ 1,000 $ 1,000
TOTAL Costs to Buy $ 10,000 $ 10,000 $ 10,000
Costs of Repairs:
roof repairs, paint, misc repairs $ 8,000 $ 8,500 $ 9,000
Cabinets $ 1,500 $ 1,500 $ 1,200
Landscape $ 1,500 $ 1,500 $ 2,000
Furnanace $ 2,500 $ 3,500 $ 3,500
Air conditioner $ 2,500 $ 2,500 $ 2,500
other ___________ $ - $ - $ -
TOTAL Costs of Repairs $ 16,000 $ 17,500 $ 18,200
Holding Costs:
pay 'subject to' mortgage payment 1450 $ 2,175 $ 3,625 $ 5,800
taxes 45 $ 68 $ 113 $ 180 monthly pro-ration
insurance 40 $ 60 $ 100 $ 160 monthly pro-ration
Utilities:
gas 15 $ 23 $ 38 $ 60
electricity 50 $ 75 $ 125 $ 200
water/sewer/trash 35 $ 53 $ 88 $ 140
HOA 48 $ 72 $ 120 $ 192 HOA, etc.
0 $ - $ - $ -
TOTAL Holding Costs $ 2,525 $ 4,208 $ 6,732
Selling Costs:
real estate brokers commission 4.0% $ 9,960 $ 9,600 $ 9,400
title/escrow fees $ 10,000 $ 10,000 $ 10,000
concessions to buyer $ - $ -
other ___________ $ - $ - $ -
TOTAL Selling Costs $ 19,960 $ 19,600 $ 19,400

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Sorry everyone that last post is a mess I didn't realize it would be that way.  Live and learn.  It reminds me of the webinar wednesday when it was clearly stated that our presentation need to look professional.  So back to the drawing board on how to copy my excel items and turn them into PDFs .  I did us the calculator and it showed that I could make about 10,000.  As I said before it is a short sale.  I guess I have to wait to see if they even accept the offer.  In the mean time I will look at more properties and search for a better loan offer.  Thank you all for your input.  I'll be back... 

Seems like a pretty thin profit projection for taking a lot of holding cost risk. Throw in one or two 'what if' scenarios and all of your profit might be eaten up. What if there needs to be some mold remediation? What if it takes 6 months to sell? There are a lot of issues that may come up and your margin might not be high enough to absorb these and still reap a profit.

I think you will need a better loan for the numbers to work.  Your projected time frame seems optimistic even for the "worst case".

At this point and because of your opinions I will look at the deal again.  I also continue to pursue other lenders. Since it is a short sale and the bank may take 30 days just to make up their mind then I continue to look at other properties every day.  No time to just sit around waiting, and everyone who know me knows I hate to wait.  So do you all have a great private lender?  Ha! I will keep in touch with this forum and let you all know how it goes.  Thank you so much for the feedback.  

I live in Menifee.  Menifee is currently the 2nd fastest growing city in Riverside County.  The upside of Menifee is that they have been building even during the Recession.  It is relatively more affordable than the surrounding city of Murrieta and Temecula.  It is a commuter city.  They are currently building like crazy.  They have plans to put in a higher end movie theatre, bowling alley, and a city town center.  The downside is that the new communities have a higher property tax rate.  So make sure that you look at the different property tax rates.  Communities that tend to have higher tax rates are Heritage Lake, Centex Summerhouse at the Lake, and Audie Murphy Ranch.  Hope this helps.  

Originally posted by @Elizabeth Matos :

At this point and because of your opinions I will look at the deal again.  I also continue to pursue other lenders. Since it is a short sale and the bank may take 30 days just to make up their mind then I continue to look at other properties every day.  No time to just sit around waiting, and everyone who know me knows I hate to wait.  So do you all have a great private lender?  Ha! I will keep in touch with this forum and let you all know how it goes.  Thank you so much for the feedback.  

Hi Elizabeth

I have a deal I'm flipping in Menifee right now, we will be completing the rehab in 3 weeks.  I have a good understanding of when to and when not to buy, flip, or hold and would be happy to help you with any thoughts or concerns you may have about this deal and others like it.

I also work with a fantastic private money lender you would enjoy working with.  I will be on my menifee job site tomorrow if you would like message me and I will give you a tour.

Good luck

Jim

Originally posted by @Elizabeth Matos :

At this point and because of your opinions I will look at the deal again.  I also continue to pursue other lenders. Since it is a short sale and the bank may take 30 days just to make up their mind then I continue to look at other properties every day.  No time to just sit around waiting, and everyone who know me knows I hate to wait.  So do you all have a great private lender?  Ha! I will keep in touch with this forum and let you all know how it goes.  Thank you so much for the feedback.  

 Your hard money loan isn't horrible but isn't spectacular either. It is average. Same scenario and my rates would've been 3.5 points 9.5% no pre-pay. Your deal however is not very good. $10,000 profit is extremely thin. Any issue with rehab even if minor and your in the hole. My suggestion would be to find a real estate agent to work with and the deals would come. 

Thank you Jim and Alexander for your comments.  I have a wonderful realtor that is working with me and we talk about real estate almost everyday except Sunday.  I try to visit some open houses and talk with realtors in the area on Sundays.  Thank you for the invite Jim.  I hope to connect with you soon.  I will continue to pursue my first flip as I am still learning something new every hour I work to know the real estate business.  

Don't know how far you went with this, but my input/question is about the loan ... if you can get a loan yourself instead of a hard money loan, you're way better off.  The Homestyle renovation loan would be between 4-5.5% or so, NO POINTS.  You have options with points, but if you're going to flip the property, the rate is less important, so try to get higher rates where they rebate you points.

When I look at the details of your loan, it makes me think you have the wrong loan type ... you don't need a hard money loan for 3-5 years.  That must be why you have to pay so many points and a pre-payment penalty.  If you can't do traditional financing (which is always the best first choice, so Homestyle which is conventional, etc.), then you want a hard money lender that is for 6 months, maybe a year max.  If you're going to sell it in a few months, you don't need to be paying 4-6 points plus pre-payment penalty.

Look for a hard money lender that is 3 points, 12% for 6 months.  Use that as your base and shop around.  Oh, and 20% down max ... hopefully less.

Regarding the $10K profit - hopefully it's more than that ... 3 points is $4500 already on a $150K loan.  The upside potential needs to be much higher to make that worth the risk.

I know this is a dead. But what did you end up doing with this property? If you moved on to a different deal in the area how did that one go?

Thanks for your time!

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