What do you think of this plan?

1 Reply

Hi REI experts and aficionados alike!

Have a deal brewing, but it'll take some creative financing and wanted to get your thoughts as I've never done any deals more complex than a standard conventional 30 year loan, or a rehab for that matter.

A reputable contact is getting rid of one of their holdings as they are raising some cash for other investments.  Offered me this deal:

  • House is located in nicer KCMO suburbs and easily comps at 112-120k
  • House in need of about 23k in updates/remodel (they would perform)
  • Has current renter that has been there 15-17 years but would probably need to leave for rehab (lease is up early 2017)
  • Offering me value purchase price of 83500 (over 10k less than comps minus repair cost)
  • I would get portfolio loan with my local bank there (already approved) at 30% down ($25050)
  • Would open a HELOC to perform the rehab (max $23k)
  • Once complete, get a cash-out refi (with same bank), at 80% LTV of (hopefully) new value of 118k which would cash me out 24k -- enough to pay off the HELOC
  • Would put back on the market at 120k, and if sold would net 25k+ on the deal, otherwise could continue with prior renter or find new renter (pretty easy in this area)

Obviously quite a few things would have to go right including the reappraisal, but the comps look pretty easy to obtain that new value.  Also I'm wondering, if I plan to resell immediately, whether it's worth doing the REFI -- and only go that route if I'm holding for another year, since that's just another 5k in closing costs "wasted".

Appreciate any thoughts on the above!

Using the BP's rehab calculator -- it seems when you factor in selling commissions (I'm not a realtor), the numbers don't really line up for a flip, this would work better as a buy and hold.

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