Bluffton , SC · Member since 2015 · 75 posts · 9 votes
Is this guideline standard practice across the board or does it change depending on the or neighborhood and area?
Found a great candidate for a first flip 4600sq/ft.
After Reno value should be in the $850,000 range
70%=$595,000
$100k Reno cost at least to get it up to the level it needs to be.
$495k purchase price following the formula.
Realistically probably the bottom price in this neighborhood will be $525k-$550k
Am I missing something? worth doing the deal?
Investor · Henderson, NV · Member since 2016 · 227 posts · 86 votes
9y
It is all relatively. 30% is a rule of thumb and think of some of the places that really want to shoot for that 30% rule. If you are dealing with a 100k ARV property. After purchase+rehab you made 30%, so you came out with 30k. But don't forget agent commission and closing cost when you sell, but even if ignore that, 30k...30k is still a lot of money, but look at all that work and risk.
Now look at your example. Doing a very rough estimate on my end, it will require you much more capital compared to the 100k ARV property, but if you use the 550k+100k rehab then take out closing cost wouldn't come out with well over 100k at the end? Most people dream of getting a 6 figure salary in a year. You could do it in less than a year, and maybe even twice.
Investor · Henderson, NV · Member since 2016 · 227 posts · 86 votes
9y
It is all relatively. 30% is a rule of thumb and think of some of the places that really want to shoot for that 30% rule. If you are dealing with a 100k ARV property. After purchase+rehab you made 30%, so you came out with 30k. But don't forget agent commission and closing cost when you sell, but even if ignore that, 30k...30k is still a lot of money, but look at all that work and risk.
Now look at your example. Doing a very rough estimate on my end, it will require you much more capital compared to the 100k ARV property, but if you use the 550k+100k rehab then take out closing cost wouldn't come out with well over 100k at the end? Most people dream of getting a 6 figure salary in a year. You could do it in less than a year, and maybe even twice.
Bluffton , SC · Member since 2015 · 75 posts · 9 votes
9y
Considering a live in flip for this house as well, I will have my license by the end of this year. The avg price per sq/ft in this neighborhood is over $200. Older couple in their 70s getting divorced it has a ton of potential, I am meeting with our builder tomorrow to walk through the home to get a better idea of how much it will actually cost
Is this guideline standard practice across the board or does it change depending on the or neighborhood and area?
Found a great candidate for a first flip 4600sq/ft.
After Reno value should be in the $850,000 range
70%=$595,000
$100k Reno cost at least to get it up to the level it needs to be.
$495k purchase price following the formula.
Realistically probably the bottom price in this neighborhood will be $525k-$550k
Am I missing something? worth doing the deal?
If $595k is above the conforming and (if applicable) conforming high balance loan limit in the area, then it's a jumbo loan (it's $636,150 for SFRs in the most expensive areas, like the Bay Area and Los Angeles), not a Fannie/Freddie loan. All jumbo loans are portfolio loans, and all portfolio lenders have different guidelines, rates, terms, LTVs, etc. For jumbo loans, it's probably more important that you work with someone licensed to broker that can shop it, not a bank or credit union, than is otherwise normal.
Jumbo lenders vary far more drastically from one to the other than the Fannie/Freddie stuff. What finding the right jumbo loan looks like for you is turning all your paperwork in and waiting for an answer. On my end what it looks like is sorting by rate, picking the best, and then plopping that lender's 100-300 pages of guidelines down on the right side of my desk while all of your paperwork is on the left side (both sides of my desk need to have something on it, or it doesn't work). If it's a fit, great. But most people don't qualify for that best-case for one reason or another, so we rule out that lender and look at the next one down the list.
For example:
- In Fannie/Freddie world you might encounter rates that vary by 0.25% for the scenario, LTVs that vary by 5%, and cash out refinance seasoning requirements ranging from 6 months to 12 months.
- In jumbo world where your loan amount is $1 over the Fannie/Freddie limit, it'll be 1.5%+ rate variance for A+ paper, 20% LTV variance, 6 to 36 months of seasoning variance, and anywhere from zero months to 36 months of PITI reserves even for owner occupants with no rental properties (f. ex. one Jumbo lender on a SFR purchase will give you 5% more LTV in exchange for an additional 12 months of documented PITI reserves, going to 85% LTV for loan amounts up to $1m). These are private sector actors with no gov't subsidy lending money on terms that often match or beat gov't subsidized terms, so they make up for it by being more stringent/conservative in their underwriting criteria, or they offer rates/terms that are worse for the borrower than the Fannie/Freddie rates/terms.
Daniel Y. What are you talking about 30% profit on a 100k aka 30k profit? You need to read more books!
Manolo, what are YOU talking about? Last I checked, 30% of $100k DOES equal $30k. (ie. Daniel's example was that ALL-IN, he'd have paid just $70k). I also agree with Daniel's point that when you're dealing with $800k ARVs, the same 43%* profit would be netting more than $100k**, which is why the 70% Rule need not be set in stone to begin with. Cheers...
* Oh, yes, paying just 70% of its value means that your profit when you sell at ARV is 43%, not 30%!
** In Skip's example, the 70% Rule gets him a profit of $255k! So, should he NOT buy it if he could only profit say $150k?