Deal or No Deal, under contract for $6k

15 Replies

I recently got 405 N Avenue K, Portales, NM 88130 under contract for $6k, it is a fixer upper. Full gut. Hoping to do a fix and flip.

Asking Price 15k

ARV - 65- 70K

Got it under contract for 6k

Reno- 30 - 35k

Is it worth the headache?

Flipping Formula

(ARV x .7) - Rehab costs = Max Offer

(65,000 x .7) = 35,000 = 10,500

A 30k return on your 6k purchase price? If you are sure about your numbers it's a no-brainer. 30k for more expensive flips is a good return. Also, J Scott says he likes the total guts even more than moderate rehabs because you are already expecting the worst and you won't have any surprises. Make sure you have concrete bids for the rehab and you have a good contractor and your ARV comps are solid.

Have you calculated your holding cost. Just a quick look at listing shows current houses for sale in Portales NM range from 52 to 180 + days on market. Most of them having decreases in price.  Maybe this house would make a better rental but I didn't look at that.  

@Wes Barnes - while I too use @Trent Stone 's formula (it's a critical one), I add one more thing: profit must at least match renovation costs. That's a way to reduce risk and in this case the 2nd criteria is not met. Ie, I will not spend $35k to make $18k. That doesn't mean you shouldn't do the deal, rather it wouldn't meet my criteria. Good luck!  

the worry you should have with these cheap deals is not the numbers. It's ALL the ancillary stuff that goes along with it. 

Why did no one else pick up this deal if it's so lucrative? What if you can't get a good contractor? What if it doesn't sell easily? 

70k - 8%(5.6K) - 35k = 29k profit on 41K all-in is a 70% ROI.

if it sounds too good to be true, and you're a beginner, then it's time to do a lot more due diligence. 

I would talk to a realtor and a contractor to confirm your deal. 

the numbers obviously work, but real estate is ALWAYS EASY on paper. In real life things will be much harder 

according to the internet, there is a similar house on the same street for sale for 58K 

@Wes Barnes I do cheaper homes like this as well. From research of others I agree it might be a better place to rent. If you can for sure rent this house then use this as a BRRRR. Get it appraised, rent it out, pull out 70-80% of what it appraises for and go on to the next one.

I'd def do this deal as long as it isn't in a really crappy area/street.

@Wes Barnes - ROI is calculated as a percentage. What I gave wasn't ROI, it was net profit. Here's how I got to that number: $65k x 0.92 (6% commissions + 2% closing costs), subtract $35k (renovations) and another $6k (pp) which leaves $18.8k. I rounded down a sliver though the reality is you'll probably have higher holding costs.

Derrick's suggestion is key because while I would not do this deal as a flip, I'd give it serious consideration as a BRRRR. If it's a decent area and you have a university nearby, you'll have students pay off the home in a hurry.

Originally posted by @Wes Barnes :

@Tchaka Owen

Do you happen to know any lenders that would do a cash out refinance with a self employed person?

Best bet is to find a local community bank. That's what I use in my area.

With a major college down the block I would definitely do this deal. Even if you dont rent to students the college students in area will boost rental prices and make overall rentals in the area be in more demand.

If you go the BRRR route you might be able to save some on initial renovation budget. You want it to be nice but dont over do it. Just remember its a long term rental in a college town that needs to appraise well on the front end.

@Silvius Grant

This will be my first flip however, I'm an independant Insurance Adjuster, I use Xactimate like the contractors it's gives me a more accurate scope of work.