Auction Deal Scenario

[Lance Gorton]

Here are the numbers on a potential Trustee's Sale deal. Is there enough profit here and have I overlooked something big? Thanks for any feedback.

ARV: $375,000  (Broker says more but this is a solid, well comped number. He said more

               like 425,000 but that was based on avg per sf sales, incl smaller homes.)

Max bid: $281,101 (the most I would bid. Opening bid 275,000)

Rehab: $30,000  (I know - w/o interior inspection it is a guess. The home is very nice

               outside, great neighborhood and looks good through the windows). Home 12

               years old. HOAs (70/mo). Was one of the model homes...

Selling cost: 5% Broker and 3% fees = $30,000

Holding / Arrears: $11,000 (I have verified HOA, cnty Taxes. Includes insur., utilities)

Funding: 10% or equity partner 50/50. My $ investor is open... Let's say 10%, no pts.,

               and 8 month turn around, 322,101 loan. That is $22,613 to investor @ COE.

NET TO ME: $286 (from 93,900!!!)

Variables: Home occupied (thus 8 mos to evict etc.)

                General is in-law. He will cut his fees to help (5,000). Yes, he's good.

FSBO - saves 2% if co-op to Realtor, saves 7,500

                $ investor - our 1st "deal" - don't want him turned off!!!

Be kind, Lance

[Chad U.]

@Lance Gorton

This is a huge risk. Why would you want to get into a deal where your potential is to only break even? Unless the situation you propose above is your worst case scenario, then don't do it. For every deal you're looking at, you should prepare a Best Case, Most Likely and Worst Case scenario. If your Best Case and Most Likely will generate a min. of 15-20% ROI on your costs, and your Worst Case is break even, then would proceed. However, In this case, it looks like your Most Likely is to break even. What if the rehab is $60K? Once you've determined your 3 scenarios, then you can calculate your Max Bid price so that you minimize your chance of losing money.

When buying at auction, you should never exceed 65-70% of ARV at very most. Unless it is a good rental candidate that you don't intend to sell, where after you include for rehab & holding costs plus the purchase price, it doesn't exceed ARV AND can generate a good ROI from rental income.

Hope that helps.