Washington, DC · Member since 2016 · 12 posts · 5 votes
Hello all, so here is the deal;
Bank owned property listed at 153k
After seeing, I offered 155k plus closing (7k) which brought my offer to 162,500k. Still not too bad but possibly too high for bank owned.
I elected to have this property rehabbed under 203k program as it qualified. I had some great ideas. Comps for the area were 221k on the low and 255k on high side but that's about it. Nothing higher than 255k. I figured if I could go for a full 203k but keep cost at 60k or below, I could still get a possible 12 percent profit out of the deal selling at 255k. ARV is 222,500.
But After 203k I would have to invest an additional 20k in house for deck and second bathroom to possibly sell at high value, 255k.
Problem is I would spend a total of approximately 245k after 203k, and additional 20k for deck and bathroom- which doesn't really seem like a great deal. I would have to sell really high just to get a profit. Please share your thoughts.
I want this to work but the numbers keep haunting me and encouraging me to pull out. I am interested to hear responses.
Thanks in advance!!!
First thing is don't bank on selling at the highest comp you can find. That would be best case scenario. I'd be on the cautious side and say you will want to list at slightly below for a quick sell.
I would look for an exit around 10% below the highest comp just to give you a cushion. You could still list for full but base your numbers on a more conservative number. If 255k is high end 90% would be $229,500 basically $230k would be ball park exit price. Then work backwards.
70% rule is the max you would want to be all in at... so I would shoot to be all in at 65% or $149,500 to give you 5% additional cushion.
Then, if you say 60k + 20k would be your repair values totalling 80k you subtract that off your all in price. $149,500 - $80,000 = $69,500
If there are 80k in repairs, I would imagine at least 3-4 months renovation time and another 3 months to sell depending on your market... ball park 5k holding costs
You will also incur closing costs, realtor fees and possibly need to pay closing costs for your buyer... lets call that 10k in purchase and sell expenses.
That brings the asking price to around $54,500. ($69,500 - 5000 - 10000 = $54,500)
This will get you an all in price of $149500 and sales price of $230,000 and potential profit of $80k.
Keep in mind, I don't know your market, but if your coming in from the get go at $162,500... I'm not sure that will be enough cushion to make a good profit based on this quick math.
Take it with a grain of salt, but these are my thoughts on the deal for whatever it's worth. I would have offered way less for a property needing $80k in work. Hopefully this will help at least clarify some of the expenses you will incur to do the deal and you can prepare for them beforehand.
After doing 2 major renovations now... you always want to err on the side of caution because once you start opening walls you will find things that you didn't expect and you can't go back and change your purchase price. Also don't skimp on the inspections, it's best to know before hand everything you can to minimize the things that you run across that you weren't aware of.
Also have multiple exit strategies.... Would you be able to rent the property if repairs ran over another 10k and the property sat on the market for 6 months for some reason. Would the deal still cash flow if you had to rent the property?
It sounds like you already know the answer.. it's not a good deal. A good deal is one where you feel like you can't lose.
Also the way you described your offer at $155k + $7k for closing is very confusing unless you paid the banks closing costs for $7k. Your OFFER is $155k. Part of your overall Carrying Costs are $7k. If the ARV is $225k, and the repairs are $80, then your offer should be $100k or less.
Lastly, $20k for a bathroom and deck is not going to give you any return. You need to eliminate those repairs or get them done much cheaper.
Lol thank you so much for your response. I do know the answer to the question and you two confirmed what I already know I need to do. Thank you. There is no room for profit.