Analyze a flip opportunity outside Phoenix

12 Replies

Looking at a JV with a partner I met here on the forums. He appears to have a connection to someone who purchased a home in Gila Bend, likely a wholesaler, although the house was purchased in March so seems odd it's still available. The contract he proposed is to:

  • purchase the house (20k above their purchase) for 75k.
  • I put 10k into it to fix the roof and HVAC
  • He puts what he estimated as 12k or so to rehab
  • He believes he can sell for 140k easily FSBO - or use flat rate MLS listing
  • A recent comp nearby (only 1) shows a similar sized, but newer home, much less land, sold for 150k 
  • The house needs some new drywall, paint, unsure if tile is still OK, kitchen rehab, 2 bathrooms rehabbed, probably carpet in the rooms
  • My holding time is 90 days to sell apparently in order to qualify people for FHA loans

Is this a good place to put limited supply of my money? 

Separately, I'm having a lawyer review the contract to help prevent my money from disappearing - that's probably my biggest fear.

Do you think you can make money after doing all that rehab?  

75K purchase price + 30K rehab (if you are talking about painting interior exterior, all new flooring , new kitchen and 2 new bathrooms, roof and hvac) + holding costs + closing costs = 120-125 all in?  Sell for 140 so maybe 15k in profit to be split 2 ways?

What are you bringing to the deal?  Just money?  Just doesn't sound like a good deal to me but I'm not a flipper.

@Stone Jin - The partner estimated it only needed 10k in repairs, I thought he was light on that and thought for a very simple rehab 3/2 home (1600sqft), it should only need 15k. The roof and hvac he estimated at 10k, I think that sounds reasonable. Holding costs are just taxes because it's a cash buy. Taxes are negligible here. He expects to sell by owner, or use flat rate MLS service and pay 3% commission if needed. So, that brings it down to 35k split, 17.5k on 85k, or 20% in 3-4mo. It seems like a decent return. Not great, but ok.

My part of the deal is just money. 

The other option he gave me was to buy at 85k and do all the rehab myself. But given it's out in the boondocks, I don't want to deal with it. 

@Leland Smith before you invest any money, you should take a drive through Gila Bend.  There is not much going on out there.  I drive through it on my way to Rocky Point and it seems pretty depressed.   I think your rehab numbers are light at 15K(new roof and new AC is going to be 10K, paint interior exterior another 5K, floors kitchen bathroom another 10K-15k depends on how much updating you want to do.  Also just taking a quick look at zillow, there really isn't much comps in your price point.  Sounds like you are taking most of the risk in this deal.  If I was presented with this deal, I'd walk away with no regrets.  Good luck on whatever decision you choose.

@Stone Jin - I think you may be right. Maybe I *wanted* it to work because it sounded easy... I will probably call a few contractors and get a better idea on rehab costs. It would be a light rehab, so not sure it needs to be those prices. But the small market could make it sit for a long time before being sold which isn't good ROI. The first indication is that the property was still available after being purchased for 55k in March...

Thank you for your feedback!

@Leland Smith I think @Stone Jin is right about this one.  Gila Bend is not a big enough, high demand enough market to do a long distance flip (in my opinion).  I think you will also find rehab costs might be a little more than in the valley because of limited local contractor's.  If you must get valley contractors to complete the work you will be charged a premium for travel time both to the project and to the building supply store's, which the closest available stores are in Casa Grande... I think.

I just moved from Gila Bend, Az. You have to be aware that there are limited jobs. Fast Food, 2 Dollar Stores and the local government jobs.

Schools are ranked very low. No grocery stores and everyone must travel 30 minutes one way for most things they want.

You will be hiring a crew or crews from Buckeye, Az. most likely and getting supplies to Gila Bend will increase your costs.

Rents are very low and I know of a couple of homes that have been on the market for a very long time.

The town just had a recall election for the city council seats so even the town is in a little bit of turmoil when it comes to how it is being run.

Renters burn a lot of landlords and everyone is related to each other. It is a VERY small town. 

Make sure your numbers are in order and make sure you are ready for a long process if you go ahead with the deal. Good Luck.

I can't comment on the location but drywall, paint, kitchen, bathrooms, flooring... who is doing this much work with a GC for $12,000? I think this number is very light for fixing up a 1600 SF house. It also sounds like you will end up in the high end of home sales for the area, which is not a good place to try and sell. Keep in mind your holding costs also will include utilities and insurance (I assume you plan to carry insurance). 

Thank you folks... I think your concerns are worthy. I will probably pass on this one, mostly based on the remote location of it. 

The rehab numbers are also light which concerns me, especially given the location. I think the managing investor was planning on doing some work himself to save on costs. 

10k sounds right on the money for a 1600 square foot house HVAC + Roof (4000 for a 4 ton unit 6000 for roof)

Paint would be around 4k, kitchen around 7k, 2 bathrooms 5k, flooring 5k, fixtures/demo/lighting/etc another 5k

You're more like 35k for rehab unless he's literally doing everything himself to save on labor costs

75k + 35k rehab = 110k all in / 140k = 78% ARV minus repairs deal

If it were in Phoenix and you had solid comps in a conforming neighborhood I think it would be a good deal. In an area like Gila Bend where you're kind of guessing on the comps I'd be a little more wary