Hello everyone. First Deal requires advice

5 Replies

Hello everyone. I joined in April and have finally put together my first deal. Please respond with your thoughts. Here it is. 3br 1 ba ranch just over the bridge to a popular Seaside community on Jersey coast. Purchase price 215K Appraisal and inflated purchase price 285K. Bank loan 238K. Seller take back 20K. Seller 2 yr no payment/interest loan 20 K. Realize 48K at closing . House is in bad condition. Add 2nd story and rehab lower level with the 48K. Into property for 268K total. Sell by Jan 03 for 335. Profit is 67K. Sounds great right ? What am I not seeing? Please advise. Thanks, Chip.

Chip;

The way you described it I wouldn't touch it, but read on!

Maybe I'm not real sharp this morning, you're buying for $215, but telling the bank you're paying $285, is that right? You're getting a bank loan for $238? The seller is "lending" you (your own!)$20 @ closing, is that right?

That description has you $258 in debt at closing, something is wrong with either what you wrote, or what I read! Or perhaps the seller is giving you back the $23 that exceeds the loan balance, and lending you another $20, in which case you'd still have $43. Is that it?

Either way, if you're paying $215 and putting $48 into rehab, which I seriously doubt if you can do what you describe for $48! Depending on what you consider a "mess" I know you can't. I can hire pretty skilled labor for $9/hour down here and WE DON'T BUILDING PERMITS OR INSPECTIONS, and I doubt I could do a second story, add a bath for much less than $48.

Regardless, $215 + $48 = $263, the RULE OF THUMB on rehabs is that your acquisition cost plus your rehab cost should not exceed 65% of After Repair Value (ARV). Which means you either have to buy for about $170, or sell for about $400 to make this a deal!

Here are some key things that I didn't see mentioned in your post:

Acquisistion cost
Holding costs
Selling costs
The fact that you're going to be selling a waterfront ppty in February! Down here the busy time for selling waterfront is April-August, and we can enjoy our lakefront year-round.

Straighten us out on the numbers you posted and tell us why you think this is a deal!

all cash

question for all cash and anyone else for that matter...you talked about the RULE OF THUMB on rehabs...which was an excellent pearl of info. I'm just starting out with gathering research on REI topics. Was there a good book that goes over "Rules of Thumb", but not for rehabs; for all REI ventures. Thanks, response is greatly appreciated! :D

Rules of thumb cannot be gotten from books. That's what
forums are for to talk to real people about real deals.

And now for uniquedesinez:

Add a 2nd storey
you say? Add a second storey?
Add a 2nd storey!!!

Pauses to think about it...still thinking...

ADD A 2ND STOREY?!

Sits down and pours a glass of whiskey. Thinks about offering it
to uniquedesinez (because he really needs it) but thinks better of
it and drinks it himself. :beer:

Wasn't there an episode of property ladder that was like this? he thinks.

Count on the new bathroom costing $48k and I'll throw in a bunch of
the little stuff. But you said it was in (how did you word it...oh yes)
BAD CONDITION.

No, No Little Brother! Listen to the other posters here. They're only
trying to help.

It appears like your bank will accept an appraisal for 285k on your subject property.if they are making a loan for 238k that means you have to have approx.16.5% down(47,000.) closing costs included.if your sales price is only 215k that means the seller gets his 215k and goes away.you are left with a property worth 285k that has 47k of your money in it plus 23k equity.or 70k in the bank so to speak.if the seller is going to lend you 20k it should be out of his proceeds from the 215k sales price.he must be a nice person to loan you his money for 2years no payments no interest.
It looks like you need the 20k to help make the down payment and closing costs.If so you have to make enough on the resale to cover the 20k plus the costs incurred for rehab,holding,and acquiring the property and still make enough profit for it to be worthwhile.Is the bank going to give you 48k at closing for rehab?Or are you going to do a home improvement loan?You can normally borrow up to 50k that way.If you are a contractor and do the work yourself you will still have a hard time adding a second story and bathroom plus other repairs for under 50k.My swimming pool cost more than that.If you can pull it off however creative you get with it,you still have to sell by 01/07 and for 335k.or preferably alot more. What are the consequences if you don't sell the property.Foreclosure? Ruined credit?Loss of a friend?Good Luck!!

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