Rehab Opportunity - Is This A Deal?

Question

I am looking at HUD home for sale in my area to potentially purchase and flip. It is listed at $43,000. The owner/occupant bidding period ends tomorrow night and I would be able to bid as an investor then. I took a look at the house and inspected pretty much everything. It is a 2 bed 1 bath, 850 square feet, built in 1920. It has a brand new roof and rafters, updated electrical, excellent siding, big city lot, and a public bike trail right behind their back yard… Most of the fixes would be cosmetic, but it could possibly need a new furnace, and there is some light water on the floor in the basement, so I would need to potentially change some of the grading arou the house and/or add some eaves. Most of the house has been “updated” by the prior owner, they just didn’t do a very good job. (Cheap flooring, poor installation… etc.) Judging by comps within a one mile radius, I would value the house at about $72,000 right now. Rehab costs are estimated at $13,000 with an ARV of $85,000. I have only flipped one property in the past, so I don’t have much experience with evaluating deals. Am I missing anything? This seems like a great fix and flip property, but I want to be sure before I bid tomorrow evening.

John Morgan · Answer

How are you going to finance? It looks alright but I would be sure that the water in the basement is not a leaking foundation. That can cost a pretty penny

Mike Warner · Answer

Hi Ethan.  As a potential new investor I am keeping an eye on your progress. I am always keeping a look out fo a hud home in my area as well. One question I have about the rehab costs that you have listed.  Is this based on actual estimates or previous experience maybe

Being able to estimate rehab costs are the thing that concerns me the most when looking for a house

Jason D. · Answer

Meaning most parts of SJ will not support granite countertops, high end appliances etc., IF you were to put money into things like that you would be "over rehabbing" for that area and not see a return proportionate to the added expense. For a 2/1 at that price point you'll likely attract new small families and/or first time buyers.

What is your exit strategy for this? Especially with a hard money loan you'll want to make sure you have another out should it not sell.

Send me a collegue request, I'd be happy to chat/help however I can.

Jason D. · Answer

Hey Ethan,

Good to see someone in SJ investing and improving the area. I was born and raised there. I agree with you about the water, fairly common as long as it isn't a lot and you have an inspection to look for a more serious issue/cause. What would your rehab consist of? With $13k you should run into an over rehab for the area. I actually look into a flip there a month or so back. Best of luck, I'd be interested in hearing more!

Mike Warner · Answer

Hey @Ethan Painter were you successful in your HUD home bid?

Ethan Painter · Answer

@Tim Puffer Awesome. This is great information and I will keep you in mind! Thank you!

Tim Puffer · Answer

@Ethan Painter Lawn Care if the place is going to be siting awhile. Possibly staging costs if you decide to stage the property.

Also, make certain that you get the correct insurance policy. Most regular homeowners policies will not provide coverage if the home is not owner occupied. If you need help finding one, let me know - my day job is in insurance.

Ethan Painter · Answer

@Tim Puffer That's a great question. I hadn't thought of holding costs. That is something I didn't exactly have on my first property, since it was a live-in-flip. I won't have any monthly payments, due to private funding. All interest will be paid after selling. So I guess that leaves insurance, property taxes and utilities. Is there anything else I should factor in for holding costs?

Tim Puffer · Answer

@Ethan Painter

It's all going to depend on what % profit you want to make. If the numbers work for that % then it is a deal. Have you set what profit you need to make?

Also, what did you factor for holding costs on this one?

Mike Warner · Answer

Thanks Ethan that does help. Pictures and notes of everything is also my plan when doing a house walk thru. Having someone you can trust to advise on costs. BIG ADVANTAGE. Hope you land the house If the numbers work out.

Rehab Opportunity - Is This A Deal?

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