Sweet deal..Best way to maximize profit??

Question

I have a great dillema on my hands.

Nice property in Wisconsin.

90% remodled 3br / 2 ba

Comps from several agents and websites in 95k-100k average range.

Property can be purchased for <30k.

My initial intent is to contract the property and repackage it to an investor (wholesale). I would price accordingly around 40-45k. The property needs only cosmetic work.

Is a 10-15k spread asking too much? I am still leaving quite a bit of value for the end buyer here. Thoughts??

The reason I ask of course is to maximize value..Any other suggestions on creative methods to accomplish this?? The owners are pretty much open to anything.

SFR in a nice neighborhood...Owners want to move out of state.

Thanks in advance

Jon Holdman · Answer

Lets assume you're $95K ARV is correct.  You need to be absolutely sure, but lets go with that.

Lets assume it needs $10K in work.  You say "cosmetic" but also say 90% remodeled.

You should be able to find a HML who will lend you 65% of ARV - that's $62K.  You need $40K to buy and fix, plus another $6K for the hard money and maybe another $3-4K for closing and holding costs.  So, you're into it for $50K.

Sell it retail for $90K with an agent.  Pay some seller commissions.  Net $80K after the commissions and costs.  Pay back the $50K.

$30K profit.

Jon Holdman · Answer

Hard money terms are all over the place.  If I was doing a deal right now, I'd expect to pay four points and 15%.  That what I assumed above.  I could borrow up to 70% of the ARV, even if that covered the purchase, rehab, points, and closing costs.  That's somewhat unusual.  More typically, HMLs want you have put 10% or so into the deal.

You MUST be very conservative in your ARV estimate.  Get a list of sold comps, which is sounds like you have.  Drive those comps, and find the ones that are closest, most recent, and most similar.  Similarity is key.  If yours is a ranch with basement, only compare to other ranches with basement.  Two story?  compare to other two stories.  Compare only to ones with the same beds and baths.  If the square footage is different, an appraiser will adjust.  However, he or she will not compute a dollars per sq.ft. based on the price and size, then use that to adjust.  The adjustment factor will be much smaller.  For example, if the per square foot price is $100, the adjustment might be more like $40 a square foot.  Main floor square footage is what matters.  Second floor matters less, basement matters very little.  Appraisals have been tending to come in low.

Then, grab your agent and go look at current listings.  Look at how these compare to your house.  Look at what they did for colors, floors, windows, cabinets and countertops.  Check the landscaping.  You want to end up with the best deal in the neighborhood.  As good or a little nicer than any other house, and a little cheaper.

Nobody cares what it looked like before.  Its easy to fall into the "it looked so awful before, now its better" trap.  "Better" might not be good enough.  Regardless of what it looked like before, it has to look good now.

Shane Schaetzel · Answer

Thanks for the tip Jon,

The ARV was based upon local Realtor comps and my own research from web services. I took the average of all the data collected and came up with roughly $97,500. So low end of 95 just to be real.

The property needs some bathroom work, and a fresh paint job. I'll budget 10k just in case of any suprises on the way.

I have never gone the HML route before. What can I expect as far as decent terms on such an agreement?

Thanks again for the time.

Shane