Appraisal came in low

[Dalton Dillon]

I'm closing on a flip here in Houston, Tx next week. I ran a CMA on the property and got an average sells price of $290k. $280k is what I ran my numbers off of to be safe. The appraiser went to appraise the property today and he used the same comps but appraised the ARV at $265K. He seemed to make some odd adjustments on his end. Considering the appraisal, it makes my numbers really tight. If the comps pulled are selling between 280-290k and are very similar, should I be concerned with the end goal of this deal? For context the comps are roughly the same sqft, 200sqft give or take, same beds/bath, same lot size, same year built.

To help, here are my numbers. PP-178k, closing on front end 3-4%, Rehab 40K, Holding cost $1750 per month, Commissions 6%, closing 2%. I calculated a $30k profit. Rehab should only take a month so I'm thinking 3-4 months total. I was projecting to sell at 280k which was the low side of the comps. Will this appraisal really affect me on the back end when it's all said and done?

[JD Martin]

You're in pretty slim numbers any way you look at it. Just on your purchase and rehab you're at 220 if nothing goes wrong. $7k on holding, $16k in commission, $5 in closing brings you to 248 if everything goes according to plan. Even at 280 it leaves you at $32k and after taxes brings you down in the low-mid 20's, with no hiccups. One hiccup and you're breaking even, like appraisals that come in at 265 (or even lower!). 

I don't like to be any higher than about 70% all in, because there's no room for error otherwise. You're at almost 80% before you pay your realtor and your holding costs.