Texas Flip costs (is this a good deal)

Rehabbing & House Flipping
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Texas Flip costs (is this a good deal)

Dusty Warner
Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes

I went to my first REIA meeting the other day.... I was surprised to see that there were only 6 other people there.... The guy speaking was a wholesaler/flipper.... After about an hour of casual conversation about this ladies experience with her wholesale guru the speaker offered a couple of deals... Im still in the learning phase of marketing for deals and preparing for the possibility of a potential rehab project. Ive bought @J Scott 's books on rehabbing, but I was hoping to get some feedback on the amount of fixed costs this deal would have and what Net would be.... The Speaker was advertising a $45k-$50k profit, he obviously wasn't talking NET....

1011 Hays St. San Antonio, Texas, 3/2 1400ft

$163K ARV

$40K repairs

Price-$69,000

3-4 month timeline

Hard Money Loan

14% loan, Repair Funds can be financed, held in Escrow and dispersed on a Draw Basis as long as the Loan to Value criteria is met
  • A $175.00 Inspection Fee will be charged for each Draw Request
  • Loan origination fee of 3-5% of the loan amount
  • Appraisal fee of $350.00
  • Loan processing fee of $825.00
  • Attorney fee of $300.00

PURCHASE COSTS??_________

HOLDING COSTS??_________

SELLING COSTS???_________

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    J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y

    I don't know enough about Texas closing costs or taxes, but I'll throw out some example numbers and you can tweak with the actuals:

    Purchase Costs:

    -  Loan origination:  $3000 (Based on 5% of loan value, which isn't clear)

    -  Loan related stuff:  $1500 (Based on what was written above)

    -  Inspections:  $400

    -  Closing costs:  $1500 (No idea in your area)

    Holding Costs:

    -  Loan payments:  $5000 (Assume about 6 months worth)

    -  Taxes:  $1500 (No idea in that area, but assume 6 months worth)

    -  Insurance:  $600 (I'm assuming $100/month)

    -  Utilities:  $900 (I'm assuming $150/month)

    -  Lawn care:  $300 (I'm assuming $50/month)

    Selling Costs:

    -  Commissions:  $10,000 (Assuming 6%)

    -  Closing costs:  $1000 (No idea how it's done in your area)

    -  Concessions:  $5000 (Assuming 3% of sale price...no idea what's typical)

    -  Home warranty:  $400

    -  Staging:  $2000 (Always a good idea)

    Adding all that up would put your fixed costs at somewhere around $33,000.

    That seems high to me (20% of resale), but that's probably worst case, and you can figure out your own numbers based on what's typical in your area.

    So, to determine your potential profit:

    PROFIT = ARV - PURCHASE PRICE - REHAB COSTS - FIXED COSTS

    PROFIT = $163K - $69K - $40K - $33K

    PROFIT= $21,000

    That's about 13% of ARV, which is just a little bit below what I look for, but again, the Fixed Costs numbers may be higher than the true numbers, and the profits/margins could therefore be a bit higher as well.

    Overall, I'd say this is a reasonable/typical/average deal (based on my experiences) ASSUMING the numbers you provided and the Fixed Costs I calculated are all accurate.

    I would suggest verifying the ARV, verifying the Rehab Costs and calculating your own Fixed Costs. If they all come out to what's indicated above, this would seem to me (again, based on my criteria) like a reasonable deal to pursue.

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    • J ScottPro Member
      Moderator
      Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
      12y

      I don't know enough about Texas closing costs or taxes, but I'll throw out some example numbers and you can tweak with the actuals:

      Purchase Costs:

      -  Loan origination:  $3000 (Based on 5% of loan value, which isn't clear)

      -  Loan related stuff:  $1500 (Based on what was written above)

      -  Inspections:  $400

      -  Closing costs:  $1500 (No idea in your area)

      Holding Costs:

      -  Loan payments:  $5000 (Assume about 6 months worth)

      -  Taxes:  $1500 (No idea in that area, but assume 6 months worth)

      -  Insurance:  $600 (I'm assuming $100/month)

      -  Utilities:  $900 (I'm assuming $150/month)

      -  Lawn care:  $300 (I'm assuming $50/month)

      Selling Costs:

      -  Commissions:  $10,000 (Assuming 6%)

      -  Closing costs:  $1000 (No idea how it's done in your area)

      -  Concessions:  $5000 (Assuming 3% of sale price...no idea what's typical)

      -  Home warranty:  $400

      -  Staging:  $2000 (Always a good idea)

      Adding all that up would put your fixed costs at somewhere around $33,000.

      That seems high to me (20% of resale), but that's probably worst case, and you can figure out your own numbers based on what's typical in your area.

      So, to determine your potential profit:

      PROFIT = ARV - PURCHASE PRICE - REHAB COSTS - FIXED COSTS

      PROFIT = $163K - $69K - $40K - $33K

      PROFIT= $21,000

      That's about 13% of ARV, which is just a little bit below what I look for, but again, the Fixed Costs numbers may be higher than the true numbers, and the profits/margins could therefore be a bit higher as well.

      Overall, I'd say this is a reasonable/typical/average deal (based on my experiences) ASSUMING the numbers you provided and the Fixed Costs I calculated are all accurate.

      I would suggest verifying the ARV, verifying the Rehab Costs and calculating your own Fixed Costs. If they all come out to what's indicated above, this would seem to me (again, based on my criteria) like a reasonable deal to pursue.

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    • Bill Jacobsen
      Salem, OR · Member since 2013 · 701 posts · 159 votes
      12y

      I usually pay $1,000 to 1,500 for title/escrow fees plus the costs of inspections while deciding whether I want the property.

      My costs of holding include taxes, insurance, utilities plus your cost of money. I usually just use cash. I budget 6 months of holding so taxes are usually $400 to $1,500, insurance about $400 and utilities around $900.

      I also budget 20% above my estimate of repair costs.

      My selling cost include 6% for realtors, 1% closing, 3% for buyer's closing and 2% for house selling under ARV.

      I want 20% of money that I put up for profit.

      Hope this helps.

      Good luck.

      Bill

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      You guys are great!! I will be copying and pasting this info to my personal notes..... Thanks for the fast reply..... Thanks J & Bill!!

      DW

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    • Todd Plambeck
      Agent/Investor · Murphy, TX · Member since 2013 · 542 posts · 304 votes
      12y

      What are the $40k in repairs for? The house is 110 years old there could be alot of surprises once you start tearing into things. 4 months is a really long rehab. That's October-November at that point and you're way outside prime selling season so you may need to hold it more than six months. Price wise, 913 Hayes is a 2-2 and it sold for $172k in March so that ARV might not be far off but it was a complete rehab.

      1Reply
    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      Foundation repair quote was $8500 and not too sure about the rest, I actually never inspected the property myself. The REIA speaker figured the timeline and costs.... I figured there was a catch, he kinda seemed like a used car salesman..... From what he said he flips and wholesales 60 deals a month. I figured this was probably a project he didn't want to deal with.... Im not planning on making an offer on this deal. I just wanted to get some feedback on the numbers because this was the first real world deal ive been offered....

      I never even took into account the selling season!!

      100yr old house, $40k rehab, and a 4 month timeline seemed way too complex for me to attempt on my first project.

      @Todd Plambeck Do you have an idea of closing costs here in Texas??

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    • Will BarnardPro Member
      Moderator
      Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
      12y

      while it s great, and needed to do all the numbers, a quick and easy analysis would be to use the 70% rule. On your posted numbers, rehab plus acquisition of $109k divided by the exit of $163k is a 68% deal which should be a go.

      In J's numbers, he was high on several items as he eluded to, taxes for example would not be more than $900 for. 6 months.

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    • Greg H.Pro Member
      Moderator
      Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
      12y

      I would be very cautious about 2 things:

      First meeting with a guru pitching a deal like you were getting inside info on a smoking hot deal.....if its so good why aren't they doing the deal themselves ?

      First flip doing a 100+ year old home is a recipe for disaster ! All kinds of issues in homes of that age and that area of San Antonio while things are looking up was neglected for many many years therefore I would assume a lot of deferred maintenance. Proceed with caution as there is always another deal out there

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    • J ScottPro Member
      Moderator
      Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
      12y
      Originally posted by @Dusty Warner:

      From what he said he flips and wholesales 60 deals a month. 

       There are guys on this forum who do a LOT of deals, but I've never met anyone turning over 2 deals a day.  While it may be true, I personally find it hard to believe...

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y
      Originally posted by @J Scott:
      Originally posted by @Dusty Warner:

      From what he said he flips and wholesales 60 deals a month. 

       There are guys on this forum who do a LOT of deals, but I've never met anyone turning over 2 deals a day.  While it may be true, I personally find it hard to believe...

      Ha, I know.... I was wondering how he had the time to come speak to a REIA meeting of 7 people. I took everything he said with a grain of salt. Before I went I googled his name and found his YouTube channel.. His videos are hilarious!

      If anyone is curious, Google: Joseph Irons real estate investor

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      I agree @Greg H. 

      Thanks @Will Barnard  I will definitely use that

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    • Maverick V.
      Real Estate Investor · Spring Branch, TX · Member since 2014 · 40 posts · 14 votes
      12y

      Hey Dusty, just curious what REIA was this at and what was the name of his company. (you can pm me company name, not sure if its appropriate to post here). I would be very cautious with this guy, while the deal does seem to be alright (assuming the numbers are correct) 60 deals a month seems a bit outlandish from someone I haven't heard of in town. Especially if hes claiming those are all his deals and not company/affiliate deals. I obviously haven't dealt with him so I'm not saying hes a fake, but id defiantly do some due diligence on him.

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    • Bryce Y.
      Dallas, TX · Member since 2011 · 308 posts · 59 votes
      12y

      Have you verified the ARV? I'd bet dollars to donuts he's giving you an inflated or overly-optimistic ARV.

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      @Bryce Y. ,  @Todd Plambeck found a comp on the same street for $172k.... Im thinking it probably has a little meat on the bone.. This guy is a regular speaker at this REIA, so I would think he's not totally ripping people off.... I figured he was wholesaling it because he didn't want it for one reason or another... He also did joke about using a double close because he didn't want to disclose this assignment fee..

      DW

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      @J Scott , Im curious, if I plan on estimating the rehab with an experienced contractor, why would I still pay for an inspection??

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    • Matt Laird
      Real Estate Investor · Elk City, OK · Member since 2014 · 73 posts · 27 votes
      12y

      @Dusty Warner 

      Your right, Those videos are awesome... I can assure you that guy is not flipping 2 houses a day..  

      1Reply
    • Will BarnardPro Member
      Moderator
      Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
      12y
      Originally posted by @Dusty Warner:

      @J Scott , Im curious, if I plan on estimating the rehab with an experienced contractor, why would I still pay for an inspection??

      Because an inspection is only $300 or so and a second pair of professional eyes is worth the low cost. Plus, the home nope tigon gives you all the little detail items that you will likely have to fix when your end buyer buys the property. When they have nothing or hardly anything on their inspection, no reason for new negotiations or concessions! 

      As to the other concerns, I would agree, f the numbers are that good for you, then it would be a home run for the speaker and why tic up a home run. Also, I am willing to be the rehab is much more than the $40k based on age and the numbers given. Home run deals are not given away n this market. The seller could easily sell for $15k more and buyers would scoops up if the numbers originally posted were acurate.

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    • J ScottPro Member
      Moderator
      Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
      12y
      Originally posted by @Dusty Warner:

      @J Scott , Im curious, if I plan on estimating the rehab with an experienced contractor, why would I still pay for an inspection??

      How are you going to know what to tell the contractor to do?  Is the contractor going to test the plumbing, HVAC and electrical systems?  Is he going to open every window to make sure they all work?  Is he going to climb into the attic and assess the amount of insulation up there?  Is he going to walk the roof to verify any issues up there?  Etc.

      Unless the contractor is doing an inspection as well, he's going to need a specific list of things to repair (Scope of Work).  Without an inspection, how do you know what's broken and what needs to be fixed?  

      If you can do this yourself, you're good.  Otherwise, you need someone to do the inspection.  If you have a contractor do it, make sure he doesn't inflate costs to get himself more work.  Better yet, have an inspector do it.

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      Gotcha!! well worth the $400.....

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    • Will BarnardPro Member
      Moderator
      Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
      12y
      Originally posted by @Dusty Warner:

      Gotcha!! well worth the $400.....

       Here is a great tip, if not a fantastic one (not intended to toot my own horn) is to tell your inspector you don't need the full written report with everything spelled out, rather, each issue, photo, and location on a punch list. Putting the full report together takes as much if not more time than the actual physical inspection, as such, this will help you negotiate a rate of at least $100 less and over tens of or hundreds of inspections, this tip will save you thousands!

      You may send my 10% via direct deposit :)-, ,

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    • Jay HinrichsBusiness Member
      Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
      12y

      @Dusty Warner 

        nice Cirrus  you a copa member?  have a few Cirrus drivers on BP.

      You will find a lot of guys talk about flipping or doing 10 deals a month or 20 or 50.. Based on my experience in the bizz.. It takes a very well oiled machine to do as many as 20.. I have one of my borrowers that does 20 routinely.. Now that is full rehab to resale. But most do at best 2 to 5  a month.. If they have average operations Once you get beyond that you need full blown staff support multiple contractors etc.

      Also to cut down on fee's you may want to just fund the rehab out of pocket and only borrow for the purchase.. Especially if your just doing one at a time. As long as your lender will go for it... they may still want to charge you inspection fee's.

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      @Will Barnard 

      10%!!! Geez… I guess it is true… everything in Ca. is more expensive!!

      DW

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    • Dusty Warner
      OP
      Real Estate Investor · Bulverde, TX · Member since 2014 · 88 posts · 13 votes
      12y

      @Jay Hinrichs That is a nice Cirrus!!… Its not mine… My little 172 is to the left out of the picture…lol.. Not a copa member, but i am an AOPA member and I did stay at Holiday Express a few times;)

      Great idea Jay…. I was actually saving up for that… I can handle a small Rehab at the present time...Do the Hard money terms seem OK?? I also met that lender at the meeting.,

      DW

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    • Jay HinrichsBusiness Member
      Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
      12y

      @Dusty Warner 

      hard money rates are very much regionalized... Like right now in CA.. every other investor lends money so its pretty competitive for rates and terms... Same in PDX were I am at.. basically most of these lenders want to get to a 18 to 20% apr with combination points and interest. In the small loan your talking about I would not get too hung up on the cost of it as I would with picking a really great lender to work with.. One that you can establish long term relationships with.. When I was in my heyday of HML I in turn looked for borrowers that were going to be repeat then gave them the best service I could.. ONe off borrowers are a lot of work and can be problematic.. And if they tried to negotiate me off of other lenders I just told them to go to the other lender I am very good at what I do and you will see that I am worth it if you don't then its your choice of course.

      this was especially true during the financial crisis. I have been loyal to my little commercial bank and my banker for 20 years. I never negotiate points and rates with him.. Or say I can go to U bank and get a better deal.. Well that relationship came back in spades during the GFC  when all my fellow competitors were getting their credit lines pulled. I had 5 and 4 got pulled but this bank stuck with me.. Now as I am runnin and gunnin again my competition needs to borrow hard money and I get mine at bank rates.. And hard money in our market requires real cash equity ( usually the lot paid for 80 to 300K0 then they will do verticle. My bank will give me 90% of cost... And its good to have some skin in the game.. So I can do a 300k new build with only 30k out of pocket and a nice interest reserve and borrow right at 6% were my competition needs more cash ( which they usually borrow at high rates) and is paying 20% apr for the same money.. It allows me to lower price if I need to and or I make that much more per deal...So the relationships are all important.. I would bet you the bigger players on this site all have the same go to guys they have been using for years

      Got my IFR ticket in the 172  No GPS NO auto pilot... But I would not fly the one with the ADF could never work those out very good.  NOw with Cirrus is 3 buttons and your done!!

      Good luck on your project.  And fly safe

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    • Andy Collins
      SFR Investor · Dallas, TX · Member since 2011 · 604 posts · 243 votes
      12y

      I do the same thing on inspections, I use the same inspector and he knows I don't care if a light switch cover is broken, I will be  replacing them anyway.  I want to know if the systems in the house are working and if not what appears to be wrong with them.

      I know there are some very good wholesalers out there, but generally I take all numbers I get from a wholesaler with a grain of salt.  If it has over $10k in foundation work on a pier and beam house (based on age), then the walls will really be screwed up when its leveled.  I am not a contractor so I don't even touch a house this old (and very rarely run into one this old in the Dallas area),,,that is the type of house you start to fix one thing, only to discover 3 other problems....I know in some parts of the country houses this old are 'normal',,,,they aren't in Texas,,heck after 100 years and the way the soil moves it probable needs to change it's address

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    • Will BarnardPro Member
      Moderator
      Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
      12y
      Originally posted by @Dusty Warner:

      @Will Barnard 

      10%!!! Geez… I guess it is true… everything in Ca. is more expensive!!

      DW

       You mean to say you are not willing to pay $10 to save $90+? No matter what state I am in, that makes no sense to me! :)

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