Should I do this flip? if not, why not?

Question

Hi all,

I have the opportunity to purchase this flip, Considering there's no lean against the property, I would do this flip with this calculation, it's owned by Real Estate Broker,

Asking Price $216K

Estatimate Rehab $104K

ARV $305K-$310K

I used The FLip Calculator, for more detail, please click below, please let me know if I miss anything, the number mostly just a guesstimate, but I purposely made it bigger.

Any input would be appreciate it.

https://www.biggerpockets.com/calculators/shared/5...

Eugene Kemp · Answer

Makes no sense. Adding the numbers gets a total (320) higher than your ARV....why would you even consider?

Franky Juwana · Answer

@Kuba F.  I'll finance to find financing for some of it, but needs to put at leaset 25% on the deal.

The ARV, I looked on few properties that have the same characteristics that were sold in the last 6 months, because the person who gave me the deal gave me bit different on the ARV which is $90K more than my ARV,  So, I did my due diligent  on this part.

As a beginner, I'm not afraid of work, but I just want to make sure my math is good and even if I miss things, it doesn't costs me a fortune.

Ryanne Hodson · Answer

Asking Price $216K

Estatimate Rehab $104K

=

$320k

but you say it will only be worth 305-310k, so you are losing money in this equation.

Franky Juwana · Answer

Account Closed  you meant I over estimate the rehab price?   but again, the offer was turned down by seller,  they thought they could fool a newbie by throwing a high ARV and a low rehab costs, she got really pissed when I mentioned all the facts (real comps, and our rehab costs) that brought out offer to $125k from her original $225k asking price.

Bill Hinshaw · Answer

@Franky Juwana The numbers are close enough that I would want to go walk the property with a contractor. Come up with a scope of work and try to get a better estimate on your rehab cost. As Account Closed was saying, a $100/sf rehab is not typical. I'm worried that you've way over estimated and talked yourself out of a decent deal.

Account Closed · Answer

@Franky Juwana I live in a relatively low cost area for construction costs and I can build new for $100 a sqft so keep that in mind. You say that you are a newbie so I would advise you to start out with a much simpler renovation. Even if the numbers work, there is so much potential for things to go wrong with a renovation this extensive. You have to honestly ask yourself if you have the knowledge and skill set to pull this off at this time.

Franky Juwana · Answer

@Ritch Bonisa thank you for the input, that's true I didnt put the codes into consideration, the house been empty for 5 plus years, who knows what's not in code, plus applying permit time around the area is a pain also, it could delay rehab time and increase holding costs.

Ritch Bonisa · Answer

Can't answer the whole question.  Just make sure the estimated rehab costs are accurate.  I see all the time where brokers, agents, wholesalers, etc. give you a rehab cost that has nothing to do with real construction costs.  When someone is trying to sell, many times the estimated rehab cost is a lowball number.  Building codes and older homes can change the equation as well.

Franky Juwana · Answer

hi @Brian Pulaski  I actually took those pictures, the property was from REO, bought by realtor, it's been empty for 5 years. I took more pictures than what I posted and sent them to my contractors, he told me the rehab at least 80k just by seeing the pics, so I increase it by 20k just in case.

Seller told me the ARV was $390-$400k, which bull, I went to the area, house only 1055 sqft and the highest that were sold recently were around $315k ...  so me being paranoid, I set my ARV to $305K, cuz it's only 3br and 1ba.

I would do the deal, but seller which claimed to be an expert in the business, was upset and turned off by my offer. Personally, I was surprised by her reaction, I was expecting a counteroffer.. but.. nothing yet.

Brian Pulaski · Answer

@Franky Juwana I thought your rehab budget was based on a photo? You offered $100k less than asking, based on this estimate, and your ARV being $90k lower than another persons? Sounds like the seller is on the high end, but your offer, budget and possibly ARV are all skewed in your favor, which cost you the sale. Why not really dig into then ARV, maybe it is $325k? Also get inside and really scope out the work and create a more realistic budget. 1000 SF and putting over $100k into it seems off to me.

I wouldn't let this deal go, both you and the seller should come towards the middle some, in my opinion.

Should I do this flip? if not, why not?

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