Would you invest $325,000 cash to make $75,0000 in 90 days?

20 Replies

Hey BP, so I'm getting ready to put an offer in for a 4b 2/1 Bath 3800sq/ft house in Chester County PA. The house only needs cosmetic work, paint, carpet and new floors. The ARV of the home is $425,000. Houses similar are selling in less than 15 days up to 110 days. Would a cash buyer put this kind of capital up to earn $75,000 in less than 90 days? I'm going to be wholesaling this deal so I want to make sure the deal is right before I get it under contract. Let me know what you think! Thanks!

So you're saying the purchase price is $325k, rehab is $25k, and ARV is $425k? So I don't know if I'm telling you something that you already know, but the profit on those numbers is more in the $30-35k range. You have closing costs buying and selling, plus holding costs. Not that it's a bad deal, but these are the things you'll have to consider when putting in an offer to wholesale to an investor.

Yes, most investors I know would be happy to invest $325K to make $75K in 90 days, assuming no major risk.  That's a 17% return; 68% annualized.  Very good numbers.

That said, consider what Jason said above... Are you accounting for all costs? Are you confident in your ARV? Confident in your rehab costs?

Also, are you confident that the house will appraise for $100K more in less than 90 days with just a paint-and-carpet rehab?  In many areas, it wouldn't.

It's not "less than 90 days". You have to consider 90 days before an FHA buyer can put a contract on it, and that's if it sells the first day. I assume minimum 6 months of money cost for any rehab/flip because by the time you settle, work on it, get it listed, under contract, and settled, the investor could easily be out the money for 6 months. Hopefully less, but if they need an FHA buyer it'll be at least 4 months and probably 5. Maybe this one is large enough that it'll go conventional.

But definitely take all costs into effect. Assume a listing commission. Assume transfer costs. Holding costs, etc. For the investor. I looked at one recently that I thought would have $100,000 in margin, but by the time I ran all the numbers it wasn't worth it. I was surprised because it "seemed" like a slam dunk. But the math doesn't lie.

@Jason DiClemente Yes thats correct the repair costs are $25,000, I used the BP calculator to come up with the closing cost so I just used the max on there which was $2500 for each close which would equal $5000. From what you posted I'm thinking you put it in a 3% for each close which would equal $21,750, is this correct?

@J Scott Yes I'm accounting for all costs. The ARV is based on the comps from the last 3 months that my realtor got for me. I'm pretty confident in the rehab costs, I'll know for sure when I see the house next week.

@Shawn Clark On the comps everyone who bought in the past 3 months either bought with conventional financing or cash and the pending date to the settlement date was a max of 2 months. 

Thanks for the input everyone!

@Justin Westmoreland Without knowing the full details of this deal and assuming you do, the answer to your questions is simple. Would an investor be happy with a $75K return in 90 days on an investment of $325K? The math is simple.

A return of 23.07% in 90 days, which equates to 92.3% annualised is huge.

The only question you need to ask is what is the risk. All investment returns should be assessed against the risk involved to secure those returns. High returns usually means high risk. Low returns usually means low risk. Your individual appetite to risk will determine if you are comfortable doing this deal or not.

Good luck with whatever you decide to do.

The closing cost I'm using are buyers closing of roughly $3000 based on my experience buying in Pa. You have a 2% transfer tax (1% each buying and selling), and 6% agent fees on the sale, plus seller closing costs of roughly $2000. All in you're looking at about $38k in all plus roughly 4-5 months holding. My rough estimate is $42-45k in total costs on this deal.

@Justin Westmoreland def keep us posted on what you find out after you see the home. The $'s look a bit too good...but will be interesting to learn more after you see it and get a contractor to let you know the actual costs of what you want and need to do.

Originally posted by @Jason DiClemente :
The closing cost I'm using are buyers closing of roughly $3000 based on my experience buying in Pa. You have a 2% transfer tax (1% each buying and selling), and 6% agent fees on the sale, plus seller closing costs of roughly $2000. All in you're looking at about $38k in all plus roughly 4-5 months holding. My rough estimate is $42-45k in total costs on this deal.

 5% should be enough for the agent fees. I would do it for 4 if I was there. :)

@J Scott how are you getting your return numbers of 17% and 68%? I am getting 23.07% in 90 days or 92.3% annualized. 75,000/325,000 = .2307

you will soon find out... for me though its marginal.

it always takes longer and it always cost more.. holding cost are always more than you think

Originally posted by @Harry Williams :

@J Scott how are you getting your return numbers of 17% and 68%? I am getting 23.07% in 90 days or 92.3% annualized. 75,000/325,000 = .2307

Whoops... Not sure exactly, but looks like I probably did $75,000/$425,000. I was probably thinking about the ARV when I did that calculation...

Your numbers are correct...

@Justin Westmoreland I think what you’re running into in your proposed deal is a lack of stress testing. Your pro-forma is the equivalent of a seller’s agent pro-forma on an apartment complex. They are always better than the post-purchase reality. Which has nothing to do with you it’s the just nature of flips, time to sell, time to close on the sale, etc. But hey, if this is your 51st flip it’s different than if it’s your 1st flip.

@Justin Westmoreland , yes, a cash buyer who knows how to RETAIL it once they've put the $25k extra into it may well do the deal, even though as @Jason DiClemente mentioned, their costs would be more like $45k rather than $25k, meaning they'd likely have to settle for a $55k pre-tax profit rather than $75k.

But still, I'd be nervous if I didn't ALREADY have a list of genuine Buyers who I could ask directly, rather than just theorize.

So are you saying that YOU can get it under contract for significantly LESS than $325k, seeing as you intend to just wholesale it to such a cash Buyer? If so, kudos on finding a seller willing to throw away so much of their equity just because they don't want to spend the extra $25k themselves.

Otherwise, I don't reckon there's enough spread for you to Wholesale TO a Flipper for this one. [But, BE the Flipper?]...

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I would put up $350k to make $75k. 

I wouldn't do the deal you spelled out because your $25k takes into account no other costs, and also seems very, very light on the budget (I spent $25k to rehab an 816 SF that only needed cosmetics).

Does your seller know you are wholesaling it?

@Shawn Ward I'll definitely keep everyone posted. I'm going to visit the property tomorrow evening and I'm bringing my contractor with me to estimate repair cost. 

@Brent Coombs Yes I think I can get it under contract for significantly less than $325K. The seller inherited the property and he said he's willing to sell it for a discount, he knows that I am an investor and expect to get a fair return for flipping the property. 

@Andrew Johnson So I should count on worse case scenario happening and add that into my numbers

I'll keep everyone posted! This will be my first offer, I'm learning a lot through this process and I appreciate everyones feed back! You get the best education by taking action. I'm going to run some numbers today on the comps and see what they have in the houses that my subject property doesn't have. If anyone else has any other advice for me feel free to share! 

 @Jason DiClemente @Andrew Johnson @Brent Coombs @J Scott @Shawn Clark @Harry Williams @Jay Hinrichs @Brian Pulaski @Brent Coombs

@Shawn Ward Updates on the property. I saw the property on Tuesday. The guy was right it was a very nice house that only needed paint and carpets. I not too confident that it would sell for full ARV of $425,000 with just those improvements though. I think if it had an updated kitchen and a couple updates in some of the bathrooms it would sell for that.

The executor wanted $325,000. With the PA 2% transfer tax on both ends, realtor fees and paint and carpets, I don’t think it was worth the risk. I would of did the deal for $250,000. 

It was a good learning experience for me since this was my first offer. I’m committed to finding great deals for my investors and i won’t get anything under contract if there’s isn’t enough meat on the bone. 

I have pictures of anyone wants to see them. 

Thanks for the advice everyone it really helped out! 

Originally posted by @Justin Westmoreland :

 @Jason DiClemente @Andrew Johnson @Brent Coombs @J Scott @Shawn Clark @Harry Williams @Jay Hinrichs @Brian Pulaski @Brent Coombs

@Shawn Ward Updates on the property. I saw the property on Tuesday. The guy was right it was a very nice house that only needed paint and carpets. I not too confident that it would sell for full ARV of $425,000 with just those improvements though. I think if it had an updated kitchen and a couple updates in some of the bathrooms it would sell for that.

The executor wanted $325,000. With the PA 2% transfer tax on both ends, realtor fees and paint and carpets, I don’t think it was worth the risk. I would of did the deal for $250,000. 

It was a good learning experience for me since this was my first offer. I’m committed to finding great deals for my investors and i won’t get anything under contract if there’s isn’t enough meat on the bone. 

I have pictures of anyone wants to see them. 

Thanks for the advice everyone it really helped out! 

You have to nail down the ARV very well. Not exact, but like what you KNOW you can get for it at a minimum. Then nail down the repairs. Then add in the other costs and you are good. I think it's easier if you are the rehabber yourself. I'm not sure how I'm going to do it when I start wholesaling.

Good job though. You got out there and made something happen. One will come.

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