A place just came on the market 2 days ago. It is owned by FannieMae and has been vacant for a year. The previous owner started a rehab job. It looks like they got as far as completely gutting it. There are interior wall studs. The outside siding is slightly cracked, splitting and rotten in some place. The brick work is good. No foundation issues. Roof may be suspect. So on to the numbers.

This house is in a highly desirable neighborhood north of Dallas. The bank is asking $110K. My realtor comps ARV at $305K. I have plenty of capital but will probably use my hard money lender who I have worked with in the past. I am sure he will back me on this project. But I don't have time. I need to get an offer in and then talk to my experts.

So here's the problem; I have only done a half dozen rehabs over the past decade. Probably a dozen if you count cosmetic only rehabs. I have even done two mold rehabs. I plan to use a GC to do the whole job on this one instead of piecemeal. But the gutted house is scaring me. Should I take that as a good sign? Do I need to step out of my comfort zone? I am figuring about $100K to rehab the place and bring it up to the executive home standard of the neighborhood (granite, hardwoods, non-builder grade stuff).

So given my experience and the numbers on this deal would you take it or walk away?

Is your HML lending on your rehab budget as well? If so, I would take it down. If they are not lending on your rehab budget, then the profit is good but the ROI could be better. 100K rehab on a 300K house is a lot of capital tied up.

What are the DOM in that area for houses in the $300K range?

Originally posted by Justin S.:
Is your HML lending on your rehab budget as well? If so, I would take it down. If they are not lending on your rehab budget, then the profit is good but the ROI could be better. 100K rehab on a 300K house is a lot of capital tied up.

Yes. The HML will provide the rehab budget. I just have to put down 15% of the entire project cost at closing. Total investment is around $34K or so from memory.

"Take it down" means take it off the market by getting it under contract? Learning new lingo everyday.

the numbers look pretty good...if your under 210k on the whole project you are at about 68% arv which is a deal. It's a huge risk to take on with that amount of money but the numbers make sense.

I would take on a gutted rehab any day. Think of all the problems you can see in advanced!!!

the figures sound attractive looking at it for the outside, but there are still more questions to be asked. Also, have you done a search for outstanding liens.

If your numbers are accurate ($110K to purchase and $100K to rehab), and assuming fixed costs of about $40K (to cover closing costs, commissions, concessions, holding costs, etc), you're looking at about 25% ROI (assuming cash purchase and rehab), and if you can get this bought, fixed and sold in 6 months, that's an annualized ROI of 50%.

That's a reasonable return for a larger project. And if you can keep you total hold time to 4 months (which would be my goal), that's 75% annualized ROI, which is great for a project of that size.

Thanks for the input guys.

Oswin I will be getting a title policy so any liens will show up when they do the title search.

So the numbers look good (I assume you guys think $100K is not u nreleastic to finish out a 2000+ sq.ft. house) but what I am still concerned about is outside the realm of numbers. What that is I am not exactly sure. It just seems like a lot to bite off. I guess I am looking for someone experienced at doing this like J Scott to tell me to not be a scaredy cat and take the bull by the horns ;)

Hi, Robert. It looks like a good deal. I'm by no means as experienced as Jason, but here is how I look at deals like this: If the numbers seem good and there is buffer there for comfort, then even if you end up only breaking even or losing a little, you will likely learn a lot, and that education is valuable.