Deal Anaylsis Fun

7 Replies

I've been putting in a lot offers recently. No luck so far although I am waiting to hear back from a 2 agents at the moment. A lot of houses in my area are going for a lot more than I'd like to spend and therefore I'm trying hard to find areas in my estimates where I can find room to increase my maximum purchase price. In the end the numbers don't lie and I don't intend to find myself on the wrong side of a bad deal.

So for fun I was hoping others could analyze the numbers I've come up with on one particular property I will be putting an offer on tomorrow.

The property is a single story 4/2/0 with 1,629 sq ft in a really desirable area. It was built in 1978, has really nice cathedral ceilings, near a popular park and in a subdivision with a great school system. Houses in this area have been going in less than a month for the most part. Asking price $150,000.

The plan is to do a mainly lipstick renovation. I'm considering unconverting the 1 car garage but will have to do more research on the value that adds. My GC's are putting together bids but rough numbers from them are right under 40k. I've budgeted 43k in my estimates.

Here are the main numbers:

1 Eventual Selling Price: $215,000 - 100%
2 Quiet Costs: -$36,685 - 17%
3 Improvement Costs: -$43,000 - 20%
4 Minimum Profit: -$18,000 - 8%
Maximum Offer: $117,315 - 55%

The Comps:

[b]floorplan...sell date....price........DOM.....sq ft......price/sq ft
4/1.5/1.....3/27/12....$220,000 ......11......1,403......$156.81

I have talked to hard money lenders and I think I can get $130k @ 12% for 6 months and I accounted for 3 points although I'd definitely would like to pay less in points (I'd love to hear from other lenders). So by financing 130k I will be putting 30k cash into this deal.

Now I am convinced that these are pretty rockbottom numbers. If worst case scenario I make 18k on my 30k in 6 months or less then I'll be happy and the ROI is good.

Are you guys getting similar percentages when flipping a house in this price range? I was always under the impression that when you start hitting the $200-215k price range that you should expect more profit.

P.s. I know that the ARV is low as the avg price/sq ft is $141. I like being conservative although I will definitely rework these numbers once I get my rehab bids back.

Any thoughts are welcomed. Thanks!

I'm a fan of unconverting garages. Generally the converted space isn't that great and reclaiming a enclosed garage I believe brings greater value.

If you do so how will that impact the square footage and value?

$43,000 thousand is a significant remodel. What is the scope of work?

Why are your quiet costs so huge? What does that include and how does it breakdown?

Thanks for the comment Bryan. I also think unconverting the garage will bring in bigger value. The square footage will decrease but I think the house will sell faster with a garage and at the same price point.

As for the remodel, $43,000 is quite a rehab. Rehab comes out to about $26/sq ft which is more than I'd like to spend on what I'm calling a lipstick. To be honest I think the house can be done for under 35k. I will know better once my GC's get back to me.

The quiet costs breakdown as so:

Buying Costs (Closing costs, Inspection, Survey, Appraisal) : 1.5% of $115k = $1,725

Holding Costs (Property taxes, Insurance, Utilities & Maintenance) = 1.5% of 115k = $1,725

Cost of Money ($130,000 Hard Money @ 12% +3 points over 5.2 months) = $10,660

Selling Costs (Real estate commissions, Closing costs, 3% CCA) = $22,575

TOTAL = $36,685

Obviously I'll make more if I don't have to pay buyers closing costs and rehab and sell the house in under 5 months. If I rehab and sell the house within 3 months I will save $2,860 in hard money fees. If I don't pay CCA I will make an extra $6,480. Together that is an additional profit of $9,340 or a total profit of $27,340.

I know the comps are showing that this is a hot area. AVG DOM minus the outlier (house was 40k over ARV for over 3 months) is 25.6 days. Also, with a lipstick rehab I would estimate rehab to be complete in under 8 weeks. I only budgeted for 5.2 months to fix and sell the house from a formula I read a while back that used the price/sq ft of rehab as an estimate for rehab time.

Knowing all this, should I adjust my purchase price offer accordingly in order to be more competitive?

Glenn, if you are not doing a substantial rehab then maybe you could consider cutting out the overhead of a GC to improve your profits. For a simple garage unconversion and light rehab you should be able to find some referrals, check out their work and hire the subs yourself. Just my .02
Good luck,

Thanks a lot for the reminder Andy. We are definitely looking for ways to increase our profit margin on this particular house. We are getting 3 bids from GC's today and from there we will be moving forward with the purchase offer if the numbers still work. What percentage of the GC bids could I conservatively save if we went with the subcontractor route. 10% on the safe side?


Originally posted by Glenn Espinosa:
What percentage of the GC bids could I conservatively save if we went with the subcontractor route. 10% on the safe side?


I'm afraid the answer to this is "it depends". Like so many other things in REI, the answer to this will be specific for your area. Since I don't know your area, the only way to find out how much you can save by cutting out the GC would be to either A. Ask other people in your area who have done projects with and without a GC to try to get a ballpark. B. Ask the GC what his markup is. I doubt he'd tell you (or honestly tell you) so you might consider C. Get quotes from each specialty yourself, total them and compare the cost to the cost of the GC.

Then you have to decide if it is worth $X to you to have the GC take care of everything. If the cost is significant then you might consider managing the project yourself if you have the time. If you feel the cost is acceptable then you can consider going with the GC so you can continue to learn the ropes.
Additionally, if the GC's subs are independent outfits (meaning they are not part of the GC's crew or employees) and do a good job, get their contact info so you can consider hiring them without the GC for your next project.
Keep us posted,

@Andy Bankston , that is a fantastic idea...i'm currently working on a few smaller rehabs. in my area, the homeowner can pull the permit for work under 30 or 35k..i can't remember which right now..i can pull the permit and hire a project a manager to oversee stuff...for a small rehab like what you have glenn, i would recommend something may take a little more of your time, and you may have to order materials differntly than just turning over the project to a GC but you wouldn't believe how much some GC's make...

Originally posted by Glenn Espinosa:
... What percentage of the GC bids could I conservatively save if we went with the subcontractor route. 10% on the safe side?


I've had some GC estimates where as a separate line item they threw in that percentage (I think they're idiots for doing that BTW). One had 15%, another had 30%! As usual, it depends ...

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