1st Flip - Deal Analysis

[Lou Veiga]

I submitted an offer on a property that I looking at flipping. I haven't heard back yet. I'm expecting to get a response tomorrow.

I wanted to post the numbers and get everyone's thoughts on the overall deal. The property is located in New Hampshire. Here are the numbers I'm using:

Purchase 139200

Closing - Buy 3000
Closing - Sell 3000
R.E. Sales Commission 12000
Taxes 2500
Insurance 500

Windows 3000
Paint 600
Trim 500
Kitchen Floor 500
Living Room Floor 1100
Refinish all Hardwood Floors 2700
Furnace 3500
Hot Water Heater 800
Cabinets 2500
Appliances 3500
Countertop 1000
Sink 200
Doors 800
Garage Door 800
Dumpster 400
Gutters 800
Roof Leak 500
Full Bathroom 2500
3/4 Bathroom 1200
Bulkhead Door 400
Misc. (knobs, locks, lights, etc) 2500

Total Investment 190000
ARV : 215000
Profit: 25000

What do you think? Do the numbers look reasonable.

I'd love to hear everyone's feedback.

[J Scott]

Originally posted by @Lou Veiga:

One of the things I battle with is how much work do I put into it. For instance, the hardwood floors are not too bad (I'd give them a 6 on a scale of 1-10). Do I still go ahead and have them re-finished to make them look new or keep as is? Also the furnace is about 18 years old (replace it or keep it).

Lou,

General rule of thumb -- if you don't replace everything cosmetic, then whatever you don't replace is going to look old compared to what you do replace. And when something sticks out as old, that makes a very bad impression.

In this case, if the hardwood floors are a "6 out of 10" and everything around them is brand new, they're going to look like a 2 out of 10 by the time you're done. I imagine that the houses you're competing against in the $210-220K price range are fully remodeled...if that's the case, you need to be also. If that's not the case, consider whether your ARV is perhaps higher for a full remodel. Either way, consider doing everything that needs to be done.

As for the HVAC system, the buyer is likely going to ask you to replace it when his inspector tells him it's 18 years old. If that happens, will you replace it? If so, you might as well replace it now, so at least you can use the new system as a marketing tool -- "BRAND NEW HVAC SYSTEM!"

Always ask yourself, "Am I going to have to spend this money at some point?" If the answer is yes, do it sooner rather than later so that you don't lose buyers over it and so that you can use it to your advantage.