would you do this deal?
1,000,000 (Purchase Price)
If those numbers are true then its a no-brainer!
One big thing to consider is how long does it take the average home in that price range to sell in your market? In many markets where homes at that price are rarer it could take a year after you finish the rehab. I guess in the markets in California where everything costs a million it's probably fine but I'd still look at the DOM for your comps.
Looks like a great deal with those numbers. I do agree with @Patrick L. especially if you are using hard money. If you are cash and don't mind having the money tied up then that obviously isn't as important.
Another thing to think about with a property of that size if you haven't done similar projects the finishes and everything in the home must be top notch, which many times can get a lot more expensive than you anticipate.
Sorry to be the sour grape, but if your estimate of ARV is only 10% high and the rehab cost estimate is only 10% low my calculator shows a profit of only 5%, this assumes a 6 mo holding period and NO loan costs. Believe me, it's not unheard of for rehabber estimates of ARV to be a little high and rehab cost estimates to be a little low!
Now if the estimate of ARV is way low and the estimate of rehab costs is way high, that's another story.
You need to know the story behind the story to really know if this is a good deal.
Yes I would do that deal, but only if the $1.5m ARV was low enough to get that thing sold in a week
Thanks for all the feedback!
There are sold comps in the area as high as 1.7mil,As far as the Repair budget it could potentially get a bit higher however i believe i could get it done for 150,000
Account Closed can you explain in further detail the way you ran your numbers i would like to learn more about how you analyzed these numbers to get the 5%
Using BP's flip analyzer, assuming no loan costs, reasonable holding & sales costs, rehab 10% more than 150,000 and resale 10% less than $1.5m, it shows ROI of 4.3%:
@David C. Thanks for the help on the analysis
As others have stated, you did not mention how you will be funding the deal. Being new to investing, I was a little surprised how much the cost of money eats into the profit (especially with hard money lenders). That has made some of the "deals" we have looked at from wholesalers turn into non-deals for us. Just make sure you take this into account as well.
The formula that I use comes up with a purchase price of $915,000. I use the same formula for a $100,000 as I would for a million dollars. I want to make the same % on my money. The only other question in my mind is how fast a $1.5M will sell in your market. I usually budget only 6 months of time. If is is going to take longer I want more money.
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