Would you invest in this deal?

[Stephen Weber]

I hope to create a network of investors so we can all get a little more of what we want; experience, deals, success. In that effort I want to lay out the details of a deal I am evaluating. The numbers:

Purchase price: $181,000

Rehab: 75,500 (includes a contingency factor of 10%)

All in: 256,500

ARV: 325,000

Timeline: 60 day rehab schedule

We have an experienced selling agent who has agreed to list the property on the retail market at 4.8%.

We calculate our profit like this: 325,000 (sell prices) – 15,600 (sales commission)  – 256,500 (purchase price + rehab) = $52,900

Of course we may not realize full asking price, and we might be asked to pay concessions, but these are the values we are using. We will give some profit to our contractor to incentivize the work quality and schedule. This isn’t a ‘home-run’ but feels like a solid single. Questions and/or comments are welcome.

Analysis:

256,500 invested

$26,450 profit anticipated (after split)

Return = profit/down payment, so:  26,450/256,500 = 10.3% in ~90days.

[Larry Turowski]

@Stephen Weber You are missing holding costs (financing, taxes, insurance, utilities) and closing costs on both ends.

Have your heard of the MAO (maximum allowable offer) formula? In my area right now I find 75% ARV (after repair value) minus repairs (not the costs I just listed above) is a decent deal.

I might go 80% if I had nothing else going on and I was high on the rehab estimate and low on the after repair value estimate--and even then I'd probably need to feel like it was a property I could keep as a rental if necessary.  But generally I feel I can get better deals.

You are at 79%.  It is doable but VERY tight.  And a $325K property is not likely a good rental.  If this is the best deal you can find right now then maybe you could consider it an educational process and hopefully make a little money.  Otherwise I'd probably pass.