So as the subject says I finally have a deal that might get me off the fence. It's on a 3/1.5 townhouse that I am looking to flip. Take a look at my numbers and let me know what you think. Take it easy, I'm one of those newbies!
Cost to Sell 15,000
Holding Costs / Taxes 5000
Agent thinks he can get closer to 145k but I used 140k in my calculations to be safe. Anyone see any issue with my calculations? I would be using cash for the purchase and reno. Another option I am contemplating is to finance and keep it as a rental and reduce reno to around 15k.
Also I have a question on financing flips. If an investor cannot purchase a flip all cash is it a bad idea to finance? The reason I ask is because I know the broker doesn't make any money on the deal if you sell it within six months. Do you worry about that?
Looking forward to your comments!
Originally posted by @Kris Walker :
The reason I ask is because I know the broker doesn't make any money on the deal if you sell it within six months. Do you worry about that?
Looking forward to your comments!
"The broker doesn't make any $....." Who told you that? It's not true.
I personally prefer rentals over flips because you have the potential to generate cash flow every month.
How do the numbers look if you decide to rent? Even if you invest 30k in remodeling the place, you may be able to charge premium rent. It may turn out that renting the place out would be best. Also, after you purchase with all cash, you can always do a cash out refinance.
15k on a fix and flip with an ARV of 140K seems like a pretty narrow margin. You could easily lose that amount when you open up a wall or if you find a roof, electric, plumbing, sewage, or foundation issue after purchase.
It sounds like you are getting these numbers from your agent (which is perfectly fine) but make sure that you verify those numbers and make sure you are not looking at in a best case situation.
If the home is unoccupied and on the MLS you can put an offer in pending inspection. If this really is a good deal it will not stay on the MLS more than a week, and usually just a few days. Get a inspector in there and have 3 bids from 3 different contractors even if you plan on doing some or all of the work yourself. These people will show you what your actual cost will be plus show you what you may have missed. The inspector will cost around 500 bucks but he will be worth his weight in gold if he finds something expensive that needs work.
Im still new but if Im off base, please someone correct me.
@Crystal Smith While working with a broker for pre-approval this issue came up. Basically it seemed like if I was only planning to flip that they may do it but only if I planned to do future business with them. Since then I decided do business with another broker. Mainly I just want to do the right thing and build a healthy relationships.
@Jay Shapiro My intention is definitely to go the buy and hold rental route but I figured a few flips could help build my cash reserves. I guess my fear is that once I reach 4 properties or so I would be maxed out with mortgages and not be able to continue investing. I agree about looking at this property as a rental though. If I reduce the reno costs to around 20k and refinanace 80% LTV then I could walk with around 15K cash. What do you think about this approach? The place should rent for $1250 - $1300 which by my calculations should cash flow around $200 a month using the 50/50 method.
@Wane Tango I agree the 15k is a narrow margin but it is an amount that I would be proud to make on my first deal. My calculations actually put the number closer to around 18k with a conservative approach. That number is before holding costs and capital gains taxes though. So I would be expecting around 12k cash. Also this house is not even listed. My Realtor brought it to my attention. Evidently the owner is an elderly gentlemen that is looking to downsize. As far as the inspection goes the house is pretty much destroyed inside and needs a complete remodel, hence the 30k reno estimate.
Thanks or the responses from everyone. As I said before I am really just trying to find that one that gets me started.
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