Need advice on a deal I am working on.

8 Replies

I a fairly new at this and panic every time I have trouble with the analysis.  Here is the deal:

A 1,126 sq ft cape with an attached garage.  2 bed/1bath built in 1958.  Hasn't had much done to it sine 1958.  No septic design on file, common for this small NH town. Located in a desirable area.  1/2 acre.  4 foot crawlspace/dry.

Similar rehabbed homes sold last year for $130-140k   Rental rates about $1,100 per month.

I know the neighbor and original owner of the home before he sold it in the 80's  He gave me some good info on the home.  Because the home was owned by a single woman with health issues, the home is in disrepair but not abused, other than her dogs ruining the carpets.  Here is what it needs and my calculations for investment analysis.

Needs a new roof, new windows, flooring throughout, new insulation in the attic, update kitchen with new cabinets, refrigerator, painting and other minor repairs.  The furnace is old but working (oil) and the well is ok.  To flip the house, a full dormer on the upstairs to put a bath on the second floor and increase the size of the two small bedrooms would probably be wise while doing the roof.  There may be some structural problem with the roof as the neighbor said he can see that the knee wall seems to be pushing up on the roof.

I have no idea how to quickly get the numbers on all these renovations.  Although my son is a carpenter, it takes him a while to get estimates to me as he is busy.  I can't get anyone to give me quick estimates for auctions or other fast sales.  This one is a short sale and multiple offers have been put in since it went on the market 2 days ago. Houses sell fast in this town.

 Is there a standard way to figure on things like flooring for a house with 1,126 sq ft? This cape is like all the other capes I see.  Nothing unusual in the design.  A dormer would be 32 feet (the cape is 24 X 32. 6 or 7 windows.

As for figuring out what to give for an offer.  My numbers for income for a rental are $9,737. If I mortgage 60,000. I will have to deduct that payment from the income so the yearly income would be $6,293.  The house is listed for $125,000. but that is unrealistic.  The neighbor offered the bank $80,000. for the short sale but that was rejected.  I can't imagine offering much more than that.  But if I figure that the rehab costs might be $30,000. (just a wild guess at this point) If I offer $85,000. the cost of the house after reno would be $115,000.  How do I do the calculations for Cap rate or cash on cash return?

I know this is lengthy.  I have to put in an offer by tomorrow to be considered.  Need some help.  Thanks to anyone who can give me some advice.

Katherine

Hi Katherine,

First, full disclosure.  I am a buy-and-hold guy, not a flipper.  However, I wouldn't touch a $115K job for a maybe-kind-of-potential $15K profit.  If the updates run $5K over and it sits on the market and you have to sell it at $5K less than your lower estimate (both possible,) you're looking at making only $5 for a lot of stress and hard work.

Just my 2 cents.

Good luck,

Randy

If there are mutliple offers and the home has only been on the market for 2 days, how do you figure the list price of $125K is unrealistic?  In multiple offer situations, Buyer's are generally encouraged to put their best foot forward.    

Is it now a bank owned foreclosure,  it is unclear in your post.  You said the neighbor offered $80K for the short sale, but didn't indicate the current status.  I need more info, to be useful.   

Call a flooring company and ask for the cost per sqft of their most commonly used foreclosure flooring, then do the math.  Their cost per square foot needs to include the removal of the old flooring and new padding.

Kim,

The neighbor was approached by the bank before the house was put on the market, MLS, and they rejected his $80,000 offer. The real estate agent said that the executor of the estate just wants to get rid of the house. The bank is doing a short sale and taking offers this weekend. The bank is into the house for $124,000. I think that if the bank doesn't get a reasonable offer, they will keep taking offers for a while longer.

Thanks for giving a decent amount of info to work with.  I am a buy and hold investor,  I don't like the numbers in this deal ...you need big spreads to cover your learning process.  Unless I was a carpenter myself I would not consider doing things like 36' dormers.  That is an extra layer of crazy in numbers that are too tight anyway. 

 It sounds like you are doing good due diligence which is really important, sadly, it doesn't seem to me that this project justifies your time and money. 

I am in the Hudson Valley and our markets are probably similar.  As I went through in my head I came up with about $15000 work without the dormer.  Consider finishing the attached garage to a master instead-much less expensive...but save that for the future because as much fun as it might be...I don't see a win for you here.  These houses would need to be reselling at about $200,000 for me to be interested .  Good luck and let us know what you decide.  Remember, this is about numbers...don't fall in love.

Thanks Kim, Dawn and Randy.  You confirmed what I probably already knew.  This town is highly desirable so it is difficult to find flips and buy and hold's.  I hate to let available properties go since they are few and far between but I will watch and wait a little longer.  Who knows, maybe this will sit and the bank will eventually let it go for the price that would make it worth purchasing.  A recent similar property worked out that way.

Which town in New Hampshire? Depending on your location, I may be able to make some introductions that could help you get some quick estimates.

For my own projects we have several rules that we follow.

1) hardwood flooring can be purchased in truckload sales for about $3.00 per SF. Installation is another $2.50. So you can get it done for $5.50 per SF.

2) drywall should cost $25-$30 per sheet hung, taped, plastered and primed.

3) tile can be purchased for $1.00 per SF in truckload sales. Installation is about $3.50. Really small spaces with lots of cuts like bathrooms may cost a little more.

4) windows can be installed for about $200 each. Price the windows from a construction wholesaler. Buying retail will cost double.

5) electrical may need to be redone if there is any aluminum wiring. I budget $100 per box.

Hope that helps. Let me know where it is. I know people who know people.....

Great info Victor.  Thanks.  my son is a contractor so I get good prices thru him.

The town is Meredith, NH.  Center Harbor and Moultonborough are also towns I prefer as they have low tax rates, good schools, etc.  Plus close to my home.

This doesn't sound like a deal to me.  Katherine, instead of waiting for "available properties" that everyone and their brother and all the real estate investors in NH are looking at, why not do your own marketing for motivated sellers?  Do some searches on BP on marketing, yellow letters, direct mail marketing, etc.  

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