Need Help with Deal Analysis

9 Replies


I am working with a Realtor and she sent me a property that is being listed for 198K and the return value is $350K there is about 50K in rehab. Would this be a decent investment? I am looking to work wholesale, lease option and turn key deals, would this be suitable for one of the 3? Nonetheless is there any meat on this bone? Thank you :)

If the realtor is certain of the ARV, check the comps.

Get a general contractor GC to quote the work.

Offer to pay the Realtor upon resale on a JV with the seller.

Offer a JV Agreement with the seller

1. Buy w no commission, offer a note for equity

2. Use private 1st mortgage note (if free and clear of loans)

3. 350K - 50K rehab - 35K in resale costs (commissions, closing costs, other costs) = 265K

 - 198K sales price = 67K potential profit

Have realtor look for end retail buyer before rehab is finished

I always worry about realtor's capacity to 

a) determine ARV for retail

b) determine true Rehab costs

@J Scott

@Bill Gulley

@Jay Hinrichs

may have some thoughts
FYI never do a lease option rehab w major repairs.

Brian Gibbons is spot on. It's amazing how many realtors can't hit an accurate ARV number. For that matter, it's amazing how many of them violate even the most basic rules of constructing an accurate CMA report.

That stuff should be their bread and butter. I'm certainly not going to accept their estimate on a rehab budget. I just finished a project - buy and hold in a C+ neighborhood - with mostly cosmetic work. That was a $30k renovation. $50k for a $350k house isn't much more than paint, flooring, and upgrading countertops, with some fixture and appliance upgrades thrown in. It isn't going to go far. 

One of these days

@Hattie Dizmond you and I should get together for lunch!

JVs with sellers on minor rehabs - free and clear houses is an un tapped market!

Too thin for wholesalers.

Realtors cant sell it in theat condition.

Probate attorneys need a turn key service - 

REI to

  • clean out,
  • put belongings in storage, 
  • paint, carpet, 
  • update kitchens, bathrooms, 
  • sell it,
  • pay heirs in 90 days. 
  • look like a hero to probate attorney and heirs

REI make 10K to supervise a rehab.

Easy peasy, not banks or hard money, just buy it on a note, no payments for 4 months, use private money for rehab, pay off heirs and private money in 4 months.

@Dala Daniels a $350,000 house needing $50,000 in rehab is a great deal at $198,000. The quality of the deal deteriorates if the first two numbers are wrong. Two of the most common errors made by new investors are overestimating the resale value and underestimating the rehab cost. It's a very common mistake and happens because of lack of experience or having so much enthusiasm to get a deal that you flex the numbers so you can pay more.  Don't let that happen to you. Get more than one opinion of the value and look at the comps yourself. Remember--you will be the one taking the risk, not the agent.  Experts are no longer acceptable experts when they are trying to sell you something. 

Get estimates from contractors to confirm the rehab cost. Then add a contingency.  No flip goes exactly according to plan, you'll find extra things along the way that'll cost you.

Finally, if the ARV and rehab are correct, I suspect that the listing is underpriced in an effort to create an auction-like environment with multiple offers bidding the price up. Be prepared for that possibility and if it's happening don't get caught up in the frenzy and make that mistake of squeezing the numbers so you can bid too high and turn a winner into a loser.

Get another opinion if you are not sure. You are the one taking the risk! I loaned a guy some cash on a condo so he could buy a flip in Cape Coral. I bet he lost well over 40K and isn't out of the deal yet. He sold the flip but still owes me the hard money on the condo. You can make a lot of money in RE, or lose a lot of money in RE!  The numbers sound good, but what if they are off by 10? 20? Remember, the Realtor wants to sell so they make a commission. 

When newbies talk about properties in the $35K to $50K range I figure what the heck they can survive it if things should(will) go wrong. However when you are talking between $298K to $350K and only $50K in rehab costs I just cover my eyes. 

Get 5 more opinions and get cost estimates and quotes directly from contractor and know about finishes and more specific information about the comps. It would be nice if this deal should turn out to be real and true for you. However I suspect there is a rattle snack coiled up under that tempting welcome mat. 

@Brian Gibbons

I would love to have lunch, but CA is a heck of a drive for a lunch date, even if it is from my favorite CA investor!  Are you ever in DFW?

I agree wholeheartedly with @Brian Burke .

Please do your due diligence on the ARV. Did the realtor include properties in the comps that are in another sub-market that has higher priced homes? You might want to get an appraisal from a licensed appraiser familiar with the area.

Or does the subject property have things wrong with it that are high ticket items. Using contractors is a good start, but their quotes will depend on your statement of work for the rehab. Read over each quote you get carefully and compare them. If you get the house under contract utilize your option period to have the home inspected by a licensed home inspector. The inspector may find things that a contractor does not and will suggest if other experts need to evaluate the property (e.g., plumbing, foundation). All of these cost money, but in the long run they may save you money and headaches.

Good luck. Let us know how this works out.

Hi @Dala Daniels I was just curious as to how many comps your agent provided you with and how recent they were? Anything in the last three months? ... Have you made any headway with this potential buy in the past few days?

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