Complete rehab analysis?

Question

Raleigh, 27601, homes sold within a 5 mile radius and in the past 90 days averaged 276k but I'm using 175k.  It's a SFH, 2000 sq feet, interior completely gutted, no floors, just studs, exterior is good, quoted 50k in rehab costs, but going by $35 per square foot plus a 10% cushion so $77k.

ARV= 175K x 65% -77k= 36.75k MOA

Asking price was $34,900, I offered $29k, they countered with $32k.

I'm very new to this, so are my calculations correct?  Am I wrong to think this is an awesome deal?

Tom Tarrant · Answer

what about elec and plumbing? roof o.k.? foundation o.k.? need landscaping? Just making sure you addressed these factors too.

BTW, new houses cost 100-250/s.f. to build.

Good Luck!  Assign that puppy!

Donna M. · Answer

Yessir, I assigned this one for a fee!  Didn't make a whole lot, but certainly gained a whole lot of knowledge which for me, as a newbie, is worth tons.

Donna M. · Answer

I'm still "iffy" about the ARV, though,  because homes in the area that sold recently, aren't as large as this one.  How far away is reasonable for a comp to be?  And, how close should the square footage come?  Also, at 77k in repairs, couldn't you just build a whole new house?  I calculated the worst case scenario but am I being overly paranoid?   I know I don't have to really worry about this but I still want to make the numbers look good for my end buyer.

J Scott · Answer

If you already have buyers lining up to buy this from you, you can ignore my comments about additional due diligence...

I thought you were planning on rehabbing and reselling, in which case you needed to be a little more sure of the numbers.

If you're wholesaling, all that matters is that you can find a buyer, and it sounds like you've done that...

David Doyle · Answer

Donna I would flip this one.

Unless you are very well connected in New York,it is a very tough area,with tough tenants and tough vendors,contractors and professionals

Just my honest opinion

Good Luck

Donna M. · Answer

Oh, definitely!  I have four rehabbers/landlords interested in buying, as is.  Two made offers just based on their brief assessment and are surprisingly better than I thought.  The other two said they'd get back to me before Monday.  We'll see what happens...

Donna M. · Answer

Thanks, good points to consider!
Because of my out of state location, I plan to wholesale this, if the numbers work out for the end buyer, also.  This has been on the market for a few weeks.  Can't be sure of the actual repair costs, not sure how for 77k will go, especially on a house with no floors!  Based ARV on recently sold homes of the same size within a 5 mile radius.  Whose numbers should I trust the most?  From my initial calculations, this seemed like a good deal and wanted to jump on it before anyone else!  Before making my offer, should I have consulted a contractor?  Thanks!

J Scott · Answer

It certainly *could* be an awesome deal, but here are some things to consider before you jump at it:

- How long has the property been on the market?  If it's been more than a week, why hasn't another investor picked it up at this price if it's that good of a deal?  Don't get me wrong, it's possible that you just got really lucky, but it's also possible that other investors have already passed on this deal for reasons you don't know about.

- I'm guessing by your signature that you're out of state from the investment.  Does that mean you haven't seen the property?

- If you've seen the property, are you reasonably confident that $77K will cover the rehab?  Have you gotten a couple estimates from reliable, licensed contractors to do the work?  Was the $50K quote from one of these contractors?  Did he give you a break-down of the rehab costs in writing?

- If you haven't seen the property yet, what are you basing your assessment of the property on?  Have you gotten an inspection so you know everything that needs to be done?  Are you sure there are no structural issues, zoning issues, flood plain issues, or other major cost-intensive problems?

- If you are out-of-state on this one, how do you plan to manage the rehab?

- Have you assessed your holding costs and profit margin in more detail than just 35% of ARV?  If you're using hard money, if taxes are high, if you have to pay a lot of buyer concessions, etc, the holding costs and commissions could be higher than you expect.

- Are you confident about the ARV?  Where did the numbers you listed come from?  An appraiser?  An agent?  Zillow?  Make sure you trust the reliability of your comps, as this is probably the most important aspect of the flip these days.

Good luck!