Good or bad deal?

2 Replies

I am interested and about to make an offer on a foreclosure near where I live. I am pre-approved for a rehab loan, which calls for %5 down on purchase price + they will give me up to $50,000 in renovation costs. They are asking for $199,999 and I would like to offer $190,000 plus seller pays closing costs... My estimated repairs (not an official contractor bid, just my professional opinion) is going to cost about $75,000. Which brings my Down payment to about $35,000 (%5 of 190,000= $9,500 + im going $25,000 over my $50,000 Reno limit from the lender). So I will be using $35,000 of my own money and financing $230,000. When completely finished the property will be appraised at about $299,900 (according to my realtor and houses around this one). Does anyone think this seems like a good deal? basically $265,000 for a $299,000 house plus all the headaches of dealing with contractors and all of that other stuff? Also I am open to any tips or advice anyone has to offer. Thank you very much for listening!

@Cam Jimmy No!  Oh my goodness, no!

You're not even counting holding costs (interest, insurance, utilities), selling costs (paying a realtor maybe $18k) and selling closing costs.  You'd be lucky to walk away with $10k and that is much too small for the risk you are taking.  And I wouldn't trust the $299,900 as the actual sale price. 

General speaking a good deal buy price is 70% after repair value (ARV) minus repairs. So for you that would be $300k * .7 - $75k = $135k. That's generally very hard to find. You might need to go as high as 80% ARV minus repairs. Again in your case $300k * .8 - $75k = $165k. But that is very tight. I generally don't like flips higher than 75% ARV - repairs.

Wow, thank you for the heads up! The way you put it totally seems like it is not worth the risk. I very much appreciate the advice! 

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