How To Know When You're Forcing A Deal

Question

I'm curious if anyone has developed any controls for when they might be forcing a deal that they shouldn't. I know the calculators and info is all here to make safe decisions, but there are also personal goals and situations that have to be taken into account.

I've found a property that is FSBO 4 doors from my front porch. It has been a rental for a long time and an older home built in 1920. Which is appropriate for my neighborhood, my experience working on property and my primary interest in rehabbing.

Numbers are:

4 bed - 2 bath with 2 car garage 1,780 sq/ft

ARV: $80,000

Asking Price: $20,000

Foundation work: $15,000

Roof/Soffets: $15,000

Interior Remodel: $10,000 (with me as the hammer swinger)

Carrying/resale costs: $4,500

With a net profit of $15,000, that's actually 40% of the median household income in my county. So, it's not something to ignore. As a single parent raising two grade school children, the idea of a home so close to ours is incredibly attractive. But, I'm concerned about that much work, which means that much risk and money I need to find, may be being clouded by the idea of convenience.

So, my question is: Does anyone here have benchmarks or flags when they say, "I'm to going to much on emotion and making to many trade offs."?

Joe Villeneuve · Answer

IF you have to ask, you're probably answering your own question.

John DeVito · Answer

I don't see the numbers working for that deal. Just my opinion.

JR T. · Answer

Its too small dollar for a flip, you won't net out 15k. The median income tells me it could take awhile to sell at 60.

What would it rent for?

I do a gut check anytime I catch myself doing work to figure out how to make a deal work instead of my normal viewpoint which is to search out reasons to pass.

Chris T. · Answer

Seems like there is not enough meat on the bone on this. An older house, with only $25K of work (not including the foundation work)?

I agree with @William Murrell, get 2nd or 3rd opinions from contractors.

While it is good to know $15K is 40% of the median household income in your county, it has no relations with your potential flip. Other than the convenience of the house.

Matt Lowery · Answer

I am a Realtor and that's a conservative estimate on ARV, but I couldn't see it going much higher. The foundation estimate is from a contractor that I use often and trust. He understands my goals and would take a loss on a personal project rather than lose the other jobs I send him as a realtor.

William Murrell · Answer

My best recommendation is to go ahead and get some informed second opinions on your estimated rehab costs and ARV.  If you "fall in love with the deal" you're very likely to understate the actual cost of the work or overstate the ARV.  Asking a few contractors how much something costs will help mitigate against that.  If you get three bids for that foundation repair and they're all 20+% higher than your figure, then maybe you have allowed emotion in.  And a broker can help you make sure you didn't go way off-base with your ARV.

How To Know When You're Forcing A Deal

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