Need a second set of eyes on this deal!!!

7 Replies

Hey BP family! As part of my 2018 goals I've decided to make the leap from wholesaling to flipping homes. After analyzing several deal in my area, I came across on that seems promising. I'd love to have a second eyes on this deal just to make sure i'm not messing this up. CONSTRUCTIVE CRITICISM IS WELCOMED!!!

4/2 , 1962 sqft

ASKING PRICE: $79,900

ARV: 160,118

*meeting with GC next week to get a quote on repairs. for my analysis I've been using the max repair cost that would still make the deal work*

REPAIRS: 40k

I plan on using Lima one as my hard money lender. for their FIXnFLIP loan program, they're offering to loan 90% of purchase and rehab cost. Loan to ARV 70%.term is 13 months

IF I purchase at asking price, that will put my loan at 107,910 (I'd bring 11,900 to the table as my 10%)

I'd place back on the market for 160k.

profit my profit around 40K.

my holding cost i'd have to pay to lima monthly would be 996.09 (107,910 x 12%= 12,949.2 / 13= 996.09)

estimated holding days 90.

90 days seems awfully fast to close on a property, pull permits, do work, pass inspections, list property, sell and close.  I would easily figure at least twice the timeline.  You also have to have utilities on, pay insurance, pay taxes, closing costs, real estate commissions etc..  Make sure you're factoring ALL of the misc carrying costs.

First - the numbers look pretty  good.  Unless you have a renter/buyer lined up, I'd say the 90-days is quite aggressive.  Another thing is make sure your GC gives the structural clearance; these surprises are not fun!

First, I agree with
@Paul, if you are estimating the maximum rehab cost, I doubt 3 months will be a safe timeline for it.  Whatever you think your rehab timeline will be, multiply it times 2.5.  You will find surprises, that will cost you in rehab cost...and time...thus the added cost of your money.  I would put in at least 6 months, and be surprised from your contractor for the better.

Add (subtract) the cost of the "other buying agent", closing costs, etc...My guess is about another $15k off of your projected profit.

If what's left is OK by you for 6 months work, then.......?

Thanks for you guy's input. so I should estimate 6 months for holding cost? and add insurance and utilities. as far as insurance, is this regular homeowner insurance or something different?

Originally posted by @Brandon McDowell :

Thanks for you guy's input. so I should estimate 6 months for holding cost? and add insurance and utilities. as far as insurance, is this regular homeowner insurance or something different?

 Vacant property insurance.  Different, and more expensive.

@Brandon McDowell

I'll give you some of my thoughts as a flipper and as someone who has been through Lima One's underwriting.

This deal hits the 75% rule (purchase price + rehab = 75% of ARV). I'm not sure if that constitutes a good deal or not in your area, but there's definitely room in the deal for profit. However, you aren't calculating your profit correctly. You can't just take ARV minus purchase price and rehab to get profit. You have to consider other costs too, especially buying costs (points and closing costs) as well as selling costs (realtor commission, any excise taxes, closing costs).

Lima One will charge you 3.5 pts on the loan, which is about $4k.  I'd probably budget $2k for purchase closing costs.

I wouldn't plan for any less than 6 months on your first flip.  Not sure how long houses take to sell in your market, but take that into consideration.  Insurance for rehabs is about 3-4 times more expensive than your standard homeowner's insurance.  Maybe budget $1k for that over a 6-month holding time (although they'll probably make you prepay the insurance for a year).  Interest payments for 6 months will total about $6,500.  Throw in another $1,500 for 6-months of utilities and other misc holding costs.

When you sell, plan for 8-10% of your ARV as your costs. Realtor commission will be 6%, closing costs 1-2%. Not sure if you have any excise/transfer taxes in your area. But let's use 9% ~ $14.5k.

Overall all those costs add up to $29.5k.  So your profit's really about $10k.  I'm being pretty conservative, so it might end up being $15k.

Also, make sure you have enough liquidity.  Lima One will require you to show enough cash for down payment, points, 6 months of interest reserves, and 10% of rehab budget.  That's about $26,500 I believe.

Sorry man but that deal doesn’t make anywhere near that profit when you factor in transaction costs. If you think it will be $40k or even close to reno just walk away right now. In addition to the other costs laid out by @Nghi Le above, you need some buffer on your reno budget for the suprises and also set aside some money for lender/Buyer repairs post-inspection. Don’t fall into the HGTV method of calculating profit. 

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