Help me analyze this deal

12 Replies

Hi folks,

I'm a analyzing my first legitimate deal.  I've done plenty of analysis for practice but this one will be a serious offer.

Let's start with the property description:

  • Senior community (55 and over)
  • 2 bed/1 bath
  • 980 sq/ft
  • 1 car garage
  • Slab
  • Built in 1973 and still looks it
  • Bank owned
  • On the market for 44 days

Repairs:

  • New laminate floors
  • Kitchen cabinets and appliances
  • washer/dryer
  • New bathroom
  • Paint, molding, doors, light fixtures
  • Central AC compressor

Numbers:

  • Asking price:  $79,900
    • Taxes: $1580
    • HOA: $260
  • Repairs:  over estimating at $24,000
  • ARV: $115,000 - $120,000
  • Estimated rehab/resale time: 120 days
  • Profit expectations:  $20,000

I'd like to make $20k and the BP calculator is telling me to offer no more than $52k. These are nice units in a nice community and our realtor says they are selling well. I met an investor at a meetup who has done a few of these and he said about the same in respects to ARV and repair.

My concern is my offer.  We just missed out on an opportunity on a similar unit that was asking $57k that got multiple offers and settled for more than asking.

I know we have to trust the numbers but am I over analyzing somwhere?  I don't want to get stuck in the paralysis but still want to make sure it makes sense.

Any advice would be appreciated.  Hope I supplied enough info.  The analysis link is below.

Thanks,

Steve

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Great work analyzing.  I would stick to the numbers and not offer more than what makes sense on paper.  If you get emotional ("really want this one!"), you will end up over-paying, stressing over the rehab budget, and making less than you hoped and projected.

@Michael DeVowe .  After sleeping on it I'm a little less stressed about it.  Going to work more on due diligence today and make sure what makes sense.  Either way I'll make an offer and get it into the deal funnel.

Thanks.

Trust the numbers, but take into consideration average days on market for comparables at $120k. Make sure you factor in that holding time as well.

@Jason DiClemente Thanks. I trust the math and from what I am seeing an ARV of $110 is not out of the question. I guess my biggest source of anxiety is lack of experience in estimating rehab costs. But, I'd rather estimate on the high end.

Make sure you factored in your holding cost for 120 days.  utilities, loan payments etc.

Don't get emotional in a hot market. You're an investor potentially competing with an owner occupant looking for a "deal" on their retirement home. You have to know your numbers and costs and stick to your offer knowing its the max you can pay to net you what you want out of the deal. If an owner occ comes in and out bids you but 15k, they are still getting a "deal" but can afford to pay more because they are going to live there and aren't trying to turn a profit in a short period of time. 

@Jim Adrian   Yes,  all accounted for thanks to the BP calculator.  Thanks for the reminder though.

@Matt Motil   Good point about the owner occupant scenario.  I didn't think about that.  Hopefully, the saving grace is that the property is in need of major updating.  So at least that field of competition narrows a bit to those who are willing to DIY.

Originally posted by @Steven Bonfante :

@Matt Motil  Good point about the owner occupant scenario.  I didn't think about that.  Hopefully, the saving grace is that the property is in need of major updating.  So at least that field of competition narrows a bit to those who are willing to DIY.

Yes and no. Don't forget the FHA 203k type programs where a buyer gets the funds for rehab and a FHA 203k qualified contractor does the work for them. The lender provides them all the funds with the FHA small downpayment for all of it. Hard to compete with that program if the buyer knows about it.

Originally posted by @Steven Bonfante :

Hi folks,

I'm a analyzing my first legitimate deal. 

How many illegitimate deals have you done, Steven? lol

Based on the items you've outlined in your repair list, methinks $24k is too high, but if that makes you feel better, so be it. Make sure you're not missing other large items, such as roof (but that's what good inspectors are for) that can kill this deal on the spot. 

65% ARV minus repairs formula doesn't always work in every market, especially when a bank is involved. It's been on the market for 44 days. Have there been price drops yet?

At 79.9k, it's definitely not a deal (you'd be lucky to break even at $115k ARV with your numbers). Holding, closing, realtor fees add up, so in order for you to make your $20k, you'd need to offer them $20k less. I'm almost positive they're not going to take it, but it wouldn't hurt to try. Get an investment-friendly realtor and get down to business. You still stand a chance to make 5 digits (even if low), but make sure your ARV and rehab costs have wiggle room.

Good luck.

@Victor S.   Your killing me but good catch.  :)

The property is a retirement community so exteriors are handled by the association.

I know I'm high on rehab so that may be where I'm going a little sideways.  I'm hitting a meetup tonight and hopefully I find someone to impart some wisdom on me.  The more I look at them I think I should go another round for more accuracy.

Just for reference, here are the deets on my numbers:  

Thanks for your input. 

Floors 1,600.00
Central A/C compressor 1,000.00
Kitch. Appliances 3,000.00
Kitchen Cabinets 3,000.00
Kitchen Counter 4,000.00
Sink 500.00
Washer/Dryer 1,000.00
Bathroom gut 5,000.00
Paint 500.00
Molding 500.00
Doors 1,500.00
Closet Inserts 500.00
lighting 500.00
electric 100.00
demo 200.00
removal 1,200.00
Originally posted by @Steven Bonfante :

@Victor S.  Your killing me but good catch.  :)

The property is a retirement community so exteriors are handled by the association.

I know I'm high on rehab so that may be where I'm going a little sideways.  I'm hitting a meetup tonight and hopefully I find someone to impart some wisdom on me.  The more I look at them I think I should go another round for more accuracy.

Just for reference, here are the deets on my numbers:  

Thanks for your input. 

Floors 1,600.00
Central A/C compressor 1,000.00
Kitch. Appliances 3,000.00
Kitchen Cabinets 3,000.00
Kitchen Counter 4,000.00
Sink 500.00
Washer/Dryer 1,000.00
Bathroom gut 5,000.00
Paint 500.00
Molding 500.00
Doors 1,500.00
Closet Inserts 500.00
lighting 500.00
electric 100.00
demo 200.00
removal 1,200.00

 Looks like the bulk of it is in the kitchen. Have you actually shopped that stuff already, or just ball-parking? 

A/C comp is only $1k? 

You have electric of only $100, but if the house has one of those Federal Pacific panels, you're looking at a new panel already. Electrical seems to be one of the common under-budgeted things. 

Demo is low too. What is the demo scope?

As far as the bathroom gut. Are you getting new floors/drywall/tub/sink/fixtures/cabinets/etc.?

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