Starting my 90 day challenge! Please help me analyze this deal.

16 Replies

Hello, 

I am just getting started in real estate and am new to analyzing deals. I have not done a walk though of this property and put estimates up for the repair cost. If that the right approach or should I do the walk through, run numbers, then put an offer in? Please help! 


Any input on my analysis would be wonderful. Thank you in advanced.


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Best Regards,

Annie Levan 

@Annie Levan

You say you haven't done a walk through of this property and just put estimates up for the repair costs. Where are these repair numbers coming from than? Is it a wholesale deal where the wholesaler is providing them? Are you estimating based on pictures of the property from the MLS? Is it some other way?

I would say before you make any offers you would want to see the property in person. You'll want to make sure your budget for repairs is accurate. From what I see, the two biggest issues when flipping is 1. Not calculating the ARV correctly and 2. Underestimating repair costs. Make sure those are 100% in check. Hopefully, you find this helpful!

My preference for a flip would be to walk the property with a contractor you trust, run the estimate, place an offer at a desired margin if the asking will not work.

  • I don't have your comps so the obligatory question - is your ARV accurate?
  • Why is landscaping your #2 expense item?
  • Your expenses look rather precise, where did you derive estimates?
  • Why are you holding for 6 months, are you planning on doing work yourself or hiring?
  • How are you funding?

Where is this property located? It has reinforced front door (bars) which tells me this is not a nice neighborhood.

Why holding costs are $2000/mo? What exactly are you paying for?

Closing costs of $5000 seem to be high. What do they include?

@Christopher Giannino @Karl Krauskopf @Nick B.

Thank you all for your input. I understand now that I need to do the walk through then get a bid from a contractor before I can really analyze a deal. The property is located in Sacramento, CA and I got comps from Zillow.  This is why the holding costs are high. I also left a 6 month holding period as a buffer since any deal I do will be my first. 

Any other suggestions for getting comps?

Thanks again everyone! I'll do the walk through and provide more details the next time I reach out for advise.

Sincerely,

Annie Levan

You can get comps from MLS. Ask a few agents to retrieve them for you.

Not sure what holding costs have to do with comps though. Holding costs include property taxes, utilities, insurance, and interest on the loan (if any).

6 months is an awfully long time to complete a flip; especially on 1100 sqft. If you line up contractors before closing for them to start working on the day of closing it should take you 1 month at most. You start marketing for sale 1-2 weeks before the work is done and in today's hot market it should not take you more than another month to sell it. So 2 months at most.

@Annie Levan An agent can provide comps. If you are getting this property of the MLS, you should be able to get an inspection report. If not, you can have your offer be contingent of that. Base on the inspection report, you can get bids for those.

Looks like you are trying to flip, talk to a GC about the work you want to pursue to add value to the home. 

Since this is your 1st project, try to keep the work simple. 

@Nick B. Thank you for the marketing tip! I wouldn’t have thought to post the listing so early. Also, I‘m glad to hear you think a flip for a property that size will only take a month! I think I’ll take 2 months off my timeline to be safe still. The comp question was regarding someone else’s comment. Sorry for the confusion! But I‘ll take your tip and try to get comps from a few agents. You‘re feedback is greatly appreciated. Sincerely, Annie Levan

Math seems to make sense. I assume it is near Elk Grove, CA blue collar C neighborhood ? What I do not like is the 1 bath. People all want 2 baths renters or tenants.  You need to bring a contractor to understand renovation cost.  I handle material part understand exactly what everything costs. The contractor provides how much labor he charges. It works better because I have complete control on cost. Scheduling always takes longer than you hope. Often there are delays.  

You also need to estimate ROI, cash flow and budget which is not in this calculator. I suggest you go to HD to get a big barn storage unit in the back since the house has no garage.

Good luck,

Sam

@Sam Shueh Hi Sam, Thank you for the big barn storage tip and identifying material cost on my own tip. I like the idea of being able to control cost as much as I can. I’ll also try to run those number you suggested after I get a better idea on the rehab cost. Thank you again for your advise. Sincerely, Annie Levan

@Annie Levan  

@Sam Shueh

I understand your perspective in providing materials for the contractors. However, I don't think you have the time and maybe even background to get all the material he/she needs. And the contractor doesn't want to be babysitted or wait for materials. 

Find a number of good contractors and do your due diligence. 

FYI, building a bathroom isn't as simple as hiring someone just to build it. You got a bit of hw to do. 

@Kevin Dang

If you are starting out it is prudent to know the materials, components and what it take to get there.  Many investors do not know VP from laminated mahogany flooring. Why modern toilets is not compatible with existing homes. Why doors do not hang on old home with new flooring. Many GC laugh at inexperienced investors that they do not even know what they are talking about and take advantage of their ignorance with additional charge($).  There is about 25-30% savings with better understanding what it takes to get contractor listen to the owner. Annie happens to came from housing industry as a professional. She is expanding her investment opportunities.

I'm not saying not to do your homework.... 

Lets say you want to build a non bearing wall. Do you rrly want to spend time to buy and get all the lumber and fasteners? What if you missing stuff or get it wrong...

There are better ways to manage costs. 

I used to do residential projects. Some owners say we could get these fixtures on amazon or ebay cheaper. But it ends up delaying the projects and the costs for delays end up being much more expensive. 

Don't count pennies. Think of the bigger picture. 

Hi @Annie Levan .  Congrats on starting your real estate investing career! Here are my thoughts on this.

It is possible to do a rehab like this in one month if you are very involved with hiring and managing the people doing the work and you are able to keep things moving.  Or it could also be possible if you have someone like a general contractor lined up that can start and manage the work right when you close on the house. However, I think it would be good to assume the entire process (from close to close) could take up to 6 months. With contractors and other trades people being so busy right now, you could be looking at long lead times to get people in there. In addition, as was previously mentioned, things have a tendency to go wrong during projects like this which could result in delays.

Regarding the current market in Sacramento, things have slowed a bit in the last couple months. That’s not to say that a nice, well priced house won’t sell quickly and for top dollar. But overall we’re seeing more houses sit on the market for longer and we’re also seeing more price reductions.  

For the reasons described above, and with $2,000 per month for holding costs, I would definitely assume it will take more than 2 months total.  I suggest assuming 4 - 6 months to be safe.

While your holding costs and total project time are important factors, your rehab numbers and ARV are even more important. As others have mentioned, I completely agree that it is best to have a contractor that you trust view the house with you and give you realistic numbers. Regarding your ARV, it will certainly depend on similar and recent comps, especially considering what's been going on in the market recently. If you'd like me to send you some comps, please PM the address to me and I'd be happy to send some comps and give you my input.

Please let me know if you have any questions or need any additional info. Best of luck!