[Calc Review] This Deal looks SOLID, but you decide!

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

Quick Synopsis in addition to the linked report.

  1. SFH. 3/2. 1388 sq.ft. Great community. Good clean neighborhood. REO.
  2. Asking $89,000
  3. Rent $1600-1700
  4. ARV: $195,000- $210,000 Conservative Estimate.
  5. Estimated Rehab: $50,000
  6. Taxes: $5150
  7. Insurance: Conservatively-$125/mth
  8. Built in 1995 so E&P are solid. 
  9. Needs rehab, not a full gut, but moderate rehab to Drywall, floors, kitchen and possibly bathrooms also.
  10. Nice neighborhood plot, middle income area, well kept homes

I'm looking at a renovation loan through an experienced and trusted lender who is very familiar with 203k/FNMA Home Style Renovation/Etc loans.

This area is expected to appreciate someone in the ball park of 4-7% this year with the influx of some new job growth drivers and attractions that are bringing people in. 

Please let me know what you think.

@Adam Scheetz - the numbers aren't bad. If you can get that for under $89k (or keep rehab costs down), you might consider flipping instead of holding. Good luck!

@Tchaka Owen that's what I was thinking. I liking having multiple exit options. Shoot for a B&H, especially if I can get the numbers to go down through good fortune and skillful planning. Even a low ARV would still leave enough equity to make a flip a solid option. Might consider partnering if I flip for the added benefit of smaller exposure and increased networking. Options are always good. Thanks Tchaka for the feedback.

If you use your worst case $1600 as rent and your real rehab is $50K, it works. As a rental, It is not a great deal but it certainly works. It's a little less than $4000 per year in income using your worst case senario. 

You are better off selling for the minimum $56K in a sale if you can do so immediatly upon completion. 

 @David K. I think that's what I'm looking at. If I'm lucky to get some higher numbers mainly rent. I'll look at a short hold possibly 2-5 yes as long as it cash flows well ie. $300/mth net. If not, just flip it since the equity is there. This market right now is renter saturated. My agent has more renters than houses. Which strikes me as a good place to be.

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@Adam Scheetz

90k plus 50k rehab plus 3-4K closing puts you at 145k

And getting only 1600 in rent with really high taxes over 5k . Doesn’t sound too exciting to me . If your rehab was like 20-30k it would be a whole lot better . Doesn’t look to be a smoking deal at all ,I’d pass .

@Dennis M. Believe it or not, the taxes on this one are some of the lowest. Typically there in the 7-8k range. Waiting on a itemized SOW to nail down the costs more than an approximation. But typically for this area, I'm finding that for Drywall, floors, paint, K&B, most folks are around $50k ish. That's also for a rental. Flips sometimes have a little nicer detail so I'd have to find that happy place between return on purchase and making it look really good.

Originally posted by @Adam Scheetz :

@Dennis M. Believe it or not, the taxes on this one are some of the lowest. Typically there in the 7-8k range. Waiting on a itemized SOW to nail down the costs more than an approximation. But typically for this area, I'm finding that for Drywall, floors, paint, K&B, most folks are around $50k ish. That's also for a rental. Flips sometimes have a little nicer detail so I'd have to find that happy place between return on purchase and making it look really good.

 I suppose if your banking on appreciation that would make sense . Hard to cash flow with taxes at those levels . Giving away all the profits to the bank and local government 

@Dennis M. I know it sucks. Banking on appreciation worked great for investors and home owners in 2007-2008!! I never plan on appreciation. If it happens then great but cash flow is my goal. I'm going to keeping crunching away at this property and seeing which route makes since. Buy and hold will depend entirely on the rental income. Otherwise, a flip it will be.

@Adam Scheetz

That’s pretty solid especially for something that will have conventional financing without a balloon payment.

@Patrick Fraire This will not be a conventional financing deal. It'll either be a FNMA Renovation Loan or limited partnership with an equity share of the profit. I will not be occupying the property so that rules out several typical conventional methods like a 203k loan. I'll be speaking with the lender on Monday who is well versed and experienced in those unique types of renovation loans to get the full terms and conditions, I don't anticipate a ballon payment. At most, maybe 1 or 2 points, but I won't know till I see the writing. 

The Area in South Jersey. West of Atlantic City. There are several economic drivers within that area that have been bouncing back- albeit slowly- since Hurricane Sandy came through. As I nail down with more concrete certainty the numbers and get a more definitive picture of what to expect, I'll pick a B&H or Flip. If it's a flip, I'll likely partner with someone to build another relationship and reduce my exposure. Partnerships are much more lucrative in the long run with the intrinsic benefits of what they bring.

@Adam Scheetz  

Ohh i see. My bad I heard you say he was familiar with 203k and I assumed that was your plan. I follow now. Thanks for the clarification. I’m not familiar with the market there but did that entire market go down after the hurricane? I could see how that would bring opportunity. I’m sure the city has some public funds to bring new infrastructure and that may have pressed a reset or pause button on the real estate cycle. 

Good lenders can bring so much value. Good point about partnerships bringing intrinsic value. I’ve never looked at it that way to be honest. I always look at the monetary side. Sounds like you know what your doing. Goodluck on your ventures! 

@Adam Scheetz how are you? Question how do you get the ARV after the 50k rehab? What is that number based off of, the comps in the area?

@Adam Scheetz

Is this on MLS? Not sure about your market but I've seen REO commonly listed here low to drum interest and bidding war. I'd suspect an immediate highest and best counter. Damn those taxes are a [email protected]+(#.....

@Jonathan Cox I have a realtor who has been in the business for 18 years, works a lot with investors, knows the economics and driving forces of it, and her familiarity with the local market and affiliation with property management makes her a valuable resource. She actually ball parked higher but as a rule of thumb I pull 8-10% off just to see if the numbers still check out. When you go to sell after a flip your dealing with better than half a year sometimes. Things can change, may not a whole lot, but that cushion allows for a good deal to become a great deal at the closing table.

@Will C. Jersey taxes are freaking nuts. But even with that, there are options for deals to still be had. It is MLS. It was on the market for 170 days with an occupant for about half of that and a failed to finance buyer after that. The problem is that the pictures are of a 'nice' house that needs updating. The reality is that it actually needs some serious TLC. Turn key investors need not bother with this one. I think that's what has kept folks away. I'm meeting with my agent Monday to dig deeper into the trustee source and past records on the property.

@Adam Scheetz it's not a slam dunk in the traditional sense but if you are using all of the banks money (I think you could with this deal) and you're not putting in a ton of sweat equity into it I would go for it. BRRR and find the next!

@Scott Henrikson with the FNMA HOMESTYLE RENOVATION LOAN the DP is 20%. So the out of pocket would be somewhere around $35k which covers the DP and 5 months holding costs.

At a 90k buy and a 50k reno you'll have 140k into it. If the actual value after repairs is $200k then you could refinance at 80% LTV, have it all covered by the banks money, cash out $20k before fees for you, and still hold your cash flow. If your estimates are correct you can scale without a ton of additional money.

@Scott Henrikson I'd normally throw out 10-12% under asking price, but considering that it's an REO I'm unsure if it's reasonable to expect that. BNY Mellon is supposedly the holder and I've never heard good reviews about them. But we'll see. If anything I expect $89,000 to be the best they'd take if anything. And as I mentioned before, the GC's estimate of the statement of work will either make, break, or change the nature of the deal. I'm anxious to hear back.

Thinking and structuring the deal with a cash out builds substantial equity wealth as well as limits your tax liability that you would see on a flip. Take advantage of it while the banks and market allows it! Good Luck!

@Adam Scheetz where do you typically research the economic indicators? ie expected job growth, estimated appreciation, etc.

@Scott Henrikson yea I'll do just about anything to avoid that 15.4% self employment tax flippers get hit with. On top of my tax bracket I'd be giving up a third of my profit. I don't claim to be tax savy although I'm seeing more and more the importance of learning how to navigate the racket that is the IRS Tax system. They'll nickle and dime you as much as they can. Thanks for you insight and advice!!

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