Is this a Deal or No Deal?

Question

Hello Everyone

I just found a single family house for $25,000. The owners is willing to hold for 5 years with 5000 down. Here are the numbers:

ARV is:  55,000
Repairs: 16,000
Do I still try and flip this house or do a as is lease option with 10,000 down?  Any thoughts would be appreciated.

Thanks

Jose

Will Barnard · Answer

So acquisition plus repairs makes this all in for $41k with only a $55k exit value ($14k gross spread). You then have holding costs, acquisition costs, financing costs, and resale costs. You would end up with little to nothing.

That does not mean you walk away. It just does not pencil for a quick flip.
What is the rent rate for this home? With $5k down and owner financing, if your rent is better than all your costs thus producing cash flow, buy it, ride out what could be a few years of appreciation then dump, or keep as a long term hold.

Jose Flores · Answer

Hey Guys

Thanks for all of your responses.  I agree that it does not seem like a quick flip.

Brian Gibbons · Answer

@Jose Flores, great to hear you have a deal in the works, but a lease option with repairs buying it is dangerous.

I would work on getting IRA private lenders that can fund your deals at 80% ARV, or money partners for JV 50 50 splits.

With FHA financing at 3.5% down, who would put $10K down on a $55000 house?

So get a private lender to fund you .8 x 55,000 = 44,000, now you own it.  Get 3 months moratorium (no payments) to fix it up.

I always tell people that sell fixers I dont have the cash to pay them and fix it up too.

Is it free and clear?  What is the existing financing?

If it is free and clear give them a note for their equity.  Try no interest and no payments for 6 months.

If there is existing financing, try a sub2 for fixers.  No payments for 3 months.

Remember this will sit a LONG time unless some "angel" rehabber comes along.

I look for a minimum profit of $20000 min for my time at a cheap low comp resale value.  Now you have "wiggle room"

So I'd ask myself this question:

How can I make $20K min with this deal?

If not look for a different deal.

Greg Potter · Answer

Hello Jose Flores, what would this property rent for after repairs? Would you anticipate flipping to another investor or sell on the retail market?

It is certainly nice to be able to negotiate flexible terms but it seems to me your purchase price plus repairs compared to the ARV is a little tight so I'm not sure the numbers work as a flip. Then again I've never done a flip myself so you can take my advice with a grain of salt, if at all.

Is this a Deal or No Deal?

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