Analysis Paralysis!! Help!

16 Replies

So my wife and I are having issues with running numbers on properties. We are located in the state of North Carolina. We currently have a property with an ARV of $150,000 - $160,000 and are trying to come up with a max buy price. The home is currently listed at $99,900. We figure in 6% for the closing of the purchase, repairs are $20,200, holding costs at $300 per month for 6 months is $1,800, down payment for the hard money is 10% which is $9,900 with 100% of the rehab included, LTV is 70%-75%, 12% interest-only payments, 2% points, along with closing costs 9% on the sale, our profit is $22,500. Our max purchase price isn't making sense, and we feel we are doing something wrong. When I use the quick estimations from books I have read, we are extremely lower, like $20,000 lower. Our max purchase price is around $58,000 which is very far away from the list price. What are we doing wrong?

Way too skinny for me . 20 grand is a small quick fix and paint in my neck of the woods . If you missed 1 major or a few minor things you are upside down .  You arent taking into consideration rising lumber and materials costs , contractors are busy and wont get to your job for a month or two . Hard money costs will sink you . If the house takes 6 months longer to sell , where will you be ?

@Michael Plante well that makes me feel a little better. The market has made things so tight, it's hard to find a seller that isn't asking a ridiculous asking price. Would you send in an offer and low ball them or just move on?

@Matthew Paul this is a formula, and the profit was based off that formula. Not sure how you run numbers but I always figure my numbers based on ARV with 20% profit. For example, if I had an ARV of $250,000 then my profit would be $50,000. I'm a carpenter by trade, and did take the lumber costs into consideration. Also this is a standard flip, paint, flooring, cabinets, counters etc. I will be doing all of the work and can get this job done in 3 months, but planning for 6. I don't have an issue with this aspect of the analysis. However, my numbers are so far off I was afraid I was doing my percentages wrong with real estate fees etc.. I just moved from Florida to North Carolina and the numbers are different here so just making sure. Thanks for the input though!

Originally posted by @Stephen Bennett :

@Michael Plante well that makes me feel a little better. The market has made things so tight, it's hard to find a seller that isn't asking a ridiculous asking price. Would you send in an offer and low ball them or just move on?

Sounds like a good idea 


doesn’t hurt to try 

 

@Stephen Bennett

I am not as experienced as you in this business, but 1 thing that I missed seeing in your analysis is getting a CMA from a local realtor. As you said yourself, you are new to the market. So, IMO a local realtor will help you finalize your decision by verifying the numbers. Agree that sellers are getting greedy now a days but then again if the value of the property is what you say and the realtor verifies then seller would have to consider your offer anyways. Hope this helps!

-Sg

@Suraj Gupta That is true, if the numbers make sense, then the seller would have to at least consider. The CMA that was given to me by a local agent was $155,000. She sent me the actual report, so I did verify that. I see that you are a real estate agent in North Carolina. I'd like to ask you a question. In your opinion, do the percentages I am using for closing costs seem to be correct for the North Carolina standard? For example, I'm using 6% for the closing of the purchase and 9% for the closing of the sale. Is that correct?

@Michael Plante Best advice yet. Does not hurt to try. I'm new to lot of it when comes to real estate but even I've already seen a bunch deals missed because they did not think offer would go. Takes nothing to make an offer. Most people price ridiculous knowing people are going to offer lower. So they put it high hoping to level around their real acceptable offer. Same as any thing most people sell. Never pass up because scared make offer. They may not find another buyer and then come back to you and ask if you still want to make offer.

Just to give you an idea... my investment property total loan purchase value of 221,325 came out to... 4,489 of closing, 2,008 or prepaids, and 1,234 in escrow.

2-3%.

Looking over your numbers I see that you have 12% interest only on the hard money purchase loan and rehab. Your purchase price loan (at $99,000 list and $20,200 for rehab cost) would be $119,200. Take out 10% for down payment and that would be $107,280. So 12% interest only would be 1%/mo which would come out to $1,072 in holding costs per month. 

Also, you mention 2pts on the loan which would be $2,144 at sale closing. You have 9% for sale closing costs. Take 6% off for realtor commissions you have 3% which would be $4,650 at a sale price of $155,000. Take away the point payoff and you are left with $2,506 which is just over 1.6% of sale price. 

In your rehab budget are you paying yourself? You want to consider retail price for rehab costs because of you get hurt the day after closing and need to hire someone to do the work you will be at a loss if you didn’t calculate rehab at retail price. 

@Stephen Bennett

I think in todays market most any decent home will sell close to, or at market value.  I would encourage you to work the other way around to reverse engineer your numbers.  Based on the sales price, work out the cash flow numbers to see if it makes sense, then proceed with it.  If the home is not a distressed sale, you likely are not going to get a discount on it.

@Kyle Parks That breakdown helps a lot! So then basically you would want to adjust your max asking price to give the profit you are looking for, say 20%. Thank you very much for your time, this is going to help tremendously!

@Stephen Bennett Yes, but like @Ian Walsh said, make the offer that works for you. If you run everything and offer a certain price and the seller doesn't accept, after reasonable negotiations, then move on. I don't think of offers as low ball. They are what works for your business and if that doesn't work for the seller then it isn't a good match. And if that is the case just let them know to keep you in mind if anything changes. Who knows they might come back to you a month from now and want to work with you. It is a very tight market out there but there are deals for those willing to find them.