Flip Deal - What do you think?

Question

Here's the deal I'm hoping to get.  Please let me know your thoughts.

This is what I like to call a "grandmas house" type of flip.  Great liveable house but just needs updating mostly in kitchen and bathrooms.  Home was built in the 50s with original owner.

List Price: 95k
Renovations: 18k
Total Cost: 113k
Cost + holding costs + realtor fees: 127k

Potential ARV: 150-170k

Potential Profit: 23 - 43k

According to the 70% calculator a 162k sale price or above would fulfill the 70% rule.

Any thoughts, comments, suggestions?

Thanks in advance! 
Erin

Erin Weiss · Answer

Thanks...well the house AND the numbers were perfect for me on this one...so that's why I fell in love :)  Someone is lucky to have that one!

Adam Johnson · Answer

I will offer an extra warning to you - if you find you get "attached" to a property, be EXTRA careful before you proceed.  I once became very attached to a historic property that desperately needed love.  I gave it the love it needed, was very proud of what I did, and it nearly put me out of business.  It was a horrible investment in hindsight, I lost a ton of money and I am a little embarrassed that I was involved with the whole thing.

It is tough to do, but try to always love the numbers not the property.  If you fall in love with the property before the numbers, step back and look really close at what you are getting into!

I am not a patient person, so I am not one to preach, but be patient, the right deal will come along.

Christopher Coleman · Answer

Hey Erin, 
Its never a good feeling missing out on a deal, but the only thing you can do is learn and move forward. Its easy to beat yourself up but its rarely helpful.

I would tend to agree with some of the other posters, a wide range for ARV can make it very tempting to focus or hope for the higher end. One phrase that's worked well for me is "under promise, and over deliver." Especially when working with OPM it pays to be conservative.

Good luck out there!

Erin Weiss · Answer

Thank you Adam Johnson.  You're right.  Numbers don't lie.  Well I'm still completely bummed out about this deal (I know you're not supposed to get attached to a property but I did!!) but I'm digging to try to find another opportunity.  I'm so motivated and want to get something rolling!

Adam Johnson · Answer

Some of my best deals are the ones that never happened! Matt Devincenzo made a great point, always work the math backwards from the ARV.  To further the comment by  James Vermillion, working with a wide range for ARV is dangerous, it is too tempting to look at the upper part of the range and talk yourself into a bad deal.

I can't tell you how many times I have disappointed myself when starting with what I initially thought was a good deal, only to find that after running the numbers it didn't work.  One that I will never forget I literally broke into a sweat out of frustration because I couldn't make a deal that I really wanted work out on paper and meet my goals.  I still wrote the lowball offer and I still got beat by another buyer that overpaid for the property, in my opinion.

Numbers don't lie!  Good luck on the next one.

Navi Veski · Answer

Good try, Erin...you'll get the next one

Erin Weiss · Answer

Thanks for the tip, Matt Devincenzo.  I'll have to work backwards next time when calculating.

Matt Devincenzo · Answer

One thing I noticed right away was this statement. You should never use the rules of thumb that way. You have to remember with any of these(50% rule, 2% rule which I hate, 70% rule) they are rules of thumb first, and second they have a start point. The start point is always the market condition you can't control. So in this case that is the ARV, then you solve to the one you can control the purchase price.

I know that you likely know that, but in your quote it sounded like you had it backwards which is often where people tend to start getting themselves in trouble forgetting that they are always limited by the market.

Erin Weiss · Answer

Well the reason for ARV was due to lack of good comps, however I just got a call and they did not accept my offer.  They had over 10 offers in two days and accepted one for over 100k I believe :(

Dang it!

James Vermillion · Answer

Erin, my biggest concern is the huge range in potential ARV.  Is there a reason you were unable to nail it down further (lack of good comps)?

With that range, if the ARV is on the low end you would need to purchase for 87K to hit the 70%.