I found a house for sale for 15K.
It will need roof replaced because water leaks into the two bedrooms. It will need sheet rock replaced in the bedrooms as well.
Needs new carpet. New kitchen sink and bathroom sink.
Those are the major repairs that it needs.
I have to get rid of a storage shed as well.
The market value of the houses around it range from 34K-47K
What should I do next?
I was thinking about checking with some hard money lenders to see if they will lend for this.
Mind you, i'm just starting out in this business.
First get an exact ARV that you think it will sell for. Next get an exact repair estimate from multiple contractors, then run your numbers. I wouldn't talk to an HML until you know if its a deal or not.
See the thing is until you have an ARV and a repair estimate you don't know if its a deal or not.
So let's say you can sell it for 34K and your repairs are going to be 15K. Well then 15K isn't a good purchase price. Actually if that were the case I probably wouldn't give more than $3,000 for the house. If you use the standard 70% minus repairs rule on that, take into account that your profit margin is normally about 15% of the ARV for a semi-experienced rehabber. That means you would be doing the whole 15K rehab job for about $5,000. That's not a good idea. There's not enough room for error there. I personally wouldn't use rehab to retail as my primary exit strategy on a project that needed any type of significant remodeling unless I had at least 10K sitting on the table for profit.
I would recommend that you make up a detailed list of what you would want done to the property and then get at least 3 contractors over there to give you a bid. At that point you will have an idea of what it will really cost you.
Thanks so much for the advice.
I have a question? How do I find a very good (exact) esitmate of the ARV?
Should I call a realtor up and ask them?
Also, should I try and get this under contract as "if the numbers work out" i'll buy it.
So, should I get it under contract with a clause saying, if the estimated repairs are over 8K I wan't out of contract. AND if the ARV is lower than 30K i want out.
I'm always hearing... "Get the contract" then worry about the rest.
Thanks in advance.
I like to determine my ARV's from pulling the average sold price per square foot for the general area where the subject property is located. Now I also take into account idiosyncrasies of the house and the neighboorhood, and whether the house is under or over built, but initially it comes from an average sold per square foot number from the area, multiplied by my square footage. Depending on the size of the property and my comfortability with the area, I might then look for actual comparable sales in that area that will support my initial value determination.
Other than being quick and easy, the thing I like about taking the average for the area, well at least for the areas that I deal in, is if I'm going to be freshly rehabbing the property it will be in better condition than the average property in that area and would be able to carry a higher price than the average price. So I am naturally being conservative in my ARV because of this fact.
Comparable sales averages for areas would come from a realtor. You could ask for the average price per square foot sold price for listings in that particular area or within a half mile for the last 6 months. Realtors, and in some states title companies also, are the gate keepers of the most comprehensive network of real estate sales information, the Multiple Listing Service (MLS). It would be good to build a relationship with an investor oriented realtor that could help you in your business with this kind of information.
In reference to the contract, you could put in an offer with a general contingency if you wanted. I would recommend that as you get more experienced that you learn to determine your numbers in less than five minutes after looking at the property. Become equipped to make a non-contingent offer right then and there before you leave the house.
Do you use land records for in area comparable sales?
I only go back 6 months to look for comparable solds. The market can change pretty much over a years time. I don't look at the average price so much as the median price of all the comparable solds.
I also look at current listings and withdrawn listings to see what people are trying to sell for and what prices are not working.