What do you think about this deal?

Question

I've come across a potential deal and I would value the opinion of experienced real estate investors.

I'm going to visit the property with a few contractors to get an estimate of the cost.

My exit strategy is to wholesale to a flipper.

I'm looking for any general advice on what to look out for.

Details:

Asking $45k

3bd/2ba

$8k mortgage

Will be an extensive rehab

Reggie Wright · Answer

An update for the folks who took the time to reply:

The contractor estimated the repair cost to be $48000

This made my MAO $11300

I called the seller...and the house was already sold. Someone offered $38k cash.

It was a good practice run, plus I learned I've got to be faster next time.

Reggie Wright · Answer

My MAO was $11.3k not $113k.

The math: ARV $83.3k - Repair cost $48k - Flipper's Profit $20k - Wholesale fee $3k - Buffer $1k = $11.3k

There was no way the ARV would be $123k, that translates to $125 per sq ft which is way too high for that neighborhood. I came up with $83.3k ARV - a couple of local investors agreed was reasonable for the area.

I've been thinking about what kind of buyer purchased the property. Definitely not a flipper because of the high purchase price (they offered $38k cash). Maybe a buy and hold investor because a 3/2 home in that neighborhood could rent for $950. But there's much better buy and hold deals to be had in our town for that price (especially since that one is a major fixer upper).

I figured the most likely buyer is a DIY'er who is going to end up living in the property.

Brent Coombs · Answer

@Ralph R. yep, those markets are out there. Here's one thread that shows that even though deals at that price point and return can be got all the time - it's the BANKS who make it hard to buy buy buy: https://www.biggerpockets.com/forums/311/topics/43... Cheers...

Brent Coombs · Answer

Judging from the pics, "huge remodel" would be an understatement?...

Ralph R. · Answer

@Reggie Wright  Therin lies the devil. C-  property.   They do have higher rent to value ratios usually. Your probably right it wasn't a flipper because those properties wouldn't have a high retail value either. Maybe a turnkey provider would have an interest or some cash flow buy and hold guy.  Even then I would have thought they could have beat that price down a bit looking at the pics. In contrast tho looks like most of the demo work is done. They will have a pretty new place when they finish. RR

Reggie Wright · Answer

@Ralph R. Odessa has a strong rental prices because of the recent oil boom. Although energy prices have gone down the rent rates haven't fallen by the same degree. I would say that area is a C- neighborhood. A majority of the houses are small and old but relatively few homes have security bars on the windows and no one hangs out on their porch. In other words I wouldn't be worried to visit at night.

Ralph R. · Answer

@Brent Coombs  yeah I didn't think of it but those lower prices are hard to finance. I don't have trouble getting financing but I'm not in this league eather. Im buying number 3 in 13 months with number 4 waiting on the close of number 3. Another thing about banks they don't like when you are doing to much too fast.  Or too many loans at once. My properties are usually 100- 150 range too. Easier to find money for I guess. RR

Ralph R. · Answer

@Reggie Wright  okay so now im curious.  In what part of the USA can you rent an $84k house for 950 a month?  or maybe I should ask what neighborhood??  Is this a "D" property?

RR

Brent Coombs · Answer

Oops, I miscounted the zeros. Well left. All the best for your future, deciding fast. Cheers...

Brent Coombs · Answer

@Reggie Wright, no, your MAO would likely have needed to be less than that Buyer/Flipper paid (minus your wholesale fee), right? Then, it could have been YOU making money, selling @ $38k!

If the Buyer was a Flipper who came to the same conclusion as you regarding needing $48k repair cost, if using the "70% Rule", THEY seem to have anticipated that the ARV will be about $123k?

What made you arrive at a figure of $113k at any stage? Based on comps, what IS its ARV?...

What do you think about this deal?

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