All Forum Posts by: Glenn Espinosa

Thanks for the comment Bryan. I also think unconverting the garage will bring in bigger value. The square footage will decrease but I think the house will sell faster with a garage and at the same price point.

As for the remodel, $43,000 is quite a rehab. Rehab comes out to about $26/sq ft which is more than I'd like to spend on what I'm calling a lipstick. To be honest I think the house can be done for under 35k. I will know better once my GC's get back to me.

The quiet costs breakdown as so:

Buying Costs (Closing costs, Inspection, Survey, Appraisal) : 1.5% of $115k = $1,725

Holding Costs (Property taxes, Insurance, Utilities & Maintenance) = 1.5% of 115k = $1,725

Cost of Money ($130,000 Hard Money @ 12% +3 points over 5.2 months) = $10,660

Selling Costs (Real estate commissions, Closing costs, 3% CCA) = $22,575

TOTAL = $36,685

Obviously I'll make more if I don't have to pay buyers closing costs and rehab and sell the house in under 5 months. If I rehab and sell the house within 3 months I will save $2,860 in hard money fees. If I don't pay CCA I will make an extra $6,480. Together that is an additional profit of $9,340 or a total profit of $27,340.

I know the comps are showing that this is a hot area. AVG DOM minus the outlier (house was 40k over ARV for over 3 months) is 25.6 days. Also, with a lipstick rehab I would estimate rehab to be complete in under 8 weeks. I only budgeted for 5.2 months to fix and sell the house from a formula I read a while back that used the price/sq ft of rehab as an estimate for rehab time.

Knowing all this, should I adjust my purchase price offer accordingly in order to be more competitive?

I've been putting in a lot offers recently. No luck so far although I am waiting to hear back from a 2 agents at the moment. A lot of houses in my area are going for a lot more than I'd like to spend and therefore I'm trying hard to find areas in my estimates where I can find room to increase my maximum purchase price. In the end the numbers don't lie and I don't intend to find myself on the wrong side of a bad deal.

So for fun I was hoping others could analyze the numbers I've come up with on one particular property I will be putting an offer on tomorrow.

The property is a single story 4/2/0 with 1,629 sq ft in a really desirable area. It was built in 1978, has really nice cathedral ceilings, near a popular park and in a subdivision with a great school system. Houses in this area have been going in less than a month for the most part. Asking price $150,000.

The plan is to do a mainly lipstick renovation. I'm considering unconverting the 1 car garage but will have to do more research on the value that adds. My GC's are putting together bids but rough numbers from them are right under 40k. I've budgeted 43k in my estimates.

Here are the main numbers:

1 Eventual Selling Price: $215,000 - 100%
2 Quiet Costs: -$36,685 - 17%
3 Improvement Costs: -$43,000 - 20%
4 Minimum Profit: -$18,000 - 8%
Maximum Offer: $117,315 - 55%

The Comps:

[b]floorplan...sell date....price........DOM.....sq ft......price/sq ft
4/2/0.........6/13/12....$195,000......10.....1,629......$119.71
4/1.5/1.5.....5/24/12....$198,450......29.....1,146.....$173.17
3/2/0..........5/14/12.....$219,900.....179....1,695......$129.73
4/1.5/1......10/3/12.....$194,900.....21......1,345......$144.91
4/2/1.......5/24/12.....$210,000.......?......1,530.......$137.25
4/2/1.......8/14/12.....$214,000......57.....1,643.......$130.25
4/1.5/1.....3/27/12....$220,000 ......11......1,403......$156.81

I have talked to hard money lenders and I think I can get $130k @ 12% for 6 months and I accounted for 3 points although I'd definitely would like to pay less in points (I'd love to hear from other lenders). So by financing 130k I will be putting 30k cash into this deal.

Now I am convinced that these are pretty rockbottom numbers. If worst case scenario I make 18k on my 30k in 6 months or less then I'll be happy and the ROI is good.

Are you guys getting similar percentages when flipping a house in this price range? I was always under the impression that when you start hitting the $200-215k price range that you should expect more profit.

P.s. I know that the ARV is low as the avg price/sq ft is $141. I like being conservative although I will definitely rework these numbers once I get my rehab bids back.

Any thoughts are welcomed. Thanks!

This was covered quite recently in another thread. Heres the link: http://www.biggerpockets.com/forums/67/topics/78643-remote-rehab-local-rehab-kentucky

Last month I started searching for rehabs again. I'm at the end of my military deployment so I'd like to get a head start on jump starting my rehab business. My partners and I submitted 5 offers on potential flips. Still waiting on 2 of those but we were over bid on 3 properties.

I've also started networking with potential hard money lenders. I have a good line on two of them and can't wait to start working with either of them.

For this month we are planning to continue putting in offers. In the meantime I am hacking away at my online realtor license as well as reading upwards of 3-4 books a month on real estate. Next topic up to digest is Seller Carry Backs and how to use that strategy in building a rental portfolio. Sounds interesting!

Don't forget that by investing remotely, you will initially be at a disadvantage by not having an intimate knowledge of the area. Sure, sometimes the numbers are right on and the deal looks great, but there are a few areas in my city where I will never invest in due to numerous reasons.

Hey Bob,

What part of Virginia are you in? I'm currently looking at duplexes and if you have a line on any that you aren't interested in yourself, I'd more than appreciate the info.

Ah the accidental millionaire. You sir are very much welcome here!

;)

A lot of this depends on your goals as well as what stage of your rehabbing career you're in. To get to the next level and to grow exponentially, you'll definitely need to start leveraging the use of other people's money.

I'm currently struggling with this issue myself. I've only ever done 1 flip at a time but I would like to break into 2 or maybe even 3 simultaneous flips during the upcoming year. While I've put up about 60-75% of the cost required to do my previous flips, I'll definitely need to decrease that ratio and finance more of my flips in order to reach my goal of doing multiple flips at a time. There just isn't enough cash in my bank account to grow my business exponentially.

Thanks a lot for mentioning Rustoleum. Can't wait to try that on my next flip with workable cabinets. I'm thinking a darker color with a light countertop would look awesome for the money!

Believe it or not, I have been able to complete 2 successful rehabs now without having a full grasp on the loans and financing part of the equation. For my last two flips I've simply used the 20% ARV rule and used that figure to account for my holding costs to include financing, commissions, etc. etc. Little to no thought was put into the cost of the 50k construction loans I was taking out...

Anyway, I've gone back and reviewed my last two flips and my holding costs were actually more in the 14-16% range and that has motivated me to get better numbers on my holding costs. This will allow me to increase my maximum offer price and hopefully will get me into more houses.

So, finally, my question: For my last house I took out a 50k construction loan with an APR of 11.75% and a 60month pay back time. Our payments a month were $1,115 and our total finance charge for the life of the loan was $16,900. Stupidly on my part, I was under the impression that $1,115/month was going against my bottom line. In reality, I was paying less only $282/month in interest since $833/month was going towards the principal (is this right?). Unsurprisingly, we ended up a little short on cash because of the principal pay down and had to get creative towards the end.. In the future, would it be wiser to factor in the principal payments into a loan? I know the interest will go up since it will be a bigger loan. Do any other investors do this?

I haven't dabbled to much in hard money as the ones around my area (Southeast Virginia) want too much paperwork and are in my mind too much of a hassle to deal with (eg. draw payments, weekly progress inspections, control of fundamental rehab decisions, etc.). Generally, would I be getting a better deal with hard money than that construction loan I layed out above? Are there interest only loans with comparable APR's and balloon payments that I could try for (something were the principal doesnt kick in till say month 6)? In total, I paid 5 months worth of interest on my last flip and that came out to only $282 x 5 = $1,410 in financing charge. Not too shabby in my eyes.

Also, as a disclaimer It is quite possible that my math and calculations are all wrong but please bear with me.

Thanks ahead of time,

Glenn