good deal or bad deal?

Question

There is a property I'm currently interested in and I'm wondering if I can get some opinions. It is on a main road in a smaller town so it is busy but not too busy. Every house on the road which is about 50 homes are occupied and I am being told by my uneducated opinionated step father that he thinks it is a terrible investment.

But here are the numbers. I intend on offering 75k and paying no more than 85k. It needs 40k-60k repairs worst case scenario. My total investment including purchase price into the property will be a maximum of about 140k. The ARV is 190k-210k leaving me with 50-70k equity in the property. I plan to refinance and put up for sale. What could be wrong with this deal?

Mark Brazier · Answer

So here's an update! I purchased a property for 137k with a 26k rehab budget and will list for 220k The great news is that based on the circumstances of the property I was able to make 28k in the buy! in 2014 the property was sold for 165k but the previous home owners just abandoned the place and left the private mortgage holder with the expenses. He wasn't too upset to let it go for 137k.

This is mine and my partners first rehab but so far so good. We have learned a fair bit about rehab expenses and management and we can see the light! @Steve Vaughan

Steve Vaughan · Answer

Just don't forget to factor in sales expenses and taxes on short-term gains.  Here in the states, sales expenses with a realtor run close to 10% + taxes at your marginal rate.  Probably 40% out the window when the dust settles.  Good luck and keep us posted @Mark Brazier!

Mark Brazier · Answer

Thanks for the input Jay!

Our Market is fairly tame. nothing too crazy happens either way. Over the last several years we have averaged approximately 1.5% appreciation per year or less depending on the area. The property is assessed at 133k.

In general fix and flips are not the greatest strategy here unless the property is acquired at a great price and the seller is very motivated. We need to find a large portion of our profits in our purchase price.

I plan to have the work done in 6 months or less and interest from my lender is 9.5%

Jay Hinrichs · Answer

PS that would be a GREAT deal in our market here I Orygun..

Jay Hinrichs · Answer

just depends on your market cost of capital and how long it will take.. those are very common numbers for house flipping.