Does this make sense to you?

Question

I went driving for dollars, found a FSBO sign and called up the owner. I wanted to see if the house he was selling was going to be worth my time to invest in. We both came to the conclusion that it wasn't, he was asking full price (260K) and just didnt make sense.

HOWEVER, he said he had another property he just got 3 months back. He is also a real estate investor he said for quite some time. He offered me to view the property this Tuesday. He bought property for 150K, it is a 3 Bed and 2 Bathroom house. He wants to make at least 30K on the house. He said he hasn't fixed anything up just yet because he has other things going on right now. He is also a real estate agent and just off of his words, he said the house's ARV is 250K. He wants to sell it to me or if I won't take it he said he might just hold it till spring when he can get more money out of it.

He wants 30K like I mentioned plus for me to pay the closing costs. So all together 180K + closing costs.

Given that his calculation is correct that the ARV is 250K would this make for a good fix and flip project?

JD Martin · Answer

Whoosh! That giant sucking sound is not Ross Perot and NAFTA this time, but the sound of the dollars leaving your wallet for his! Either the rehab costs are going to be a lot higher than he anticipated, or the ARV is not as high as what he's claiming. Why, if he's a realtor, would he be marketing his own house FSBO? The 3% he's going to give his agency is peanuts compared to the exposure of the MLS.

Do your own research and see what the house looks like and what it should market for; my guess is he smells you as a sucker and is playing you as such.

Ceasar Rosas · Answer

@Tayler LaChapelle

Hi Tayler,

The biggest missing factor is renovation costs. Let's just use 30k. The way I see it is:

250,000 (ARV) - 180,000 (PP) = 70,000.

Now I don't know what closing costs are in your area, but let me use Purchase Price times 3% which equals 5,400.

70,000 - 30,000 (Rehab) - 5,400 (CC) = 34,600

Now when you sell you have to pay closing costs again and possible realtor commissions on 250k. Let's say you pay 5% in commissions and another 3% in closing. That will equal = 20,000.

34,600 - 20,000 = 14,600 Potential Profit

This doesn't take into consideration any holding costs or lender fees. This seems a bit tight to me, but then again I do not know your market and maybe there's something I'm missing. I hope this helps.

Steve Vaughan · Answer

Depends on how much it takes to get to ARV @Tayler LaChapelle. $5k? Yes (but don't count on it). $100k? No way.

You should be interested in FMV. People throw around ARV like it's this magic metric or something. To be a deal, you need to buy at less than FMV.

I've dealt with a lot of guys like this. Not just an agent selling FSBO (?) but investors that ask too much for whatever they're selling. Houses, skateboards, bubble gum.

Maybe check it out, but don't have high expectations. $30k + closing costs? Paying him a commission too? LOL buddy.

Good to be out there in the market and good luck to ya!

Does this make sense to you?

Does this make sense to you?

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