First Deal, Big Project

[Aaron Holowaychuk]

I have had a deal under contract for the past month. The home is a 2 bed 1 bath, 1144 sq. ft. rancher with accessory dwelling unit of about 900 sq. ft. The ADU is not in the best shape, but is rented out by a taxidermist for about $200 a month. It is zoned for this type of arrangement. The neighborhood is A+ and no homes are listed for under $400k in the area. Those homes are all 3, 4, or 5 bedroom, which makes it difficult to comp. There are a few comps in reasonably close range with listings anywhere from $200k to $275k. Let's say the ARV is around $250k (appraisal is coming). The purchase price is $156k. The home needs extensive work that includes kitchen and bathroom remodels; HVAC installation; boiler/baseboard heaters removed; plumbing work; and some girder/sister joints replaced. We anticipated having to rehab for about $50-60k before we knew about the girders/sister joints. Altogether, the project is going to cost around $75-80k.

I plan on refinancing and renting the property after rehab for somewhere around $1,500-1,800 a month. Mortgage will be around $1650. This, along with the ADU money, the home should have some cash flow upwards of a few hundred dollars. The new high school is slated to be built across the street in 2020, so we anticipate appreciation to grow as we are in the path of progress.

The deal is becoming really tight. I have a deal worked out with a hard money lender that effectively has me paying rehab costs and they pay purchase price at $60k and 156K, respectively. I will probably have to increase my money up front to cover additional rehab costs. I have interest down to 10% and daily points of $45 per day. Time for rehab is about two months. It would require an ARV of about $295k to recoup all my money. It is plausible that I am required to leave upwards of $30,000 in the house after refi.

Any thoughts would be great!