Chicago investor! Is this a good deal?

Question

Hi BP,

I am planning to flip a house here in Chicago and I want to know if some experienced investors could look over my numbers and  give me some feedback. If I'm correct my profit would be about 38.2k. I will be using a hard money lender, so I'm prepared to pay out a lot in fees.

Loan Amount: 100k @ 6 MONTHS HOLDING PERIOD           ARV 165K

PURCHASE PRICE 60K                                                                 REHAB BUDGET 30K

FIXED COST=36.8K @ 6 MONTHS HOLDING PERIOD

=

165000-60000-30000-36800= 38200

PROFIT= 38.2K

I'M PUTTING IN ABOUT 25K OF MY OWN CASH TO PAY FOR THE FIXED COST AND REHAB RESERVES. WILL I WALK AWAY WITH 38.2K? OR SHOULD I SUBTRACT MY 25K FROM THE 38.2K WHICH WOULD MAKE MY PROFIT =13.2K.

ANY FEEDBACK?

Account Closed · Answer

Never mind answering questions 4 and 5. I just realized that with creative funding, I can easily get this done!

Account Closed · Answer

Hi @Tchaka Owen

NEED AT FIRST CLOSING: Down Payment 10k; 3pts @ 2.7k; 1k processing fee; 450 appraisal fee; 200 inspection fee; 800 six months property ins

=15,1000

HOLDING COST: 1000 per month interest payment (including rehab draw interest) x6=6K; 900 utilities for 6 months; 2400 for 6 month construction draw inspection

=9300

SECOND CLOSING: 2500 taxes; 4950 seller concessions; agent fees 3%? @ 4950

=12400

=36800

Eric M. · Answer

If you can find 60K properties that only need 30K of work to turn into 165K ARV, you are going to be a very rich woman.

And if you need someone to take those deals off your hands, I will take as many as you can find.

I don't really think those numbers are going to happen unless your nice aunt has given you a great deal. But good luck. And congratulations if it works out.

Tchaka Owen · Answer

@V. L. - got it. A few things:

1. Your $10k down payment doesn't count, because you'll get that back upon sale of property. That counts for cash needed on hand, however not in calculating profit.

2. Are you an agent? If not, be prepared to work hard to sell OR hire an agent.

3. Do you feel seller concessions are required? Nothing wrong with them, it's that you should expect a premium. Ie, if you think the home is a legit $165k and someone wants $3k in concessions, you should expect $168k with $3k back. Make sense. What you're doing is automatically dropping your home to $160k if you're including concessions. Again, nothing wrong with concessions - just be sure to calculate the true value of the home accurately.

4. Is $2400 the fee for construction draw inspection? That seems hefty! Any way to get this lower?

Bottom line: your $38.2k profit is a conservative number (which is good). Based on what you've written, as long as your rehab estimates are accurate and you don't run into surprises, I'm guessing you'll walk away with $45k+

Good luck!

Tchaka Owen · Answer

@V. L. - could you detail the $36.8K? I see $3k closing costs on the buy, $9900 for commissions on the sale, another $2k closing costs., let's say 12% (guessing) comes to $6k interest and 3 points is $3k. That's $23.9k. Add another $3k for buffer.….that's still $10k shy of your number. What are we missing?

Eric M. · Answer

I have invested on the south side. So I am familiar with some crazy numbers and crazy transactions that occur and are rumored to occur there. I have seen a property go from being sold for 15k one year to 200k the next year and back to 25k the next year.  So I am not saying 1 transaction with your numbers is possible. I do find it unlikely without some extraordinary circumstances.

There is no possible way to know how much a rehab of a 60k property could be. It could be 10 or 500k. It depends on the home. The rehab required for a property has no relationship whatsoever to the sales price.

Feel free to post the address if you want specific thoughts.

The issue is whether it is realistically possible to increase a 60k property to 165k with an investment of only 30k.

In my experience, that kind of home run return on investment is extraordinarily rare if not impossible in today's market. This is not to say it has never happened or couldn't happen. People beat the odds and win the lottery every week. But that doesn't mean I am going to win.

For a cash investor this is a 75k return on a 90k investment in 6 months.  A 150%+ IRR is a very rare event. I certainly have never achieved with a rehab and I would be anxious to partner with you on any similar project.

Account Closed · Answer

@Eric Michaels

Do you invest on the south side? From your experience, what would be the rehab cost for a $60 property?

Account Closed · Answer

@Tchaka Owen

1. No, I'm not an agent, but I do plan to use a sellers agents. I'm assuming seller concessions are standard here because I did received them when I purchased my primary residence haha. But, It does depend on the buyer and their agent to ask.

2. Thanks for the advice on adjusting the price when giving concessions.

3. The $2400 for the construction draw inspections is my assumption of having the inspection done every 2 weeks @ 200 each for 6 months in order to pay the contractors. Any alternative advice?

4. Paying for the rehab and labor @ say 10k once per month before the draw reimbursement doesn't seem feasible for my reserves. Any advice for scheduling payments and working this out with my contractors?

Thanks again!

Chicago investor! Is this a good deal?

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