Flipping in Atlanta during Coronavirus crisis

[Ivan Figueiredo]

Hi BP community. I am scheduled to close on a flip in Decatur, Atlanta GA in the first half of April. The deal is as follows:

• Purchase price: $132,000
• Rehab: $165,000 (adding 2nd story of ~1,000 sqft; renovation of existing base floor of 1,203 sqft)
• ARV: $369,000 (based on comps, it could sell as high as $400,000)
• Profit: $44,000 if I borrow mostly from hard money (I will try to use a HELOC or conventional loan to increase the profit)

I have an architect and a general contractor lined up. 3 months of rehab. We will use top quality material, as in some of the other recently renovated houses in the area.

Due to Coronavirus situation, I've heard from some investors and brokers that banks will raise interest rates and house prices will go down as soon as in 2 - 3 months. The advice was to hold off on the investment now.

I am seeking for advice from the BP community, please. Any thoughts?

[Jeff S.]

Sorry, @Ivan Figueiredo, but even if it were a month ago when times were better, this is a lousy deal.  The likelihood of getting engineering, plans approved, and completing a 1000 sq ft second story addition, all within three months is not reasonable.  Plus, you’re focusing on the wrong costs.

@John Teachout recommended you cut back on the rehab.  You responded that you’re trying to save holding costs.  Your hard money costs will likely be in the $20k to $25k ballpark.   I’m not suggesting you not try to save on your holding costs, but with a rehab at $165k, you’re stepping over dollars to save dimes. 

By my estimate, assuming your numbers were perfect, you’ll earn roughly half the profit you anticipate.  That’s without any of the inevitable overruns.

All of this assumes your ARV is still valid. Do you really think recent comps are still useable? What is your basis for claiming a $369k sales price now that we are in the middle of a pandemic? What does your hard money lender say? He or she should be running an independent evaluation to protect the two of you. That's part of what you're paying for.

Take the advice you were given, Ivan, and hold off.