House Flip scenario in Sacramento area

[James Peterson]

I have been struggling to find deals that really make sense once the cost of financing, construction, holding and sales are all calculated into the mix.

Typically I'm trying to purchase single family homes at the 70% ARV - cost of repairs and I feel like I end up being so low someone always comes in higher and I watch them rehab and sell.

My latest property in negotiations has potential but a huge chunk of the profits will go to the cost of $$ with the hard lenders offering 10% interest and 3 points.

Would you walk away or go after a deal with these numbers?

Purchase Price: $320,000
Rehab: $60,000
ARV: $440,000

Profit: $60,000??

My calculations say no and this is why...

With a hold time of 4 months:

Cost of money is: $15,200 ($7200 points, $8000 interest)
Cost of Holding( Taxes/Utilities/Insurance etc): $3200
Cost of Sale (6%RE fees, title, escrow etc): $26,400

So, if all goes right I'll make $15,200?  Seems like a lot of work for so little, not to mention if costs exceed the $60k or sale price is $10k less I'm not making anything.

If I had the cash I'd probably pull the trigger... but I don't.  Instead I'll try to cut the purchase to $305k or bail out.

What would you do?