What's the best possible outcome?

[Max Jiampetti]

Hi everyone, I'm working a lead that's a 2 bed / 1 bath / 634 ft home on a 2000 ft lot, so not much room to work with however, she owns the adjacent lot which is also 2000 sq ft and vacant. She is asking 106k for the home and would want "a lot more" than 106k to include the second lot in a package deal.

Ms. Owner says it's a complete gut job. New roof, windows, siding, HVAC, insulation, etc. I see 3 options here:

1) Fix and flip the current home

2) Demo and rebuild a slightly bigger home (800-1000 ft)

3) Rehab and add-on to the current home

Here's my question - assuming a $275 per square foot ARV, whats the best course of action? And whichever choice you think is best, whats your buy price? (A vague estimate is much appreciated)

Thank you in advance,

Max

[Andy Sabisch]

An awful lot of unknowns in your question . . . you are saying it has an ARV of $275/ft2 but what is that based on?  Similar sized houses, other houses regardless of size, etc.  For a 634 ft2 house, you are saying it will sell for about $175K.  With a reno as you have stated - New roof, windows, siding, HVAC, insulation, etc - you have a minimum of $50K assuming you do some work and contract the rest and that is not going high end.  With the quality trades booked, you have holding costs to consider and if you are using a HML, that can add up quickly.

Assuming you are correct with the ARV, 175K - $50K = 125K.  Then you have closing costs, realtor fees, carrying costs, utility costs, taxes, insurance . . . . assuming a 6 month close-reno-sell-close, you can tack on another $20K easily.  That takes you down to $105.  Don't forget your 10% to 15% contingency number so another $5k to $7.5K and we are at $100Kto $97.5K.  Now you need to figure what you need to make on a sale . . . . so let's say you are looking at making 20% on the deal . . . . $35K.  So your line in the sand should be in the range of $65K to $62.5K.

To demo and rebuild at today's prices, you will be lucky to break even with a $275K/ft2 ARV and 1,000ft2.

Sometimes there is no deal to be had if you want to make any money . . . . but your experience and location will dictate if that is possible.  As they say, every property has a price at which it makes sense to buy ... for some that might be $0.

You need to provide some more details to help us give you a good answer otherwise we are speaking in terms that can be spot on or totally off.  Saying Southeast NC covers a large area - from Fayetteville to Wilmington and everything in between and prices vary widely in that region.  Are you near the coast - that adds value?  We are not going to try and jump your deal but more specifics will help us give a better answer.