How much to factor for holding costs? Hard money?

Question

Ok here is the deal,

1200 sq Ft. Frame house with (finished) basement

Property comps $100K - $140K

Asking price 60K

Financing: Hard Money

Needs: Carpet, outside siding, paint, Kitchen cabinets, and windows.

Painting is done by me.

Three questions:

1. What are the costs of a hard money loan for 12 months?

2. How much should I figure for repairs?

3. Can I refinance as soon as repairs are done?

Scott Miller · Answer

This is the formula that I suggest my clients to use (which builds on/extends from yours):

BPO = ARV - Cost of Repairs - B/S/H fees - Investor Desired ROI

BPO = Best Possible Offer
B/S/H Fees = Buy/Sell/Hold

Regards,

Scott Miller

N/A N/A · Answer

Ok

I looked at the property again.
This time with a contractor( who thinks I'm going to have him do the work).

He pointed out the house needs the following repairs:

Carpet, Paint, Siding and all windows. I will also throw in landscaping for top curb appeal.

(I may also convert 1 room next to the kitchen to a first floor laundry room, depending on the plumbing & Electrical costs.)

His price is 23K for doing the whole thing.

Landscaping & Painting I will do myself.

My brother who remodels RV's will help me with the contracting.

Since this is my first deal I will do the contracting myself. Buy all the materials and hire experienced people to do the work.

A house just sold in the same street without a basement for $119K in as-is condition. another fixer!

The house I'm buying looks a lot worse than it really is due to tore up carpeting, ugly outdated siding, ugly outdated windows and a lot of junk inside.

Instead of HML I'm going with a credit partner.

After rehab I will either sell it or lease it. Leases in this neighborhood go for $1200/MO.

I'm nervous and exited at the same time.

Richard Warren · Answer

Not necessarily, depends on the program.  Many will allow holding cost to accumulate for 6 months.  Don’t ever assume with these loans because they can all be different in some way.

8)

N/A N/A · Answer

Thanks for the reply.

Your estimates seem to make sense.

Yes exterior will be all new siding.

The comps you can assume 100K

I'm thinking of offering $50K? $40K?

This is a REO

Repair will come from Hard Money draws.

N/A N/A · Answer

Thank you. Very good info.

So just to be clear, the 14 - 18% HML costs includ ethe holding cost right?

as in paying for the loan until refi or until sold?

Richard Warren · Answer

1) hard money costs vary by type, your experience, the project and the lender.  You can espect to pay 14%-18% plus 3-7 points.  It pays to shop around.  There are several lenders here who will probably chime in to help.

2) As for repairs, get a few estimates.  The price will vary by the quality of work and materials.  How much carpeting?  How many windows and what type? What kind of siding?  You don’t give enough information to even give you a ball park figure.

3) You should be able to refi once you are finished.

When evaluating the property to see if it is a good deal, you should use the following formula:

(ARV x 70%) – repair cost = maximum purchase price

ARV = After Repair Value

If you pay more than the maximum price you will have a hard time making a decent profit.  The only time to bend this rule at all is if you are buying the property to live in yourself or if you are a cash buyer.  Even a cash buyer does have costs associated with money since you are unable to use the money for other investments while it is tied up in projects.  I frequently use my own funds to bankroll deals but always calculate a cost of money.

8)

Frank Adams · Answer

At first glance this looks like a loser to me. You need to narrow your ARV a bit;

Let's assume that 900 sq ft (75%) is going to be carpeted, not much in the way of carpet for less than about $15/yard. That's $1500-$2K, minimum.

Kitchen cabinets are never just cabinets! Countertops for sure, maybe a sink, appliances. I don't see much getting done here for less than about $7K minimum, but I haven't seen or measured the kitchen. My guess is that it'll be closer to $10K.

Windows, I have no idea but at least $150/each, assume you have 15 windows, so $2250 minimum.

Exterior paint means you'll also find some bad trim, maybe soffit, maybe some siding. Then the paint which is probably less than $150 but I'll bet you're closer to $500 when you're finished.

Without seeing the house I know there'll be other things, once the kitchen looks nice you'll realize that the walls would look a lot nicer if re-textured, in my experience if the kitchen needs cabinets the electrical is definitely out of date and the baths need freshening. I'm guessing it's a 2 bath or I'm not even looking at it, unless I can add a bath for less than $500.

My guess is you'll spend $15K-$20K on the rehab and I've done a number of them.

Hard money is probably going to cost about 4% origination plus about 18%/year. I'm guessing you've got a lot of cash to fund the rehab! Right? I'm not sure about the refi bucause I dont' borrow money, but if I did it would not be on this property.

Sorry to burst your bubble. But I'd rather do it here than answer you 9 months in when you're out of cash and only 1/2 done with the rehab and no way to finish.

all cash