Asking For Advice On A Flip Candidate

[Drawyan Zhang]

Here is a deal I see and can't figure out whether to flip it or not, is it too risky? Assuming the numbers are all correct.

1. The house is located in an A+ area, best schools, after repair value / neighbor price is around 1.4 million.

2. The house is a REO and the bank treated mold and took away all the walls/ceiling/floor, basically a shell with only wood studs. No electricity breakers, no water pipes and no gas.

3. Asking price is 600K, all cash, no bank would loan it. So only option would be hard/private money. Property Tax is 1.5K/month.

4. My estiamted repair cost is 200K, maybe between 150 to 200, but just to be safe. Luxury interior.

5. Other cost, including all closing/agent/lawyer... 100K

6. It will take 6 month to renovate, and for fast sale, priced at 1.2 million.

7. Market has been proved that private showing session of this house attracted at least 60+ different buyers, very hot market, so selling should be easy.

8. If I have all the cash needed, which is 600K + 200K + 100K = 900K, and sell it for 1.2 million in 6 month, the return is 300/900 = 33.3% for half year. If I can wait a little longer, selling at 1.3 million shouldn't be an issue.

9. Here comes the scenario, I don't have such amount of cash, and planning to go with hard money.

10. Assume hard money rate 12% and 70% of purchase price + 100% rehab cost, and I am able to get the other 30%.

Now the risk is: monthly interest of the hard money + property tax > 6K, which exceeds my monthly earned after tax income, and I will have depleted all the saved cash for this project. The risk is very high.

The county department of building is notorious in delaying the building permit, meaning that it's quite possible I can't even start the work for the first month or two, waiting for the permit to be issued, (no electricity in the house yet).

Anything else unexpected which causes money will impose more risk on the weak financing.

My question is: Should I pursue this flip? Or should I wait until I got better financial situation for future deals, which won't have that much in this area (this is one of the best flipping candiate in two years in this area I think).

Thank you guys for any suggestions and advice!