So, how much do I REALLY need?

Rehabbing & House Flipping
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So, how much do I REALLY need?

Sean Hurwitz
Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes

Hi there, I'm a 'newb' from Los Angeles, CA and I have a quick question for all of you out there.

Here are the stats on a hypothetical Flip deal:

Cost: $125K
Sale Price: $220K
Rehab total: $40K
I'm planning on putting down 20% (25K)
Hard money covering 70% ARV at 11% for 12 Months and 2.5 points up front. Let's say the project takes 6 months.

NOW comes the question:
What are all the OTHER fees, the Closing fees (and any other hidden ones I don't know about since I'm a newb) all the fees that I'M expected to pay for out of my own capital? In other words, how much CASH do I really need?

I'm looking to close on a house (like the one in the example) some time soon.
I already have the Hard Money behind me and I have the team ready to go (Realtor & GC) But before I make the move I need to know what my financial responsibility is.

Feel free to say "Your Realtor can give you all the numbers you need", but what I'd really like to know, is if anyone has a rough calculator (Other than BP's Flip calculator), like maybe an Excel spreadsheet or something where you put in the numbers and it's tells you what you need and all the other good info BASED on the numbers I gave you above.

Thank you all for your help (in advance).

Happy new year and have a great 2015!

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Ruben Prieto
Real Estate Professional · San Antonio, TX · Member since 2014 · 82 posts · 8 votes
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Some costs to consider:

Closing, potential dn pmts required by HM lender, monthly holding costs (utilities, taxes, interest), insurance, staging, realtor fees.

What else, anybody?

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  • Michael Seeker
    Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
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    $1 million

    0Reply
  • Ruben Prieto
    Real Estate Professional · San Antonio, TX · Member since 2014 · 82 posts · 8 votes
    11y

    Some costs to consider:

    Closing, potential dn pmts required by HM lender, monthly holding costs (utilities, taxes, interest), insurance, staging, realtor fees.

    What else, anybody?

    1Reply
  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y

    Excellent stuff @Ruben Prieto 

    Thank you! 

    0Reply
  • Mark Gagner
    Residential Real Estate Broker · Campbell, CA · Member since 2013 · 38 posts · 29 votes
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    Sean,

    I am a flipper from N Ca, so I believe my numbers will look similar to yours. The general formula that works well for analyzing a "good" deal is max offer = 75% x ARV (after repair value) - constr costs. If you plug in your numbers above they work out exactly to this formula (is that a coincidence????). To get back to your question, I need clarification....am I correct in understanding that the hard money lender will provide 70% of "ARV" on your 1st deal (if so, that is pretty good). As I calculate, that would be $154K less points which comes out to a net of about $150K. Do I have that right? If so, you will probably have somewhere around $18-20K left over after closing (I am assuming closing costs and insurance will conservatively be in the range of $5K -7K on a $125K purchase). During the hold period, you will probably have property tax payments (although you could wait until you sell and pay late fees), utilities ($50-100/mo), monthly hard money interest payments ($1411/mo) and you should allot for unexpected constr overages (min 10% and probably 20% on your 1st deal). Based on my calculation of a total constr budget of $48K (20% overage allowance) - $18K balance from closing + $600 utilities + $9K in hard money interest = $40K MINIMUM you should have to start with. I really suggest a bigger cushion in case it takes longer or major hiccup. Does that make sense??? Again, this is all based on a hard money loan of 70% ARV. Is there a construction draw account??

    1Reply
  • Jeff Wallenius
    Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
    11y
    I just paid $550 to the local HOA for the annual assessment on one of my properties. So HOA fees should be considered if applicable. I would assume your getting clear title so you won't have to worry about any liens on the property. In one specific suburb of Portland all older homes must be connected to city sewer if sold and not connected already, so hidden costs can sneak up on you. I always account for roughly 1% in seller paid closing costs as well, most buyers like to ask for those items. Those funds will come out of closing, so no money out of your pocket up front, but a consideration. Best of luck! Cheers!
    1Reply
  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    11y

    @Sean Hurwitz my last project. Note the rehab costs were nearly 100% reimbursed by lender (not common...) but this will give you a general idea. Let me know if you need any templates, etc.

    FINAL FINANCIAL ANALYSIS

    2175 Scenic Dr. NE.

    Item Amount Date Notes
    Entrance
    Earnest Money Deposit $1,000 2/14/2014 EMD as investor/ Applied at Closing
    Bank Fee $6 2/14/2014 Fee for cashier’s check (EMD)
    Home Inspection $120 2/21/2014 Investor walk-through inspection with Crow
    Closing Costs/ Lender Fees $3,464 4/7/2014 Includes points and origination fees
    Bank Fee $5 4/7/2014 Fee for cashier’s check (Closing)
    Builders Risk Policy $1,063 4/7/2014 Insurance Policy (annual)
    Electric Deposit $155 4/21/2014 Deposit to establish new service
    Total Entrance $5,813

    Holding

    Property Taxes $1,181 7/17/2014 Second half 2013
    Mortgage Payment $489 6/1/2014 Interest only for April-May
    Mortgage Payment $40 8/15/2014 Interest only for July
    Mortgage Payment $112 10/16/2014 Interest only Sept
    Mortgage Payment $130 11/14/2014 Interest only October
    Electric May $16 5/20/2014 First month bill
    Electric June $14 6/13/2014 Second month bill
    Electric July $46 7/30/2014 Third Electric Bill
    Electric August $55 9/2/2014 Fourth Electric Bill
    Electric September $60 10/1/2014 Fifth Electric Bill
    Electric October $58 10/29/2014 Sixth Electric Bill
    Back Sewer Bill $32 8/15/2014 Seller failed to settle final bill
    Lawn Mowed $25 6/30/2014 Kid next door mowed the lawn
    Lawn Mowed $26 7/18/2014 Kid next door mowed the lawn
    Lawn Mowed $35 5/4/2014 Paid for lawn to be moved.
    Sewer $142 7/15/2014 Quarterly sewer bill
    Sewer $142 10/15/2014 Quarterly sewer bill
    Total Holding $2,602

    Rehab

    Rehab Costs $3,082 11/21/2014 Personal Cash on Rehab
    Total Rehab $3,082

    Exit

    Title Fees $260 11/21/2014

    Title Insurance

    		 $1,080 11/21/2014

    Deed Preparation

    		$60 11/21/2014

    Recording/Transfer Fees

    		 $666 11/21/2014

    Realtor Commission

    		 $9,900 11/21/2014

    Agent Bonus

    		 $1,500 11/21/2014

    Tax Proration

    		 $1,558 11/21/2014

    Buyers Closing

    		 $4,995 11/21/2014

    Home Warranty

    		$425 11/21/2014

    Mortgage Payoff

    		 $89,901 11/21/2014

    Total Exit

    		 $110,345

    Credits

    Title Company Credit -$90.00 4/14/2014 Credit from title company post-closing
    Builders Risk Policy -$500.00 11/21/2014 Estimated unused policy refund
    Total Credits -$590


    Grand Total $121,252

    Costs

    		 $121,252
    Sales Price $166,500


    Return on Investment 37%
    Annualized ROI 120%
    Net Cash Return $45,248

    [1] Rehab covered under new construction loan due to condition of property. Rehab loan was $34,350 and 100% reimbursable. Figure presented is out-of-pocket expenses.

    937-979-7000
    Realize Multifamily Group11 Review
    View Page
    1Reply
  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    11y

    @Sean Hurwitz  formatting not transferring when posted...just send me a PM if you want this in a workable format.

    937-979-7000
    Realize Multifamily Group11 Review
    View Page
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  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    11y

    @Brandon Sturgill Too bad BP would not let you post in format you intended.

    Several things that stand out for me.

    The first is that there needs to be a budget for ongoing holding costs. Beyond the obvious (interest) are taxes, insurance, HOA fees (if any), etc.

    Also, there never fails to be some surprise from local government, like a hidden permit fee or recently enacted tax not budgeted for. I just figure it in the reserve.

    Lastly, in Brandon's example, if correct, he gives a very generous bonus to the agent. While this may or may not be the correct number, it fascinates me how many more buyers seem interested in a property when the listing offers the selling agent an incentive. 

    @Sean Hurwitz I suggest another tool: ProperrtyRadar, founded by another Sean.

    My friend Sean O'Toole has brought us West Coast investors another indispensable feature that I only discovered this weekend, investment analysis module. I like it, especially for a quick field calculation as to go/no-go decisions.

    I might add that some of our so cal markets are showing signs of cresting, and longer days on market certain affects holding costs. Only time will tell if we see significant price drops.

    1Reply
  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y

    @Mark Gagner @Brandon Sturgill @Jeff Wallenius @Rick H. 

    Thank you so much for you great input.
    I'm checking it all out right now and will send you personal messages in regards
    to questions that arise.

    Have a great weekend!

    0Reply
  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y

    I guess we have to be connected first for me to PM you...so...

    @Mark Gagner 

    * You are correct in understanding that the hard money lender will provide 70% of "ARV". I've got some loans that could be 65%, but I DO have a hard lender willing to do 70%.

    * Do points usually just come off the loan or do you have to write a check for it up front?

    * Do you have a favorite insurance company to go to? What kind of insurance does a rehabber get to protect the investment? I mean, what's the name of it so I know what to ask for when I chat with insurance guy?

    * In your area (which I've been to many times since that's where our management is) are tax fees due every month? Quarterly? Twice a year? Once a year?

    * You mention "18K balance from closing" - What does that include?

    * How would one create a Construction Draw account?

    One thing to keep in mind. The GC I will be working with on these first few (at least) is an investor and has been working with an investor friend of mine for 3-4 years now. They have a good relationship and he doesn't nickel and dime her AT ALL. They've both made that very clear. If he says a simple rehab is gonna be 40K, it's 40K even if there are unforeseen issues he encounters...assuming they are not 10K over budget :-)

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  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y

    @Jeff Wallenius Q&A to your comments.

    * I'm not expecting to work with HOA properties off the bat, but that's a good point.
    If you KNOW of the HOA situation...is there a way to get an exact number while you're
    in escrow? Or is it always a surprise after closing?

    * The sewer situation you mentioned as an example is a good one. Thankfully I'll be working with a very experienced and vetted GC. So, I'm hoping that he includes all those hidden fees in the Rehab cost.

    * 1% in seller paid closing costs - Is that MY share when I sell the property? What is the total % of closing costs that needs to be taken into account. Just wondering if there's an answer for that.

    Thanks for all the help!!!

    0Reply
  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y

    @Brandon Sturgill 

    Man, what a GREAT amount of info and numbers. THAT's what I'm talkin' about!
    Thanks for sharing!

    Now that I know all that, including expenses as little as $5 bank fees for Cashiers check and $25 for the lawn to be mowed by the kid next door (love it!)...

    * Are there expenses that you feel that (at this point) you can break down to percentages?
    Will Utilities always be a 'similar' percentage per month?
    What about Insurance, will it always be a similar percentage? Or does it vary greatly from property to property?

    * Do you use any calculator that has proven to give you a (pretty) precise calculation of these parameters before closing on a home?

    Looking forward to getting the workable format!

    Thanks again

    0Reply
  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y

    @Rick H. is that a random number you came up with for that specific property?
    Or is it a standard practice?

    * I'm gonna go check out the ProperrtyRadar right now. Thanks for the tip.

    Much appreciated my friend.

    0Reply
  • Ruben Prieto
    Real Estate Professional · San Antonio, TX · Member since 2014 · 82 posts · 8 votes
    11y

    Contact Kelly Insurance Broker in San Antonio.  They cover nationwide.  Im looking to insure a home for $100k and the premium is $380/yr, $470 if you want to include vandalism.  You pay monthly.

    1Reply
  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y

    Hard numbers @Ruben Prieto THAT'S what I like seeing!
    Thank you very much!

    0Reply
  • Jeff Wallenius
    Specialist · Indianapolis, IN · Member since 2014 · 670 posts · 352 votes
    11y

    @Sean Hurwitz 

    You can always find HOA information prior to purchasing the house, just ask the realtor. As far as seller paid closing costs, I use 1% of sales price as my guide, this allows me to credit the buyers if they ask for closing costs to be paid. It's basically a built in cushion of 1% for misc costs at title. My advice is to build a spreadsheet that includes everything you can encounter, so you won't forget anything when evaluating a deal. Plug all your numbers in and see if you have a deal or not.

    Cheers!

    1Reply
  • Mark Gagner
    Residential Real Estate Broker · Campbell, CA · Member since 2013 · 38 posts · 29 votes
    11y

    Sean,

    I would be happy to answer your questions, but it is probably much simpler to discuss.  Call me any time at 408-489-0061.

    Mark

    1Reply
  • Mark Gagner
    Residential Real Estate Broker · Campbell, CA · Member since 2013 · 38 posts · 29 votes
    11y

    Sean,

    Points to hard money lenders are generally paid upfront. On the HUD you will see the full amount of the loan as a credit and then you will see a debit for the points. Basically, your net from the hard money lender at close is the full principal less the points.

    I have found that one of the more aggressive insurance companies offering "vacant" insurance policies is CSE.  This insurance is typically offered thru brokers, so I would suggest you Google it and find a local one (mine is here in N CA and I can share if you like).

    Property taxes are due 2x per year.  I believe that is everywhere in California.  Due dates are Dec 10 and April 10.  Your property tax bill we be paid current when you buy the house (that will be required).

    The way I arrived at $18K net at close was this:  The net loan amount is $154K (70% x $220K) - $4K (2.5% x $154K) = approx $150K in funds from hard money lender.  Your upfront costs would be $125K + estimated $5-7K for closing costs and insurance = $132K.  The $5-7K for closing costs and insurance is just a conservative guess on my part.  $150K in net from your hard money lender - your $132K in funds needed to close is about $18K.  Now, my experience with hard money lenders is that they will not give you a check at close with no skin in the game from you.  So more than likely they will want you to cover a portion of the down payment + put your portion of the construction money in to a construction draw account.  Therefore, ALL the construction money is in a draw account that you can use over the course of the project.  You really need to read the terms sheet from your hard money lender to know exactly how they are structuring the loan(s) and what/when you are expected to put in funds.  If the hard money lender is structuring their loan as a purchase loan AND a construction loan, they will be the ones responsible for setting up the construction draw account AND the funds control company responsible for managing the draws.  

    Hope that helps.  Again, call me any time at 408-489-0061.

    Mark

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  • Sean Hurwitz
    OP
    Investor · Van Nuys, CA · Member since 2014 · 151 posts · 38 votes
    11y
    Originally posted by @Jeff Wallenius:

    @Sean Hurwitz 

    My advice is to build a spreadsheet that includes everything you can encounter, so you won't forget anything when evaluating a deal. Plug all your numbers in and see if you have a deal or not.

    Cheers!

     Yup!

    That's what I'm shooting for. You know, I've seen a few makeshift spreadsheet/calculators already and the one thing they ALL have in common is that they don't take multiple lenders into account. I gotta get one going that has that. Maybe after I get some more experience!

    Thanks

    0Reply
  • Mark Gagner
    Residential Real Estate Broker · Campbell, CA · Member since 2013 · 38 posts · 29 votes
    11y

    I have one for multiple lenders.  Send me an email and I will send to you.

    Mark

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