Does this flip make sense? Numbers inside. Thanks!

Question

Hi guys,

Assuming most points and highest rates: (Hard money lender offers 2-4 origination and 11-14% interest annualized. I'm assuming 4 points and 14 % rate)

Purchase price = 210k

This particular lender requires I pay 20% of purchase price plus closing costs. They will fund 80% of purchase and 100% rehab.

$2,100 X 4 (4 points) = $8400 (loan origination fee)
$2,450 per month (14%) (interest monthly)

Closing costs = $8,400
20% down = $42,000
Cash needed to fund = $50,400

Purchase price = $210,000
Rehab budget = $90,000
After retail value = $339,00-$379,000

Cash owed to lender = $23,100-$37,800 depending on how fast I can sell it. (6months-12months numbers)

So basically my costs are 300,000 to buy it and rehab it, plus about 25k to 38k back to the lender. I am all in on this house for 325k-338k, with the possibility to sell it for 340k to 380k.

If sell for 339,000 after one year, break evenIf 339,000 after 6 months, make $15,900If sell for 380,000 after 6 months, profit = $55,900If sell for 380,000 after year, profit = $41,200

I appreciate any math wiz's (lol) who stuck with me through that. Do you guys like the deal? Would you offer less (maybe 190k instead of 210k) and roll the dice?

I am really inspired by so many of you and appreciate your input. it is highly respected. Obviously if i didn't have such high interest payments, it would be a no brainer to do the deal. It's the interest payments that are making me worried. I believe my math is correct.

Brent Coombs · Answer

@John Ratigan, in short, REO properties in nice neighborhoods are NOT the ones to be paying Maximum points on. That will kill the deal EVERY time!

Any profit margin that Banks will consciously forego are slim at the best of times. Get it?

You need to be finding distressed owners/properties that are NOT being controlled by Banks!

Jay Hinrichs · Answer

@John Ratigan   hold your horses this is a loser.. and I doubt you will find a lender to lend you this month as they will run the math and help you realize that the only one making any money on the deal is them..

There is NO margin in this.. it would be financial suicide plane and simple.

Jeff West · Answer

Assuming you are not a realtor, your closing costs will be around 7-8%, depending on if you can get a realtor to discount commissions. Your 10k figure is way off. I would also say just guesstimating 90k for rehab is playing fast and loose. You need an accurate rehab number, then you need a 10% pad, as things inevitably come up.

A 40k swing in comps is too wide of a range. You need to compare levels of rehab, factors like culdesacs, busy streets, and home layouts because there are reasons some of those houses sold for 40k more than the other comps.

If you were to attempt this my assumption is you would lose money, but it definitely doesn't seem like you'll make much even in best case scenario. The saving grace for you is that a hard money lender is going to analyze the deal themselves, so if they won't loan to you, they are doing you a favor.

At the very least, use this property to interview contractors and get bids because these are the kind of numbers you'll need to know if you're going to be flipping.

Greg B. · Answer

You have way too many ranges to give you a go or no go but simply looking at your numbers and what expenses you're missing I would not make an offer. Not saying its not a deal because it could very much be one. You need to firm up your numbers. Get a better handle on your ARV. You have a worst case for your mortgage payment but fail to provide monthly tax, utility, insurance payment. You need to figure out how many months from close to finishing the rehab, then multiply those monthly expenses by that number (holding costs). $90k of rehab should command a better profit. $90k rehab budget, how firm are you with that? Also, knock 6% off your sales price for the agent if you're using one.

Kusmayadi Djunaidi · Answer

Hi John,

I'm also new at this concept. Now, I have been in business for years and from my experience in analyzing lots of businesses. Before, I can give you my opinion, there's one thing that you are missing in your calculation. What is your holding costs (insurance, utility, taxes, etc.), because that will affect your calculation. Also, what is ARV (after repair value) of the house? Not what you expect you can sell, but what is the average price of the house that have the same type, bedroom number, bathroom number, etc in the area?

Sincerely,

Han

Manolo D. · Answer

with a 90k rehab, I would target a 80-100k profit on a 6 month turn around. Your monthly interest only payment only computes loan being 210k, what about the 90 they are putting in, and what happens to your 20% skin in the game? I'm not a lender nor a rehabber, but I ran it based on what your numbers are.

Robert G. · Answer

You're missing a lot of numbers (as others have mentioned above), and your ARV range seems a bit broad for my liking.  At 210k, it is a definite loser.

Ballpark guess, I think you'd need to get this property for around 160k or so to make it worth your time.  Maybe 170k if you could trim that rehab budget a bit.

Greg B. · Answer

@John Ratigan

I see you're in Penn. I'm from Syracuse, NY. It's winter time. A lot of people say to take comps from the past 6 months but for us in the northeast we know house hunting in the winter time is for the birds. You have to go back to last spring for accurate comps. Our months of thaw are always great seller markets. Winter months are for the buyers. You get a lot of deals in the winter time.

Your carrying costs will be your payment, taxes, utilities, and insurance per month held

Try not to focus on REO exclusively, banks don't want to own houses but they are in the business of not taking too many shorts.

Call a couple contractors and have them meet you at the house at overlapping times for a walk thru and estimate.

John Ratigan · Answer

So my range on 340-380k is based off comps from the area for the past 6 months and they're aren't that many to go off of, just around like 10 and the houses are all different. Though they are all 4 bed 2 baths, they have different styles, outsides, and yards. So i't hard to pin point it. Usually i could, but these are different looking homes.

Closing costs, totally forgot. add another 10k. Holding costs, totally forgot that too. Am I showing my age a little here? Carrying costs could be about 1k/month maybe...

It's a tough area to flip in. The problem I have is that most of the REO's are priced just slightly below market, I'm talking about 30-40k tops below market.

Also, am I sure on the 90k budget? Not totally, but, it needs siding, roof, kitchen, bath remodel, windows, and landscaping plus finish work. So I would say it's closer to 90k than not.  Thanks so much guys, you have opened my eyes to some things i overlooked and didn't even consider. Lesson learned.