money to make on rehab?

Question

Whats a good amount "net" to go with to do a rehab. minumum amount? say on houses that retail from 80-140k and then houses that retail for 200k to 500k ?  :D

Jon Holdman · Answer

A quick and dirty rule of thumb is that if your purchase price plus rehab costs are 70% of your selling price, you use hard money to finance the deal, you use an agent to sell the property, and you have six months close-to-close, your profit should be about 10-15% of the selling price.

To break that out a little, it looks like this.  Assume the ARV and selling price are the same:

Purchase plus rehab: 70% of ARV
Purchase closing: 1.5% of ARV (about 2% of purchase price)
Points plus interest: 7% of ARV (about 10% of the amount borrowed)
Holding costs: 1.5% of ARV (insurance, utilities, lawn care, etc.)
Sale closing costs: 2% of ARV
Selling commissions: 6% of ARV
Total:  88% of ARV
Profit: 12% of ARV

Jeff B. · Answer

This really depends on you if you are Habitat for Humanity your net is 0%

You need to determine what amount of profit you need and this is usually determined by the amount of work involved in the rehab.

The more extensive the rehab the higher the percentage of profit per sq ft.
I may only need to make 10% due to cost of living where I'm at and you need to take 20% of the FMV as profit.

Also the holding costs and all the other factors need to be accounted for including the Comps.  Which should be reviewed prior to even thinking about rehabbing a property.

Rich Weese · Answer

I found % to be a better gauge. I had a pretty good organization working with me for 18 months in SO TX from researching the property to completing the deal with a sale. My % was around 30% net. Avg acquisition price was 60K. Rich

Matt Kearney · Answer

We use to shoot for $30k+ on a rehab deal, but as we have increased our volume we will do deals in the $20k-$25k profit range.

These are on houses that retail for between $130k and $200k.

Jon Klaus · Answer

I set $15K as a minimum target net.  However, a $15K target should be a light rehab, not cost over $50K, and carry less risk.  Less risk means it should be relatively easy to sell.

Steve Pasquini · Answer

Shoot me an EM and I'll provide a very complete worksheet that I use to figure my deals.  You need to think in terms of both:  a percentage return on the cash you have in deal and a minimum net profit on the deal. For the time you're going to have invested, you've got to make at least 10K on a small deal.  My nets are 12K on smaller deals i.e. up to 125 ARV and  up to 75K on deals say in the 350K range.  Varies a lot.  Has a lot to do with you time, money and expertise that you have in the deal.  [EMAIL REMOVED]

J Scott · Answer

Exactly the same for us...

And to answer Des' followup questions, we generally pick up our houses for between $30-80K and put in between $30-60K in rehab.

Des Shei · Answer

Matt, could you give a quick synopsis. how much do you pick up these homes for on average and what are you typical rehab costs? you do a great job on your rehab so i'm sure you must be picking your properties at very deep discounts to allow for the scope of the rehabs you do. Kudos to you. i like your business model.

Gregory Childs · Answer

We focus on a 30% minimum return (after expenses) before we will even look at a deal. 
Based on the fact that some markets may still be dropping (2-7% annually) you can not be certain your ARV will be firm (even if you are conservative). After all is said and done we have averaged 25.77% over the past 12 months - so we are missing our mark a little. But we are getting to be more consistent and that number should exceed 30% before the end of 2010. 
You can't control everything in this business; however, what you can control is what deals you take for yourself and what deals you let someone else have. Choose wisely and be focused on the exit strategy.
Greg.

Mike V. · Answer

I would recommend whatever you can get for your situation.  I only do several a year so I hold out for the really good deals.  I have an associated who does this full time - 50 or more a year and he is perfectly happy making 7-10% and make his money on volume.  Just depends what your strategy and your market conditions dictate.

money to make on rehab?

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