CAN I FLIP OR WHOLESALE THIS DEAL IN YOUR OPINION?

Question

Hi BP,

I'm a newbie investor looking for some guidance from our Dallas-Fort Worth investors. I have a meeting with a homeowner and here are the numbers.

ARV:

CONSERVATIVELY $290K (RICHARDSON TX)

REPAIRS: $20K (FOUNDATION $10K + FOUNDATION RELATED CHIMNEY REPAIR $10K)

ESTIMATED HOLDING & CLOSING COSTS $5K-10K

POTENTIAL PROFIT: $20K-25K

OWNER'S MORTGAGE BALANCE: $240K (THIS IS THE LOWEST THEY'LL BE ABLE TO TAKE WITOUT RUINING THEIR CREDIT WITH A SHORT SALE)

as you can see the margins are a little slim but its hard to find a deal in DFW right now. The clients are friends so I really want to help them out but I'm worried about the margins. They bought it in 2017 with the foundation issues but bit off a little more than they could chew. They really just want to break even because the repairs it needs are more than they can handle right now and they just want to be done with it. They currently owe $240k so thats really the lowest offer they'd be able to take without ruining their credit with a short sale. They already understand they'd be walking away with zero but its better than going bankrupt on a house they can't afford. the home has beautiful upgrades and really nothing else needs to be done other than the foundation and chimney. the last owners pretty much fully renovated everything except the foundation and sold it like that.

my question is this: with only about $20k in potential profit on this one, would i stand a good chance of pitching this one to some hard money lenders and getting the financing? so far my other flips have been with partners so financing has not been an issue I've had to deal with. this would by my first solo flip. i thought about wholesaling it but once i take my fee, there'd be even less for the end flipper to take so i doubt that's an option. They're not interested in any subject-to or owner finance type deal because they're not interested in having an ongoing relationship with the property going forward. and i'm not really a fan of BRRR because I like multifamily rentals. I've got another SFR that's a nightmare and i'll never do that again.

If there are any DFW investors who would like to partner on this one or fund this deal and try to make a little bit i'm open to that option just PM me. i'm really not trying to make a bunch of money on this one, i honestly just want to help my friends out.

Brian Pulaski · Answer

Holding time can vary. If you fix it up in a few weeks but it takes 2-3 months to sell, you still have to hold it for that time. Taxes, utilities, insurance... all of it adds up. I'm not sure what lender costs are, I only deal in cash. If you are the selling agent you will still have to pay buyers agent costs, 2.5-3%, correct? I would still be planning for $12-15k even only paying half commission.I would always account for plenty of holding costs. I had a dud buyer waste nearly 3 months of my time that cost me quite a bit of holding costs on my most recent deal.

Brian Pulaski · Answer

How is a $300k only coming in at $5-10k in holding and closing costs, especially when you mention hard money lender? I'm thinking your holding and closing costs are way to low and it will end up being significantly more (plus you never noted how long you plan to hold it for). Just commissions alone would be $17k+. Add in lender costs, closing costs, taxes, utilities, insurance... you are probably closer to $20-25k in closing and holding costs.A $240k sale (likely more if the owner needs to walk away with $240k) with a $290k ARV is too tight for 99% of flippers to entertain.

Wes Johnson · Answer

and @Brian Pulaski hard money is (relatively) cheap in Texas right now. cheap in terms of hard money that is. I say "hard money lender" but his rates are more comparable with private money and the payback terms are favorable. This neighborhood had low days on market and since it was already upgraded, it wouldn't have had a 6-8 month holding time like most flips. estimated 30-45 days based on the estimates. And since i would've been the agent i wouldn't have needed to pay realtor fees. with that info do you still think my holding costs would've been $25k? just wanna know so i can evaluate my next one better. whats a good rule of thumb you use to estimate your holding and closing costs before you even get into a deal? again i have no point of reference since my other flips were done with me being the minority partner.

Wes Johnson · Answer

yeap you guys are sharp. I'm pretty much going to pitch listing it for them at a reduced rate to help them out. i guess i just felt like it was a "deal" but once you look under the hood its not as great as it appears. thanks @Wayne Brooks & @Jason Richards

Jason Richards · Answer

I agree with @Wes Johnson and @Brian Pulaski. If the home finishes are in decent shape, your best bet is to find a retail owner occupied buyer, or an rental investor looking for a good deal (assuming rents are strong enough in the area). This is a grossly losing deal for a flip investor.

Wayne Brooks · Answer

The only way you can help them, and yourself, is to list it.....they need a retail buyer....this should be obvious that there is no money trying to flip it.

Wes Johnson · Answer

@Brian Pulaski thanks you definitely are helping me look at this one the right way

Wes Johnson · Answer

also i know the cost of the foundation and chimney are exactly as estimated since there's already been a structural engineer inspection and estimate, and contractor's estimates have been provided to me and i've verified the repair numbers.