Analyzing my first house flip.

[Matthew A Rodriguez]

Looking to do my first flip in Greenville, SC. I have reached out to 30 hard money lenders found here on Bigger Pockets and have narrowed down to 3 or 4 lenders. Talking to area contractors about lead time on getting work started. I have brought on an equity partner for the money in conjunction with mine. I am currently a real estate agent and know appraisers, inspectors, and a good real estate attorney. We still need a good CPA. I am needing help on analyzing an example deal. This is the type of deal we are looking for from local wholesalers. Can anyone tell us what we are missing. Thanks. We expect this to be a 5 month flip. 

After repair value (ARV) $ 175,000

Offer (70% LTV-Repairs) $ 92,500

Repairs $ 30,000

All In $ 122,500

Hard Money Loan $ 98,000

Down payment (20%) $ 24,500

Points (3) $ 2,940

Interest (9%) $ 8,820

Closing (3%) $ 5,250

Realtor Fees (3%) $ 5,250

Miscellaneous (inspections, appraisal, surveys) $ 2,000

Holding cost (5 months)

General Liability Insurance $ 875

Taxes $ 1,100

Water $ 250

Electric $ 500

HOA $ 175

Total cost of flip $ 149,660

Profit $ 25,340

[Michael Glist]

So the interest of $8,820 would need to change to reflect your holding time of 5 months instead of the full 12 month cost. 

[Matthew A Rodriguez]

@Michael Glist

Thanks. Thats great news for us.

[John Underwood]

Since this is a flip I would get builders risk insurance.

Have you compensated for higher prices on materials and back log in getting some items?

I get that a small profit is better than not doing a deal, but 25k for 5 months isn't a great profit.

What if the ask you to pay some of their closing costs?

I am finishing up a flip and have it under contract. I was shooting for a 75k net profit but it looks more like 95k currently.

Do you have money for contingencies like termite or water damage or something that needs to be fixed or replaced that isn't in your original repair estimate. Something unforseen could eat up your profit real fast.

[Matthew A Rodriguez]

@John Underwood

Thanks John. That's an incredible profit. What,s the ARV on that property? Also on the insurance I'll at that rider to my insurance. I really am worried about lead time for these contractors and availability of material. I'll be getting estimates from 2 different contractors after I receive the inspection report and add a 10% buffer to their estimates. I really would like to make more profit but at 30k in repairs I really don't see me in the project for more than 3 months. I allowed 5 months as worst case scenario. I would love to find a 50%-repairs deal if I can to find more profit but I also understand I may need to walk before I run. In terms of cash reserves for unforeseen issues I was factoring in a 10% buffer into my 30k. How much would you recommend for those unforeseen incidentals? Thanks for your help.

[John Underwood]

The ARV on mine is 450k.

If you really only have 30k of cosmetic updates then you should be fine. The problem is a 5k overage is a much larger percentage on a 30k budget than a 100k budget.

It would be a good idea to have a minimum of 8k in reserves. A HVAC or a roof is not a huge difference in price on a 100k house vs a 200k house.

[Matthew A Rodriguez]

@John Underwood

The lenders im talking to want to stay far less than 50% of the purchase price for repairs and I also dont want to tackle an extensive rehab for my first. Im looking for cosmetic upgrades and curb appeal. Builder grade to match the comparables in the area. No structural at all. The biggest projects I would be willing to take on would be a reroof and windows if absolutely necessary. Thanks John for your help. I really appreciate it.

[Joel Florian]

@Matthew A Rodriguez. How did you derive your ARV and repair numbers? If you dont have written quotes from reputable contractors for every part, you could easily be off. Do you have a comprehensive quote from a general contractor? If you are acting as a general (especially for the first time) it is likely that there will be scope gaps between subs or unforseen issues that become apparent after work is started.

I find that most renovations take longer and cost more than I would like.

[Matthew A Rodriguez]

@Joel Florian

Hey Joel. Im estimating the project and resale to last 3 months and giving myself 2 additional months as a buffer. In terms of the ARV I am pulling an RPR report of comparables like an appraiser would do. Ive done numerous in the past for real estate clients and its right on the money with appraisers. If the deal doesnt fall within my parameters I wont take it. Using 2 GCs SOW will give me a good indication of how much repairs will be. Aiming for 25k in repairs with a 5k buffer. If the contractors come back at more in repairs either I renegotiate the deal or pass. My HML won't go more that 50% of the purchase price on repairs anyways so I'll be capped at 45-50k anyways. There are just some deals that wont work for us and will have to pass.

[Joel Florian]

@Matthew A Rodriguez

Sounds like you have a good handle on it. Also appreciate your attitude about being willing to let a deal go if it doesn't fit your style. I believe there are always deals available. Analyze, make offers, and then purchase or walk away with no regrets.

[Matthew A Rodriguez]

@Joel Florian

Thanks man for your imput. I'd be more emotional over losing money than losing a bad deal. Lol

[Joel Florian]

@Matthew A Rodriguez

Understanding how emotions impact investing is incredibly important. I read somewhere that the average human reacts 3x more powerfully to a loss than to a gain. And since we cannot predict the future, no amont of analysis or "due dilligence" can prevent a loss. So to succeed long term at any type of investing, we must learn how to manage emotions, and spend just enough time analyzing to increase positive probablilities, but not so long that we miss a good deal, or talk ourselves into a bad one.

[Matthew A Rodriguez]

@Joel Florian

Youre 100% correct.

[Evan Polaski]

@Matthew A Rodriguez, whose rehab numbers are those?  $30k is not much rehab at all.  And how much of that is rehab cost and how much is contingency?

I am not sure about your market and I know most markets are closing faster than they were, but 3 months is fairly quick.  Figure at least 30 days to close from going under contract.  So if you go under contract day 1, your short end is 2 months of rehab.  Again, doable, but if there are any major projects involved that could be pushing it.  

Lastly, again, in this hot market buyers are asking for less, but in a slightly more normal sales market, at these lower price points, buyers ask for closing cost assistance to the tune of a couple thousand dollars.

[Matthew A Rodriguez]

@Evan Polaski

Hey Evan. 30k are my numbers for this type of particular deal. This would be a cosmetic flip. Paint, florring, fixtures, etc. Based off the SOW from 2 GCs I would get a pretty good idea of the plausibility of the deal working. The hard truth is if it doesnt work number wise I'll pass on a bad deal. I figure 30-45 days to close but we would take the best offer considering not only price but also type of loan product being used, closing costs etc. Ive factored in 3% for closing costs and I will be representing the sale of the home as a realtor.

[Evan Polaski]

@Matthew A Rodriguez, got it.  I always get a bit nervous when people mention their "first flip", particularly with relative low rehab costs (not to say it isn't possible on cosmetic work), but I see a lot of new investors here using other people's numbers.

I would say in general if you have some solid scope of work bids, and you seemingly have accounted for the major items, a $25k profit over a few months sounds good to me.  It is on the lighter side of what I would look for, but you could in theory go almost double your rehab and still break even, so not a bad deal either.

[Ryan Herting]

Hey @matthewarodriguez, 

My team actually created this pretty cool smart underwriting spreadsheet. You can plugin your above-mentioned values and it's super helpful to analyze a deal with. Here is a link to it https://ifundcities.com/resour... Select the Deal Underwriting button. If you also feel you missed something, the spreadsheet acts as a checklist. We've created a video as well that walks you through it which can be found here.

Hope this was helpful!

[Matthew A Rodriguez]

@Evan Polaski

Thanks Evan. Im just not emotionally or financially prepared to take on a major flip. Repairs that fit within the 25k budget with a 5k contingency seem like a good start. Thank you for the constructive criticism. I need the opinions and advice of those more experienced than me.

[Matthew A Rodriguez]

@Ryan Herting

Ryan! This is freaking awesome. Thank you for sharing. Looking forward to sharing progress. Cheers.