Is this a good deal?

Question

Need some advice: I’m a buy and hold investor but I’ve been wanting to fix and flip and came across what I think is a good deal. Can someone more experienced advise me on this?

ARV: $158k (according to Prop Stream)

Asking Price $75k (owner has $68k in it according to prop stream so probably not much wiggle room).

Repairs: Just based on pictures and my experience with fixing up rentals I think $25-30k would be plenty as it’s mainly cosmetics from the pictures.

Obviously I will want to check it out and walk it in person but if those numbers hold up, is this a good deal for a first fix and flip? I have contractors and such to use as I have fixed up homes to cash out refinance in the past. I've completely gutted homes and fixed them in the past. I just chose to keep it as a BRRRR. This is one I would want to sell for my area as it wouldn't make sense to keep as a rental. It's fix and flip or nothing on this deal (for me).

Will Barnard · Answer

For a fix and flip, getting a deal at 67.7% is not common and hard to come by for anything with an exit value north of $200k. Many use the 70% guideline and in many cases, can and need to go to 75% or even 80% depending on location and price points. When you are sub $200k, you certainly need to be at or near 70% for it to have enough meat on the bone for profit and what if cushion. Without it, anything goes wrong and you could lose.Next step is to identify and confirm all numbers, then run a spreadsheet to plug in all your costs including acquisition costs (closing costs), purchase price, rehab, holding costs (which include interest/loan payments, taxes, insurance, utilities, maintenance, etc.), and resale costs (which include agent commissions, escrow fees, title charges, transfer taxes, buyer credits or repair requests, etc. Lets say it looks like this: $155k resale less ($75k purchase + $2k acquisition costs + $30k rehab + $8k holding costs + $12k resale costs) = $28k profit. Your holding costs will dramatically change depending on your debt used so keep that in mind. So does $28k of profit for say a 4-6 month total ownership hold make sense while being responsible for ~$110k? If you answer yes, then move forward. Only you can answer that question as each person's temperament for risk is different.

Will Barnard · Answer

From a back of the napkin analysis (and not knowing the area or the specifics of this project), a purchase of $75k, rehab of $30k and exit at $155k, it has enough room to continue with your due diligence to confirm numbers.Do NOT rely on Prop Stream for values, get actual comps and walk the comps, look at all photos of the comps and compare finishes. Get a more precise number on rehab, and if you can negotiate purchase price down to give you more room. That said, with the numbers I posted, your acquisition + rehab = 67.7% of the exit value. Since this exit value is under $200k, you need to factor in the timeline, rehab difficulty factor, factor in potential unknown risks (things you run into during the rehab, added holding costs, buyers pool availability at exit compared to today, market condition changes that may occur, etc). Once you have a full scope of work, lock in numbers and your risks are mitigated as much as you can, go for it if the end profit number remains positive for your risk factor and efforts, pull out if not.

Derrick E. · Answer

Thanks for the reply @Will Barnard. I know the area and on the surface think the ARV is accurate but I would definitely double check all of that like you suggested. Is 67.7% typical in a fix and flip? These are things I truly don’t know. As far as a BRRRR I would be happy with those numbers as I know I can refinance 75-80% depending on which lender I use and I would be keeping it to rent so it’s not as risky imo. I’m just feeling a little lost on this deal in terms of a fix and flip.

Bruce Woodruff · Answer

@Derrick E.Have you asked yourself why the current owner is selling this property that cheap? IF it's really worth $158k and you can get it on the market for $105k, that's a quick profit of $53,000, right? Why doesn't the owner do it? Or why doesn't he ignore the fix and pocket $23k? Even better.... OR why hasn't an experienced flipper, say like me, just fly in and snag the quick cash......Just asking.....

Kym Bennett · Answer

I can't necessarily comment on this deal but without solicitation if you asked me about one that I have that makes way more I may have an answer to that question.