Opinion on 1st potential deal

[Kirk Rohani]

I'm a new investor just starting out (no deals yet) and just won a HUD bid with the following numbers. Since this is my first possible deal, I wanted to get some advice/feedback/opinions please..

ARV = 240k

My cost = 175k

Repairs = 30k - 35k

Rental comps = $1500

Is this a deal that I should do? If I need to post more info please let me know. Any feedback is welcome!

Kirk

[Shaun Reilly]

Issues:

By your own admission you have only been looking at properties for a few weeks so I would highly question how rock solid some of these numbers are.

- Where did you get the ARV of $240K? If you are new and didn't use an agent to pull comps assume you are high unless you actually think it is like $255K+ and are being conservative.

- Where did the $35K repair estimate come from? From a contractor or just you walking around? Unless you have a back ground in construction and have a 10-20% fudge factor in there already assume this is low.

(We have Now covered the 2 biggest mistakes a newbie will usually make)

- $0 in selling costs. If you are going to do FSBO you better have a pretty sizable marketing budget since as Wayne pointed out 75% (think he is being generous) of buyers will never know you exist. Even if you hit gold just by getting a sign and doing some Craigslist ads doubt you will find a title company that won't charge you anything and doubt there are no transfer costs by the state or county.

- If you do actually want to sell the place in a reasonable amount of time plan on paying at least 2% to the buyer agent and at least a little bit towards closing costs for the end buyer.

- Your estimate for monthly holding costs doesn't actually sound bad to me for a cash purchase. However thinking you will be cashed out in 3 months from purchase sounds super optimistic for someone that has never done a rehab and it needs $35K of work. Keep in mind your end buyer will need like 30-50% of that time just to get their loan once you guys have a contract in place. Take you number and double it at least probably triple to be safe.

- Why would you even consider pissing away $12K in closing costs to refi a cash purchase you think you would resell in 3 months? Again if you have to wait until the rehab is done it will take you almost as long to get the loan as you plan to hold the place. IMO taking that out is the ONLY way that you have much chance of not losing money on this. If you can't afford to tie up all that cash for 6-9 months then don't do the deal.

For fun lets see what happens if you have to sell for $230K and you go 10% over your budget and take 5 months to sell with still minimal closing costs:

$230K - $175K - $38.5K - $5K (holding) - $1K (Super optimistic total for selling costs) = $10.5K

I would look at this as my best case with anything above it being getting the house money. More realistically I would think you are looking at closer to half this since it is really unlikely you won't end up paying some buyer agent commission OR take a bigger discount AND/OR hold it many more months to sell.

Again this is assuming you numbers are actually pretty good, if you are off much then look at losing $10K.