[Calc Review] Help me analyze this deal

[Tiffany Murokozi]

I am considering pitching this to a few buyers to see if interested. I would like someone else to analyze the deal to see if they look like solid numbers an investor would be interested in:

Purchase Price ($215,800.00)
Purchase Closing Costs ($3,000.00)
Total ($218,800.00)

Total Rehab Costs ($40,000.00)
Total ($40,000.00)

Monthly Holding Costs ($100.00)
Total Days Held 60
Total ($200.00)

After Repair Value $300,000.00
All Selling Closing Costs ($3,000.00)
Real Estate Agent Fees ($18,000.00)
Total $279,000.00

Total Profit for Flip $20,000.00

*This link comes directly from our calculators, based on information input by the member who posted.

[Parmesh P.]

My opinion is, don't do this deal in this depreciating market. There are too many uncertainties in the present market to have a projected profit that small. If you apply the 70% rule, based on your data, your purchasing price has to be $170K. (70% x ARV – repair cost). This is just a safe way to analyze your deal but you have to do all your homework.

[Nicholas Burch]

Hey Tiffany,

Dm me, I may be able to provide some insight.

[Parmesh P.]

My opinion is, don't do this deal in this depreciating market. There are too many uncertainties in the present market to have a projected profit that small. If you apply the 70% rule, based on your data, your purchasing price has to be $170K. (70% x ARV – repair cost). This is just a safe way to analyze your deal but you have to do all your homework.

[Jeff S.]

Don’t present this deal to an investor, @Tiffany Murokozi. You will discredit yourself.

If you add the purchase price to the rehab estimate and divide that total by your ARV, you get ($215.8k + $40k)/$300k = 85%. 85% is where a flip will break even, so on its face alone, this is a lousy deal and I would end my evaluation there. Here's why …

You are missing several important expenses in your calculation. Here is a more detailed estimate assuming a 6-month flip, 90% LTC hard money loan, and 5% sales commission (click on the image to enlarge it) ...

Though for higher ARV properties we use 75%, no flipper should consider this deal for more than 70% or $170k, as @Parmesh P.  correctly calculated. Here the rehabber will earn around 16% of the ARV, which we would consider a fair deal. See below.

Even if it were correct, your $20k estimate is only 6.6% of the ARV and way too little for the time and expenses involved. Who would take that risk for such a small profit? No lender should loan on it. And obviously, I'm accepting your numbers as-is. A wise rehabber and HML would want to confirm them.

Your local friendly hard money lender will usually have a spreadsheet they will provide for free that will help you evaluate your deals. Better if you write one yourself so you know what's in it. I get many emails from wholesalers who don’t have a clue how to evaluate a property. This is one of the first skills you should learn if you want anyone to take your deals seriously.  Good luck to you.

Last, I don’t understand why someone posts to a public message board offering private advice. If you have something constructive to add, @Nicholas Burch, why don’t you post it here so it can withstand public scrutiny? Maybe we will all learn from it.

[Tiffany Murokozi]

@Jeff S. and @Parmesh P....thank you for such detailed critical feedback!! I am new, just learning how to understand the numbers. So having others scrutinize for me helps me learn, so thank you so much!! I feel like I'm back in college lol!

@Nicholas Burch I d.m.'d you just in case you have additional feedback! 

[Nathan Harden]

When doing a flip, always keep in mind the 70% rule. Some investors may tweak the 70% rule a little bit but for the most part, this is the best way to analyze a deal quickly so you know whether to move on or dive deeper into the deal analysis for that property.

[Tiffany Murokozi]

Quote from @Nathan Harden:

When doing a flip, always keep in mind the 70% rule. Some investors may tweak the 70% rule a little bit but for the most part, this is the best way to analyze a deal quickly so you know whether to move on or dive deeper into the deal analysis for that property.

Thank you. That makes sense. 

[Nicholas Burch]

Quote from @Jeff S.:

Don’t present this deal to an investor, @Tiffany Murokozi. You will discredit yourself.

If you add the purchase price to the rehab estimate and divide that total by your ARV, you get ($215.8k + $40k)/$300k = 85%. 85% is where a flip will break even, so on its face alone, this is a lousy deal and I would end my evaluation there. Here's why …

You are missing several important expenses in your calculation. Here is a more detailed estimate assuming a 6-month flip, 90% LTC hard money loan, and 5% sales commission (click on the image to enlarge it) ...

Though for higher ARV properties we use 75%, no flipper should consider this deal for more than 70% or $170k, as @Parmesh P.  correctly calculated. Here the rehabber will earn around 16% of the ARV, which we would consider a fair deal. See below.

Even if it were correct, your $20k estimate is only 6.6% of the ARV and way too little for the time and expenses involved. Who would take that risk for such a small profit? No lender should loan on it. And obviously, I'm accepting your numbers as-is. A wise rehabber and HML would want to confirm them.

Your local friendly hard money lender will usually have a spreadsheet they will provide for free that will help you evaluate your deals. Better if you write one yourself so you know what's in it. I get many emails from wholesalers who don’t have a clue how to evaluate a property. This is one of the first skills you should learn if you want anyone to take your deals seriously.  Good luck to you.

Last, I don’t understand why someone posts to a public message board offering private advice. If you have something constructive to add, @Nicholas Burch, why don’t you post it here so it can withstand public scrutiny? Maybe we will all learn from it.

 I left that comment because I prefer to talk on the phone and gather as much information as possible, rather than going back and fourth on this forum or my message box. See reply Tiffany.

[Nicholas Burch]

I believe other commentators provided some articulate info regarding the situation. The only thing I will tell you is this: buyers' market or seller's market, the house will be sold at the price people are willing to pay for it.

From a RE agent perspective, I can tell you that people who go around touting it's a buyer's market and you won't be able to make money are nonsensical. It's a buyer's market in the sense that there are more options available. Yes, financing is expensive, but that is why we have a god given tool called refinancing. In my opinion, you should be really worried about a 7.5% interest rate when you pay millions in interest from your primary residence or portfolio.

Let's say your property sells at your projected $279,000 with a 20% downpayment at 7.5% interest 30-year ARM with no HOA fees and PMI. The buyer's monthly payment is approximately $1,933. Run the same scenario at 6% interest their payment is approximately $1,710. If the buyer loves the finishes you put on the property, the location, and they are planning to make it their primary residence to support or raise their family. Do you think they are going to be stuck on paying $200 more because they bought it in January 2023?

I suggest you read ''the book on flipping houses'' by Jeremy Scott, a BP author, and respected house flipper. This will help fill in some gaps. It gave me a lot of insight into house flipping mechanics.

[Bob Stevens]

Terrible.  No spread 

[Tiffany Murokozi]

Quote from @Nicholas Burch:

I believe other commentators provided some articulate info regarding the situation. The only thing I will tell you is this: buyers' market or seller's market, the house will be sold at the price people are willing to pay for it.

From a RE agent perspective, I can tell you that people who go around touting it's a buyer's market and you won't be able to make money are nonsensical. It's a buyer's market in the sense that there are more options available. Yes, financing is expensive, but that is why we have a god given tool called refinancing. In my opinion, you should be really worried about a 7.5% interest rate when you pay millions in interest from your primary residence or portfolio.

Let's say your property sells at your projected $279,000 with a 20% downpayment at 7.5% interest 30-year ARM with no HOA fees and PMI. The buyer's monthly payment is approximately $1,933. Run the same scenario at 6% interest their payment is approximately $1,710. If the buyer loves the finishes you put on the property, the location, and they are planning to make it their primary residence to support or raise their family. Do you think they are going to be stuck on paying $200 more because they bought it in January 2023?

I suggest you read ''the book on flipping houses'' by Jeremy Scott, a BP author, and respected house flipper. This will help fill in some gaps. It gave me a lot of insight into house flipping mechanics.

Thank you @Nicholas Burch! And a few people have recommended that book. I think I’ll go ahead and check it out.