Breakdown: Underwriting a Fix and Flip That's FRONTING a Major Street

[Sheldon Alex]

Good day everyone! One of my skills is underwriting. Thus, I ensure to vet the deal to forecast the best (or worst) possible outcome for the borrower and a private money lender. That said, here’s another I underwrote…

With this deal, the borrower had a comprehensive line up of documentation regarding the deal.

I checked their CMA report, and they projected a $925,000 ARV. When I gandered at a $400,000+ mortgage balance, I first assumed it was a subject-to deal.

However, I acutely discovered, via reviewing the PSA, the purchase price actually being $775,000.00.

The borrower needed $65,000 and was offering a 25% flat rate.

Now circling back to his estimated $925,000.00 ARV. The comps sold in that CMA were CROSSING MAJOR STREETS. Not only that, the subject property itself was FRONTING a MAJOR TWO WAY STREET!

By Appraisal Rules, since the property is over $500k in value, I had to make a 20% adjustment to the actual ARV.

So, being that a comp sold for $872,500.00, I had to take 20% off of that ($174,500.00) to equal a $698,000.00 estimated ARV.

Thus, with a forecasted debacle from loosing around $163k, one should deliberately refrain from doing this deal.

From that, I hope everyone found this helpful! Any questions or feedback is warmly welcomed!