Is this a good fix n flip opportunity?

Question

Looking to purchase a house seller finance for $160,000 @ 7.5% interest rate, 18% down.  Monthly payment comes to $917,  plus another $350 for taxes and insurance so ~$1280/month due to the seller.

Using a private money lender to fund the deal, borrowing ~$130,000 @ 10% interest rate, interest only, principal + interest paid as a balloon after completion  or 12 months.

House is a 3br/1ba 950sqft. near a university. Has a unique garage that is open air, but  roofed and on the same slab as the  rest of the house.  Plan is to wall it off and convert to a 4br/2ba,  update existing bath and kitchen, new floors,  interior and exterior  paint. Estimating ~$90,000 project cost.

Comps that have sold in the last 6-12 months:

3br/1ba 1201 sqft - $275,000 4/1/24

3br/2ba 1252 sqft - $300,000  10/31/23

3br/2ba 1470 sqft - $340,000 9/6/24

4br/2ba 1518 sqft - $289,000 8/13/24

Goal  is to  complete flip in  under 9 months. Would  you  do this  deal?

Dustin Tucker · Answer

@Chris Snow

I would say this is not a good flip I think your best case scenario is your property appraises for $315,000 which means you're all in should be no more than $220,000 less rehab of $90,000 brings you to a purchase price of 130,000.

Also you're in Cleveland of all places I would think that there are better opportunities out there. I would want to make sure I have a dual exit and my Rents would dscr for a minimum of 1.25x

Chris Snow · Answer

Appreciate the insights! $90k was an overestimation of cost just in case. GC I spoke with  says without adding another bathroom, project could be done in 3-5 months for $40-50k. Adding another bathroom may cost another 20-30.

Seller is shying away from SF for now, and doesn't want to close until Jan 1 for taxes/soc sec reasons. Looking to offer $165k, 40-50 in renos (65k for cushion), and target sale for $275-285 with direct comps

Chris Grenzig · Answer

@Chris Snow

$11520 for 9 months loan and taxes/ins (also did you get updated taxes and ins or are you using the sellers info)

$9,750 2nd loan

$90k rehab

$160k purchase

Total cost: $271,270

Sale $315,000

Sale costs: 2% for closing costs = $6300

Sale: $308,700

Cost = 88% of sale assuming you sell it yourself

if you have to pay an agent 5% that's $292,950 net sale which is 92% of cost.

Have you asked an agent how many months they think it will take to sell or are you factoring that into your 9 months? Do a cost analysis of how many months extra you can have until you break even. Your 2 loans and taxes and ins are $2,363 per month at your numbers, so 1 month equals almost another 1% added to your cost, at 12 months your cost is now $278,360.

What happens with your 2nd loan if it takes longer than 12 months, do you have to pay any extra points to extend? Are you paying any points for the initial loan as well because that will add to the cost?

Without knowing more than this post, I probably would not do it. We have done millions of dollars in renovations on our apartment buildings, and it almost always has taken longer and been more expensive than we thought. I feel like $315k might even be a high ARV (but I'm no expert here), and the market in Jax is decently soft right now. We've had a tough time selling our stuff and has taken 3-6 months to do so. I think the average inventory size is like 4 months right now. To me, the margins seem really thin, and unless you've done a similar project like this before with this contractor, this is a risky project where things you expect will inevitably go wrong.

I agree with @Dustin Tucker I think being all-in for $220k is a good place to be, which means you need to be offering around $100k or maybe even less. Let's say ARV is $300k, and sale costs are combined 8% so $276k net sale, that puts you at 80% of the total cost, it gives you a ton of margin for errors and mistakes that I would almost promise you will happen in a project like this.

That being said, I'm not a flipper, I don't know any of the specific info or anything about you and your team so I could be wrong. For reference, we've bought 150+ units and probably overseen $2-3m in renovations, and we still own 51 units. We also manage for other owners in the Jacksonville and Orlando areas so we've overseen other work as well not counted in that.

Drago Stanimirovic · Answer

Hi Cris,

This deal has potential, but the margins are tight. With a $160K purchase price, $90K in renovations, and ~$2,363/month in total payments, your all-in cost will be around $295K after 9 months. Based on comps, you could sell for $275K to $300K, leaving little profit once you factor in holding and closing costs.

The conversion to a 4/2 near a university is promising, but the risk lies in unexpected renovation costs or market shifts. To make this deal worthwhile, you’d need a lower purchase price, better financing, or higher ARV to secure a comfortable profit margin.If you need help structuring financing, let me know!Best,

Drago

Dustin Tucker · Answer

Ok, being in Jacksonville, FL, is a completely different market.

Chris Snow · Answer

@Dustin Tucker market is Jacksonville, FL. $315k is not out of question. Meeting with contractor today to better understand project cost

Is this a good fix n flip opportunity?

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