Possible first flip? Need help

[Jordan Sizelove]

Found a REO that's been listed for 150 days. Needs a lot of renovations. It's a 4b/2b, 1,497sf, built in 1973, has a 2 car garage. List price is $275k. Found 3 very similar comps. First one sold for $319k on Sep 5, 3b/2b, 1,550sf, built in 1977, has 2 car garage. Second comp sold for $325k on Aug 19, 3b/2b, 1,351sf, built in 1972, has 2 car garage. Third comp sold for $340k on Sep 15, 3b/2b, 1,550sf, built in 1978, has 2 car garage. All 3 comps are within 1 mile of subject property.

Not sure what to do next. I don't know how to make adjustments to the comps to determine ARV range/list price. Should I contact the agent and have them pull the comps (would rather learn how to do it so I can do it on my own)?

Possible next steps? Feedback and suggestions?

P.s. Happy Thanksgiving to all BP'ers!

[J Scott]

Originally posted by @Jordan Sizelove:

After looking at the 3 comps, I was gonna call the ARV of subject property $305k to be conservative and because I don't know how to make adjustments on comps. I came up with these numbers off of my head, but I figured fixed costs would be $20k, rehab would be $40k, and profit would be $15k.

 A few thoughts:

- If the ARV is $305K, I'd be looking for a profit of much more than $15K. I generally want 15% of ARV at a minimum (which tends to be about 20% ROI). So, in this case, I'd want to see a minimum profit target of about $45K.

- Your holding costs seem extremely low. I tend to use 10% as my MINIMUM holding costs on a cash deal where I'm using an agent to list the property. If I'm paying 5-6% in commissions, 1-2% in closing costs, 1-2% in holding costs, plus concessions/inspections/appraisals, etc., it's hard to end up less than 10% of the ARV in total fixed costs.

-  Speaking of fixed costs, if you won't be paying cash, you'll likely find that total fixed costs are a good bit higher when you factor in loan costs -- origination fee, appraisal, interest payments, etc.

-  Not sure where the $40K rehab estimate came from, but this is likely the number that's most important in your analysis.  For a $300K property that's been sitting for 5+ months, there could be more rehab cost than you're expecting (maybe not, but something to consider).

- If you're not sure how to adjust comps to get an accurate ARV, make sure your agent provides a comp analysis to ensure you're pretty close. This is part of their job, so it shouldn't be a big deal.