Typical holding costs involved in a fix and flip in SoCal?

Question

I just wonder what you'd all think of this deal. How would I figure out holding costs on a fix and flip? Here's the deal. I'm not considering it but figured I'd use it to do a little "homework"

The house is in Laguna Beach and has a $1.6M ARV and a sales price of $1,348,000 with $40,000 worth of repairs needed. Personally, I'd say no to this because the more "high-end" properties tend to take longer to sell and that time can really eat up your profits. I'm wondering, are there some "rough" figures I can throw into a calculation just to get a very conservative estimate? Below is the description:

Attention South Orange County Investors! Amazing opportunity in Laguna Beach. This property needs exterior paint and light interior upgrades to reach the top of the market. Solid comps justify a 1.6M exit price. This property is a great fit for a cash investor who lists their own projects. Take advantage of a motivated seller opportunity and net a great return on cash! Contact your NWA representative to schedule a private showing.

Square Ft : 2800
Year Built: 1977
Bedrooms: 4
Bathrooms: 4
Garage:

Estimated ARV $1,600,000

Est. Repair Cost: $40,000

Cash Price: $ $1,348,000

Joe Gigliello · Answer

DavidThis deal looks very thin. The key sentence in the listing is "this property is a great fit for cash investor who lists their own projects", meaning to me that you have to list the property yourself to potentially earn a return. That makes no sense to me. Each part of a transaction should earn it's own return and profit - you should be paid a commission for listing the property and a separate profit for flipping it.As for hard money costs, assuming you can get a hard money lender to make a loan at 85% of purchase with 10% interest and a 2% fee, financing costs would be about $80k assuming a 6 month carry. I agree with Brandon in that $40k in rehab costs really means $100k, especially in the high end. End users in this price point want everything top notch, that's why they are trying to sell this house to an investor.If you are interested in the property, make an offer that works for you, regardless of what they are asking. You never know how motivated the seller is.Best of luck!

Brandon Battle · Answer

My new partner and I have a very specific criteria for our flips.Purchase price and rehab costs never more than $700,000,cosmetic only,no mold,no plumbing problems,no electrical problems,or removing walls and needing permits.We keep it simple and look for $50,000 profit splits in So Cal properties.Let the millionaires deal with rich homes.

Fred Delariva · Answer

I don't think there is enough room for someone to make a profit. Selling costs are roughly 8-10%. Add the rehab costs to those and you are already at $200k. That doesn't include any financing or monthly costs. At this point you have $52K. If you include financing and monthly holding cost, you would be in the red very fast. I don't think this is a rehab deal. You may want to think of another strategy selling directly to a retail buyer using transactional funding.

David Cowan · Answer

@Brandon Battle - I was thinking the same thing. This same wholesaler sends me "deals" all the time. Most of them are like this, with much too narrow a margin to turn a profit.

Brandon Battle · Answer

Who made the 40 grand estimate? What is it based on is my first question I would ask.The hard money loan costs would be enormous as well as the other quiet costs especially if you try to sell it at full ARV.I bet after looking at it the rehab is closer to 100 grand with high end fixtures and probable roof and electrical issues in a seaside home that old.Just don't know if the profit margins are really there without a full inspection first.

David Cowan · Answer

@Fred Delariva@Brandon Battle@Joe GiglielloAll really good stuff! This wholesaler sends me so many deals like this, I was starting to think that maybe I was missing something. But you have all confirmed that I'm not the crazy one. By the way- I'm a a wholesaer as well. I got on that person's list to get some idea what's out there and how others are doing deals. I also was thinking there might be an opportunity to JV on some deals if anything good came across the desk that they hadn't sold yet. So far, it looks like their deals aren't selling because they really aren't deals. This is teaching me a lot. Thanks so much! By the way, feel free to inbox me if you'd like to be on my buyers list. I also team up with other wholesalers in order to optimize my chances of getting a great deal for my investor partners.