Indianapolis 4/3 in Geist not selling. Did I overestimate?

Question

Hello BP community! I have a property under contract at 8279 Ambleside Ct, Indianapolis, IN 46256. The property has been marketed--albeit, not so well--for about a month now. When I do have investors look at it, it seems they always need a lower number. However, I think the profit is always there after running closing costs, repairs, commissions, etc... I may have overlooked some aspects of this, and I'm looking to get some advice, or perhaps a more appropriate analysis on this. If I can get a more accurate model for analyzing properties, I might enjoy using it for future deal analysis. Cheers!

Keith Goodwine · Answer

You might have put it under contract too high, yeah.  It's an honest mistake that almost everyone has made at some point.  But fret not - if you make mistakes, it is proof you are trying!

Have you communicated with the sellers much?  Proactive communication will be much more comforting to them than reactive.  You might even have a chance to re-contract at a lower price if you have a good relationship with them.  Realtors do this all the time - if the house doesn't sell, they drop the price until it does.  Discuss the offers you've received, the price you'd need to drop it to, and re-emphasize how quickly you can close if you drop the price.

"I have X interested buyers if we drop the sale price down to $18x,xxx  We can close in a week.  You need the cash quickly, and I'm dedicated to making that happen.  But it won't happen unless we come down on price.  I'll send you the new contract so we can get moving today."

Edward Rhoads · Answer

Do you have comps to show that the ARV is 300k?  I am usually pretty conservative on my ARVs but 300k sounds pretty high.

If the ARV was 300k I think a lot of flippers would (with a 35k repair bill) be at closer to 185k.

Break down:

Closing their sale, 3k

fees to real estate agents 22.5k

holding costs 12k

Overages    15k

Repairs 35k

So that is a total of 87.5k

If they paid you 217750 they would loose 2750 on the deal.  The ARV would have to be at about 350k for that deal to be worth it or you would have to come down a lot.

Michael Burdi · Answer

Holding costs estimate is 4% of ARV? Or purchase? Wouldn't resale commission just be 6% with one agent?

Edward Rhoads · Answer

3.5% per agent so 7% total.  Sometimes you can get that lower.

Holding costs are usually estimated at 4% and include insurance, taxes, utilities, ect.  4% would not be enough to include the financing from hard money usually.  Sometimes the holding is less than that but you use that to be on the safe side especially if the sale gets held up.

On a 300k house the taxes are 500 a month and the insurance would probably be about 400 a month so in say 6 months that would be 5400 alone.

Michael Burdi · Answer

I'm sorry to revisit this. I have a question. @Edward Rhoads, in your example, why would your holding costs be 12k? Is this a hard money rate over a few months, or...? And why is the agent fee 22.5k and not 18k?

Michael Burdi · Answer

The only thing is the seller is HUD. They are very difficult to work with. I could let it go and maybe on the next price drop bid again, perhaps.

Michael Burdi · Answer

I have an agent that would re-list this thing for 4% commission because I bring everything through her and she enjoys returning business, which saves roughly 6k. But I can see still that there are a lot more numbers factoring into this than I had anticipated. That's interesting @Mike Knowles; I got a lot of responses countering with 200k, which I couldn't do, of course. I actually think it was getting tougher because a lot of the buyers were coming from a bird dog, which meant I was actually asking 225 (high) 220,750 (low) to also pay him. @Keith Goodwine, I didn't tack much profit for myself on from the get-go just so I didn't waste time moving it. This was my first contract on a property. It's funny; I think I'm one of two Indianapolis RE FB page owners. I could only be out in Indy for a couple days if I had to fly there because I work a full-time job in SoCal. It's been over a month now. I scheduled my closing date at the end of the month and don't have a buyer. I might just get to close and default on contract. That's the worst that could happen now, I guess.

Keith Goodwine · Answer

You might have to chew into your profit just to move the deal.

How long did you give yourself to keep the property under contract?  If it's been a month already, chances are you're getting close.

Help us help you.  How have you been marketing so far?  Are you advertising on Craigslist daily?  Have you posted it in the Indianapolis Real Estate Investors Facebook group?  Have you flown to Indy to meet with local buyers there?  Plane tickets may be a small cost compared to the profit you could make if you put in that extra effort.  IND and SNA are both Southwest hubs!

Mike Knowles · Answer

There is more money than deals here so if it's not selling, you're asking too much.  I pulled comps and, without looking at them in too much detail, think $300k is fair.  There are two sales in that same subdivision in the last 6 months of similar size at $308k (great condition, some updates) and $325k (totally updated and beautiful).  You also have 2 bigger houses sold at $282k and $290k (both are a little dated).  Let's assume ARV is $300k and your rehab is $35k.  After that it's just basic math.

ARV = $300k.  Subtract rehab ($35k), front end closing costs ($1,500), taxes/HOA/utilities for 4 months ($3,500), and back end closing costs (6% * ARV + $2k misc = $20k).

That leaves $240,000 for purchase price + profit.  Personally, I would want to make at least $40k on this one (about 15% cash ROI), so that makes my offer $200k.

This is essentially the same place @Edward Rhoads got to, except he included $15k of contingency, which is smart.  He's more than likely right.   A $35k rehab budget is less than $10/sf, which means you're only doing cosmetic updates.  Since this house was built in 2001, I suspect the HVAC is original/at the end of its useful life.  If the roof hasn't been replaced already, I would be wary of that, too...there's a lot of hail damage here in Indiana.

I spent 10 minutes on this so may be missing things, but this is how I would evaluate it as a local investor.

Michael Burdi · Answer

Hi @Edward Rhoads. I originally estimated 300k, but another investor, who gave me a 35k repair cost that I thought was high, also gave me a 315k ARV. I understand the ARV to be 300k low end to 350k high end. I think it is possible ARV on this one was confusing. I'm selling it at 217,750.

Indianapolis 4/3 in Geist not selling. Did I overestimate?

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