Now what?

[Steve Hucke]

Ok, I have a short sale under contract. My initial thought was to always use it as a rental for a while until the market really turns around and then sell it. I think I am buying significantly under market as I have offered 116000 and I believe the value is 160000. It is under contract in my name, not an llc or not transferable to. I should be able to rent it out for 950 a month and mortgage would be about 840 PITI. It would need about 3000-8000 in work depending on how ambitious I want to be to get it in sales shape. Lien holder is CHASE. It is a cute SFR close to my home in a good area of St. Louis. What can you share about ideas or expectations on the short sale. Thanks in advance.

[Jon Holdman]

Yep, 70% is the rule of thumb. If buy plus rehab is 70% of the eventual selling price (BE CONSERVATIVE, not optimistic), you use hard money to fund the deal, and sell within six months, you'll net a profit of about 15% of the selling price. If you're at 77%, its more like 8%. When things go wrong, as they always do, your profit takes a hit.

Now, with conventional financing and some of your own money, your money costs are less. With hard money, I'd assume about 7% of ARV goes to the money. With a conventional loan at 6% plus one point, this is more like 4% of the amount borrowed. Don't let the lender get wind you're planning to flip, though. They don't like it when you sell after only a few months.

Fix and flips will work better if there is more work to do. If you're just doing carpet and paint, its tougher for the appraiser on your sale to justify a big jump in value.

Sounds like you're trying to buy off the MLS. Me too. Its a TON of work. I consider literally 100's of houses, look at 75, and make 25 offers to buy one.