This REO seem reasonable?

Question

Ralph R. · Answer

@Erik Larson

Soooooooo the big question is are you wanting to do this flip to make a profit or are you wanting to do it cos your realtor wants you too?  I would never take a realtors word on a re-hab cost, especially when a kitchen is involved.  secondly I wouldn't take somebody who tells me something is an absoloute "that's the way it is in PHX" especially when they stand to make more than you will.  add 2 closings one as a buyer and one as a seller and you wont have anything left.  He stands to meke 2 commissions one when you buy and one when you sell.  You stand to take all the risk and he stands to make all the gain.  this house at that price wont work IMHO.  My advice?  pass on the house and find a new realtor. watch the house and see what it finally sells for if you want.  that will tell you if you did right or not, and cheaper too!

RR

Andrew Martin · Answer

It seems to me that you've already decided not to and I think you are right for that. I mean of course the 70% rule is more a rule of thumb but if you figure up the percentage on this it seems you would be investing in something closer to what we could call the 90% rule lol just doesn't really provide enough cushion for any mistakes or unforeseen costs. I think you should follow your gut and maybe start looking around for another realtor who can show you some of his past deals that were actually deals. And just because this other investors 'picked' it up doesn't mean it was a deal. This other investor might just have more money than brains or just very uneducated. Luckily we all have BP so we have an advantage in means of education. Good luck out there!

Deborah Russell · Answer

I was doing a search recently how much a full gut generally costs per sq. ft.  Of course it varies tremendously, but $35k doesn't sound like enough for a full gut, unless it's a tiny home.  Double the rehab costs he's quoting ($70k) and offer 70% based on that.  :)

And find another realtor while you're at it.

Jake Saliba · Answer

Eric,

I've just completed 2 flips in AZ last year and underway on my 3rd.

My feedback:

- the AZ market is really competitive and margins here are very compressed compared to other parts of the country and compared to bigger pockets rules of thumb

- Through common modes of acquisition (MLS, agents, wholesale emails), you will not find much better margin than this in our market.  If you want to beat this spread by a lot, you will have to go straight to the source and start talking directly to distressed sellers that are not talking to everyone else in the market who will offer more.    If you want to stick to wholesellers / MLS while concentrating on flipping, you should aim to try to find something with maybe $10k more spread than this which will be very difficult but not impossible.  Otherwise, start looking at marketing to distressed sellers.

- Get the contact info of the guy who bought the place and find out how he is getting it done.  He is making money on this property, so find out how.

- $35k is a reasonable rehab cost estimate IF there's no major roof / AC / pool /other structural issues.  this would be cosmetic only.

- Really killing it and doing a very nice kitchen is a good strategy in AZ.  Since the discounts are compressed, successful flippers are making money by selling at the absolute top of the market, often being forced to match or beat best comps in an area.  Better fire up your pinterest account and pick the right finishes - that ARV is only coming if someone falls in love.

- Yes, be careful of any agent, because they have no skin in the game if you can't make it work.  However, I don't see anything in this deal that is way off.  He gave you a reasonable rehab estimate here.  I tend to find wholesellers under-estimating costs by far more.  He *might* be for real.

- Yes, with no experience, you have a high risk to break even or lose money on most readily available flip opportunities in the Phx area.  This deal applies.

Good luck!

- Jake

Jeff Schneider · Answer

I didn't read all the replies but it seems really tight even if you get 190K for it.  35K seems really cheap for a gut, especially if you run into windows, AC, roof etc.

Rolanda Eldridge · Answer

@Erik Larson..Does the deal make sense to you?  I like the warm fuzzy feel from a property.(six sense, intuition, discernment)  "If it looks like a duck, quacks like a duck, walks like a duck, then it's a duck"...I look for the Swan properties...Minimize Risk!  GL

This REO seem reasonable?

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