FHA 203k deal analysis

[Jaden Ghylin]

Hey all,

I could use a second opinion on my numbers here. I'm pretty new to using ARV and looking at properties from a flip standpoint.

I'm looking at buying a property for my wife and myself in the Minneapolis suburbs (Burnsville, MN) on an FHA 203K rehab loan. Obviously, we intend to live in the place at least for a year or two (possibly more) so it needs to meet our personal buying criteria (large wooded lot, large house, etc.), which I'm assuming will probably reduce our profit/equity a bit.

We found an MLS REO that came on this weekend at $149k for a 3,300 sq ft. 6 bed, 3 bath house on 0.6 acres wooded that needs new carpet, paint, and some repairs. Not sure about the roof at this point, so I'm assuming it needs replacing. It appears that $35k would get the place into very nice condition to retail above $200k. However, the comps get tough above $200k as houses in that price range just haven't been moving in this suburb. A handful have sold in the last 6 months and they range from $200-$275k, but they are smaller than this house and on smaller lots. I can safely say the property would sell for $220k-$230k in nice condition, but may bring as much as $250k-$275k.

Here's my analysis:
Sell price: $230000
Rehab: $35000
Realtor fee sell: $13800
Closing costs buy: $5000
Closing costs sell: $4600
Carrying Costs: $5750
Vacant house ins.: $800
Profit/Equity: $29900
Offer Price: $135,150

This is using 10% profit, which seems reaonable. I've seen others use 13-15%, but since this is our personal property and I can use FHA 203k financing with 3.5% down it seems like a 10% profit would be acceptable. Even doing this, I don't think the offer is going to be competitive. My realtor is saying that the place will sell this weekend at over list price. I am comfortable submitting a $135k offer though. Now, 70% ARV would tell me to offer $119k, which I think is mostly due to the higher profit margin of 15%.

Any thoughts? Does it make sense for me to offer $135k on this? Could I offer more to increase the strength of my offer? I don't think I'd want to go ove $139k.

Thanks,
-Jaden