Church flip confusion?

Question

I stalk these forums a good amount and would first like to thank everyone who continues to give great advice! I bought my first home a couple of years ago and using the knowledge on here put it on the market recently and had it under contract in under a week! So now I'm debating whether to flip a property before we leave the area in about 9 months. The property that I am looking at is completely out of my element since it isn't a personal residence.

It is smaller church that has been beaten up for years. So naturally I was interested in checking it out. It can be converted into a duplex but cannot have the footprint changed. The zoning lady that I talked to said that just putting a wall to section it off would be fine. (any red flags on this?) So anyways, here is what I'm looking at.

Asking $60,000 but I know the owner bought it for $35,000 a year and a half ago and did no work to it at all. Here is how I see the deal, please let me know if this is correct thinking for a flip.

$100,000 ARV
-$ 30,000 repairs
-$ 1,200 closing costs (purchase)
-$ 3,000 closing costs (sale)
-$ 1,200 holding costs
-$ 15,000 profit
-$ 5,000 realtor/concessions
--------------------------------------------------
$44,600 Offering Price

The reason I'm picking $100,000 ARV is simply because duplexes in the same area typically are going for around $120,000 and look dated and beat up. So I just want to be conservative on the sale price so that I can sell it quick. Is there a formula to figure the asking price if you know the rental rates? Would it also hurt that price if I lived in one of the units and only rented the other one out?

Steve Babiak · Answer

IMO, nothing wrong with spending $30K to fix up for sale at $100K; you just have to buy for less than $40K if doing so, with those specific sell and fixup numbers. I'd start by offering in the $30K to $35K range.

Be advised that this is an unusual type of building and conversion, and as such it could be a hard-to-sell item. And hard to find good comps, which translates into hard to get financing. So you really MUST be certain of the true value of this before putting in your offer. And probably also have your potential buyers ready beforehand too.

All that in addition to the challenges of zoning and building codes compliance.

Bill Gulley · Answer

Hi, I think you may have more due diligence to do. The lady at the zoning office is probably not the lady at building regs! It's not a simple wall, changing the use will probably require that you up date to current code. It won't be a simple wall. Do you have seperate meters and gas? I really don't think it will be a simple wall. Is the HVAC set up for two units? OK, you will probably need a fire wall between the two units and that needs to go above the roof line and building that inside of an existing building will take a prayer ana alot of money! So, since the costs probably just shot through the roof with the fire wall, the rest of the analysis is irrelevant until you find out what is needed for that plan. Good luck, Bill

Eric Davis · Answer

Guys thanks so much for the advice. I had factored in the costs of metering each unit but not about the firewall. I'm going to have some contractors give me some quotes for the entire job tomorrow so I will ask about these issues. Thanks again!

Aaron Pfeffer · Answer

Agreed on the continuation of due diligence, but even more disconcerting is the Rehab Cost vs. ARV.

Spending $30K to sell at $100K is not advantageous. Not absurd...just a high ratio. Make sure that number is succinct if you proceed, because it would be a shame to spend that much to sell for so little.

Seriously consider what a brand new improvement costs in your location and what new construction sells for before making final decision.

Church flip confusion?

Church flip confusion?

Most Popular Reply

4 Replies