Fix and Flip Analysis in Canby, OR (Portland Suburb)

[Jordan Hopper]

Hello, I’m a long time lurker, first time poster. Apologies if I've committed any faux pas in this post.  I’ve been interested in real estate for some time and finally bought a light fixer in SW Portland (Hillsdale neighborhood) that I’m living in and rehabbing. I'm having an absolute blast fixing it up! Now there’s a new, interesting opportunity that popped up, which I’m trying to analyze. I’m looking to confirm/correct some of my assumptions. This is a fix and flip, not yet on market. Please pick apart my below assumptions and logic. Any help is greatly appreciated!

Here’s the deal:

My parent’s neighbor split up with his wife and basically lost control of the house. The wife got into drugs, let a bunch of people move in, and basically destroyed the house – gutted the copper wiring and plumbing, destroyed the laminate flooring and carpets (assume subfloors are OK but need to verify), stopped garbage service and piled it in the backyard. He’s regained control and is selling as-is.

This property is in a middle class suburb of Portland (Canby, OR). It is ~3,100 sqft, 4 bed, and 3 bath. Home prices seem to be appreciating rapidly in this suburb – even more so than some of the other Portland suburban areas.

The Zestimate on the place is $489K, but I’m basing my estimates on the tax assessment which was $376K. Realistically I think that this property would fall somewhere in between (probably the $425K-$450K range), but I felt more comfortable using $376K to be conservative.

Below are my estimates for repairs – anyone with knowledge of the market or who’s done this type of repair before please let me know if I’m in the right ballpark or way off. I figure that I’ll be my own GC and hire all subcontractors. I will also do some of the work myself – e.g. lay flooring, paint, bathrooms. A lot of this property will need to be gutted. The below estimates are based purely on research and have not been quoted – again, I’m looking to see if I’m in the right ballpark.

Cost estimates:

Electrical/Wiring: $10K ($3/sqft – labor + material)

Drywall: $6.5K ($2/sqft – labor + material)

Plumbing: $10K ($3/sqft – labor + material)

Flooring: $8.7K ($2.79/sqft – just material)

Interior Paint: $2K (mostly material, potentially contracting out ceilings and high places)

Kitchen: $15K (based on salvaging some of the cabinets, new countertops and appliances)

Bathrooms: $15K ($5K/bathroom, installing mostly myself except showers/tubs)

Holding cost: $7.5K ($2.5K/month interest only payments for 3 months, discussed below)

Titling fees: $5K (for seller financing, discussed below)

Total Cost: ~$80K

How accurate is this? I’ve seen gut rehab estimates vary wildly across the forums, with some saying $35/sqft and others saying $80/sqft. $40/sqft would make this job $124K, which is much, much higher than my estimate – mine being $26/sqft. The exterior seems to be in good shape and there are no structural issues. Is my estimate way too low?

If I assume an ARV of $376K, my final cost will be seller brokerage fees (6%) at about $23K (I don't have a brokerage license). If I want to make a $45K profit (before tax), then here is how I calculated my offer to the seller (BTW $45K profit isn't really based on anything, so I'm curious to hear if you think this is too low/high or if I'm giving myself enough wiggle room given the magnitude of the project):

ARV: $376K

Repairs, Holding Cost, Titling: $80K

Brokerage Fees: $23K

Total Cost: $103K

Desired Profit: $45K

Offer Price: $228K

Here’s my creative financing strategy/pitch:

I have a $100K LOC that I can use for the repairs. I'm not going to be able to finance the purchase using traditional mortgage broker or bank. I want to go to the seller and ask if he'll consider seller financing for the $228K, with interest only payments and balloon payment within 12 months (hopefully it will only be 3 months). My pitch is as follows:

1. While I know you want to be done with this house, this option allows you to recoup *some* of the money you’ve lost over the last few months while you got your ex-wife and her drugee minions removed.
2. With you on the lien this is fairly low risk. I’m financing all the repairs, so if I default, then you regain the house in the same or (most likely) better state than it is now. You’re no worse off.
3. You’re saving on brokerage fees, compared to listing it with an agent. I’ll pay for all titling fees.

If this doesn’t work I’ll pursue other means, either hard money or cash from family/friends.

So after that long-winded explanation (and I realize you don’t have all the details – please let me know if I can provide anything else), what do you guys think?

1. What do you think of my analysis for costs, ARV, and potential profit?
2. What do you think of my financing approach?

Am I missing anything?

Apologies for asking so much without having ever contributed. Hopefully at some point I’ll be able to pay it forward and contribute on these forums! 

Thank you!