Help Wanted with First Dallas Deal

[Ashton Cherry]

Hi BP,

I recently moved to Dallas from NYC to start investing in my own deals and I think I may have found a good one. In the Lake Highlands area of north Whiterock Lake, I have a house under contract for 205k with area comps north of 300k for renovated homes. It needs roughly 45k in repairs from my estimates and I think a total of roughly 125k is needed to complete the deal (includes a 4 month hold and generous allowances for expenses).

I have been looking at hard money and other construction loans and I have a couple decent options on the table. However, what I would really like to do is partner with someone who has done this before to work through the deal together as a learning experience with an even equity/profit split.

I would also really appreciate just talking to a more experienced investor about the deal who might be able to offer some insight - I've noticed the DFW BP community is very good about taking time for newbies.

Thanks,

Ashton

[Jon Holdman]

Moved to the Analysis and Advice forum.

You probably do want to post in the New Member Intro forum and post a personal introduction to the community.

Requests for partners need to go into the Make Deals forum and requests for money need to go in the Seeking Financing forum. You'll need a few more posts before you're able to post in those forums.

This doesn't look like a particularly good deal, especially for a new rehabber. "North of $300K" sounds like "$300K" to me. You say you have it under contract at $205K and needs $45K in repairs. That's $250K total for purchase and rehab, which is 83% of the $300K ARV. That's too high to make any profit. The rule of thumb is that if you're using hard money (sounds like you are) and you hold for six months (about the minimum) and you sell with an agent, then you need to get the purchase plus rehab down to 70% of ARV in order to turn a 15% of ARV profit (if things go very well), more likely about 10% of ARV (since something always goes wrong.) As a new rehabber, more things are likely to go wrong.

To make this deal work, you need to be absolutely convinced you can sell for over $360K. Thats quite a ways north of $300K.

You must be very conservative in choosing comps. The appraiser will be. Choose the comps on the lower end, not the highest ones. If you have 10 to choose from, throw out the lowest one or two and use the next lowest ones. If you have 5-6, use the lowest ones. If you only have one or two to choose from, but cautious. An appraiser will have a hard time finding comps and then your appraisal will really be a crap shoot.

You need some of your own cash. A hard money lender is going to want to see some of your own cash. A construction loan is going to want to see some cash. Not sure if you're hoping someone will come along with that extra cash. You mention needing $125K, yet I'd put the total cash needed on this deal closer to $305K. Hard money lenders will (if they're smart) forbid you from getting a second mortgage on the property. Someone else who comes in and loans you $125K or invests $125K into the deal on top of a $180K loan is in a very risky position. Even if ARV is $360K, if thing go wrong (and they ALWAYS go wrong), your $54K max potential profit starts disappearing.

That 70% rule of thumb accounts for hard money costs on a 70% of ARV loan. With an ARV of $360K, the loan amount is $250K. You need another $55K on top of that, and you can't afford any interest on it. So, you're going to give that person a cut of the profit. And its going to be a large cut, because they're taking so much risk.

You might consider cutting your teeth on a smaller project. Lower priced houses are easier to sell.