Quote from @Gabriella Borukhov:
I finally decided to invest in a fix and flip. Everything was making sense until I had a bunch of people around me tell me it's a huge risk. Now I'm so scared because I don't want to lose money and have a bad experience. It is my first flip and it is quite a "bigger" flip but the numbers made sense to me and wanted to know what some of you experienced investors think.
Some details about the property. It is about 1900 sq ft. It is located In Florida. Owner died and house has been vacant ever since. There was a probate. I did get a inspection done. Roof was done 10 years ago but there were some leaks identified so inspector recommended that I change the roof. It's on a block lot, no foundation issues were identified. HVAC is updated. Plumbing looks good as well. (Water ran for about 6 minutes). Electricity is good as well. Only issues that we have identified that we need to fix are cosmetics. Completely renovate the kitchen, 2 small size bathrooms, floors all over, "freshen up the windows" (windows were pretty old but contractor said we might not need to change them), cut off tree branches on top of the roof, add a walkway in the front. There was some termite damage on the fascia as well. Also, rodent droppings were detected.
Home price is $369,000
Rehab given is $80,000
Down payment is $44,900
Loan amount that I will owe back is $404,100
Loan is for 6 months
Holding cost for full 6 months is ($3500*6) = 21,000
Closing cost = 19,553
ARV = 575000 (my agent said $600,000 but I am doing 575,000 to be conservation, with the way the market is going I do question if I should estimate it lower)
With my math, using the full rehab loan and full 6 months with selling costs included, I estimate around a $53,000 profit.
If I finish and sell faster, even better.
This is definitely a lot to take on for a first time flip but I did put $10,000 earnest money down already and don't want to lose that. With all this information about the home, do you think there is enough of a profit margin to work with? It has been vacant for a couple years, do you think that there might be additional problems that will skew my numbers in a large way? Is 80k enough for a renovation this size ? My biggest fear is that there may be a huge issues that arises that prevents me from being able to sell my house. It could just be fear talking. Also, my backup plan may be to do a cash out refinance and leave some cash in the house but not 100% sure what the best option is yet. I would greatly appreciate advice and opinions. Would these numbers make sense to you and is there anything that I may be missing?
Firstly I have some questions of my own... What type of loan are you taking on, will it be a HML or PML or a mixture of both? Are you paying any loan points? (If you are doing a HML you will have to pay some loan points and depending on the terms if you are using a PML you also might have loan points)
What about the closing costs when buying the property it seems you left those out, but correct me if I am wrong but for the price of the home you are buying and selling 20k for both the purchase and sale of the home seems a bit low
As for your rehab budget, I would say you are almost on the money I would say 85k is a good budget to go by which is about $40 per sqft plus extra for that roof and possibly some pest control
As for your realtor giving you the ARV of 600k, I would ask how she/he got that number and ask for her/him to send you the comps she/he got so you can make sure they are suitable comps. But on top of that do your own comps then who knows your comps might match up with your realtors
As for you being worried about having to lower your ARV even more because of the market I would try my best to predict what could happen by using months of supply and the days on market formula... (months of supply would help you decide if the market is either in an uptrend or downtrend which would help with deciding a possible ARV while the days on market would help you decide if that 6-month closing time frame is realistic)
Either way, at least where I am on the East Coast the market is very much still a seller's market with many people moving up from NYC we simply just don't have enough supply to support the demand
Almost done ;)
Now for your EMD... that was a bigggg mistake, 10k EMD is high I would have kept it at around 1% of the purchase price so about $3700 but rounding up to 5k could have made them feel better
(If they asked for that I would have at least countered and come down closer to 6k)
I am also worried because you said you are worried that there might be too many things wrong and you don't want to lose your money... I hope you got an inspection contingency clause put into the P&S agreement as you could still back out if more problems come up in the inspection
Now the cash-out refi could work but that would require you to rent out the property for at least 6 months and pay closing costs again and now that the home is worth more you would have to make sure you will cash flow because everything from the taxes to the mortgage payment will be more per month
With this being said the profit is there if everything with the comps are correct so I would say if you feel comfortable with it to go with that route.
I also now am seeing this is a 3-month-old post so if it is going well then congrats if not then you will get'em next time (hopefully not losing money in the process) but if you didn't do the deal out of fear then I would say hit the books again (aka laptop) and get to studying and learning about all of your fears to see if more knowledge can combat those fears
Hope this helps, good luck :)
