Rehab Project
Hello everyone, I am new at this and would like some feedback on this project. The property is listed for $219K and my real estate agent say the seller will accept $170K. Resale after rehab projected to be about $230K and the rehab will cost about $30K. Project to be financed by a 70% loan.
Thanks for your help. 
These are my numbers:
Purchase Price: $170K
Closing costs: $6K
Rehab costs: $30K
Realtor fees for selling(5% commission at 230K) :
$11K
Profit - $13K
Your realtor is making as much money in this deal than you are eventhough you are taking all the risk.
I don't see much room to work with here. I wouldn't take this deal.
Oh, you forgot holding costs and insurance, which'll cut deeply into that 13k, too....
Start with your resale price (as long as you are confident in it)
Now subtract all your costs (including 6 mos holding and insurances) then subtract your profit (you determine this amount) and this will tell you the maximum you should offer on the property.
Dave
Try this. If you own another property, use equity as a down payment. Finance the rest. Make sure you take out enough equity for rehab costs and 6 month mortgage & equity payments. Now you have no out of pocket costs and you can write off the intrest paid on both. Now..... sell the house on your own. You'll save the 5% commision. more money in your pocket.
Advertise in your local newspaper and setup an open house. Try FSBO websites and use signs. It cost me $35 to have a lawn sign painted 2 sided and looks much more professional than the orange or red ones from hardware store.
This is why flipping for profit is so difficult in most markets. You can buy this house at about 70% of FMV but once you factor in acquisition, holding, rehab and disposition costs, you are lucky to make $10/hr for your labor.
Finding a good rehab property at 70% FMV (post-rehab) is hard enough becuase they are somewhat rare. But in most cases, 70% is still too thin. I would want 60% to flip but I have never found one at that steep a discount worth putting any effort into.
As previously stated, the realtors will make as much as you do. Sad but true. FSBO can be done but it's really difficult unless you are in a hot market. And you are almost always going to pay at least 3% as a FSBO because odds are that an agent from some brokerage firm will present you with a qualified buyer.
Some people will say it doesn't hurt to try but when your FSBO effort fails and you list with a broker, the money and time you spent marketing the property is wasted.
I would love to rehab and flip SFH's in the 200k-300k price range but there's just no profit in it... and that's with me paying cash and saving a bundle on closing costs.
I have witnessed countless rehabbers buy SFH's here in Austin for way below market. They spend several months rehabbing and do beautiful work. I watch the properties hit the market at the initial asking price and then watch it sit on the market for a while. Then they drop the price... it still sits. Then they drop again... it sits for a while longer then finally sells. On average it takes about 5 months and two price cuts to sell these properties. I know they are just breaking even on all their hard work.
IMO, the way to make money is buy, rehab, rent and hold then sell years down the road at the top of a real estate cycle. Higher end houses just don't fill the bill cause they just don't rent well. Concentrate on properties that can cashflow at the average rent for the area. This gives you the largest rental pool to draw from. Right now in Austin TX, the average rent is $750 a month.
I look for properties that can rent for between $600 and $900 a month per unit and adhere to the 1% rule. Therefore, their FMV is 60k to 90k per unit. I buy them at a discount for cash, rehab them and make sure that if my total unit cost is say 83k, I can rent it for at least $830/mo.
Austin's real estate market went bust in 2001 and is now at the bottom of the cycle so I have been very active in acquiring an rehabbing. I expect it to peak again around 2010-2012. I expect to sell in this timeframe and double my initial investment once rental income and capital gains are fully considered.
Doubling your money in this amount of time doesn't sound exciting to most but it's a realistic expectation. Unfortunately, most folks don't have a large capital base to work with so doubling mouse nuts equals moust nuts. They must use leverage and borrow.
Of course I could make a better overall return on my money if I invested in 50 properties with leverage instead of 10 for cash but I just don't want to deal with that many for only a modestly greater return in actual dollars. Cash investing gives you a solid current income stream whereas leverage pushes the big gains out to when you sell.
Hi everyone, thanks very much for all your inciteful coments and helpful suggestions. I have now realized that this project, has at best, a small margin of profit.
Don't forget to consider the amount of time it's going to take as well. I just finished my first rehab but it's one that alot of folks (I suspect) would have passed on entirely.
Bought for $105k. Had an as-is appraisal for $131k, FMV of $136-$140 with 7k estimated rehab costs (not including holding, agents etc). Taking out rehab costs that put it at 20% below FMV (barely).
Anyway, after everything was done (paying for agents, holding costs etc) I walked away with a little over $13k in profit (10% of FMV) which isn't amazing. However, while it didn't really fit the desired 70-80% numbers the repairs needed were only light cosmetic. I had the entire property done and back on the market within roughly 10 days of close and sold within 2 weeks of that.
While the return wasn't amazing it only cost me 3k in cash (used credit line for alot of the work and factored the interest into my costs) and I was able to turn it around quick. Also, since this was my first property I gained A LOT of experience and it's really hard to put a value on that.
IMO 13k is just fine with me LOL! especially your 1st time. Im still doing research before i try my 1st one. this site has a lot of info. As long as you made money AND gained experiance, then in my book you made out great. Hope I make 13k or my my 1st time. I'l do the happy dance.
unless its the taj mahale and every thing is made of gold, i think youve got yourself a pretty good deal.
costs depend on how far you want to go with it. ex. marble, ceramic or the cheapest viynal. same with the roof how bad is it. does just need to be rechingled or does it need all new ply.[ Edited by ZinOrganization on Date 01/26/2005 ]
a good way to find out what type of floors to put in is to check out the neighbors houses you want to match the surounding houses. if they have cement you dont want to use marble. if they have marble you dont want cement. just an ex.
your probably going to want vinayl or ceramic in the kitchen and hard wood everywhere else. not sure what the cost per sq ft. for hardwood is. havent had to do it yet.
loanwizard - i dont believe that deal is in manhattan. not for 80k or even 200k.
dont most buildings in manhattan have tarr/asphalt roofs.[ Edited by ZinOrganization on Date 01/26/2005 ]
Allow $250/square for roof, $2.50/square foot, for tear off and install new.
Allow more if there is plywood rot or very detailed or steep roof.
[addsig]