Posted by Mark (Atl) on January 24, 2002 at 09:31:59:
Rich,
Thanks for looking at my numbers. I ran them a little more conservatively, with 9 months carry. But you helped convince me that I was on the right track.
I made my offers and should hear something today. Thanks again for the input.
Advice Needed From Experienced Rehabbers - Posted by Mark (Atl)
Posted by Mark (Atl) on January 23, 2002 at 15:12:34:
I’ve located what I think is a good property and wanted to get some advice on my numbers, as well as the best way to structure. I’ve renovated two homes that I lived in but this will be the first as an investment property.
House is in a good neighborhood (my neighborhood actually) and will retail for about $300,000 with a first class renovation job.
I estimate renovation costs to be $65,000, conservatively.
Owner is elderly and has a “small” loan balance- realtor won’t tell me how much. I want to present two offers to them- one for “all cash” and one for short term owner finance.
The first scenario I’m looking at is using a hard money lender, in which case I’ll have to fund about $30-40,000 of repairs out of pocket, based on their max of 65% LTV. I figure my max purchase price would be $130-135,000.
The second would be a small down (10%)with the owner carrying back a mortgage at competitive rate. This would be about $80-90,000 out of pocket which would require a partner of a home equity line. I figure max purchase price of about $150-155,000.
I’m running these numbers with a profit of $45,000, which I figure is reasonable given my time and money.
Any feedback on these numbers or suggestions on another way to structure the deal? Thanks in advance for your help. I appreciate all the real world knowledge I’ve gained reading excellent posts over the past few weeks.
By the way, my first choice would be to cash out of my house tax free and buy this one. However I’ve been informed by my wife that, after living through the renovation of our house, if I did that I would be moving alone.
Re: Advice Needed From Experienced Rehabbers - Posted by Al-So Cal
Posted by Al-So Cal on January 23, 2002 at 22:28:42:
This is my own personal view and may not apply other than to me.
After many deals my view of rehabs is nill.
My first deal years ago was a rehab. At the end upon
crunching the numbers I could have just cleaned it up,
skipped all the work and sold it as a FIXER UPPER.
Would have netted the same amount.
The biggest draw in all of real estate is to advertize
a FIXER UPPER. You get a huge amount of calls. Its amazing!! Once youve fixed it up it`s just another house on the
market.
The big killer with this kind of investment is costs
going in-costs going out and the vacancy factor while
it sits there.
Be sure and truthfully net out your profit at the other
end and see if it was worth it.
Re: Advice Needed From Experienced Rehabbers - Posted by HR
Posted by HR on January 23, 2002 at 16:51:04:
Mark,
My formula for rehabs is ARV X .85 - repairs - my profit = mao.
Given your situation, 300 X .85 - 65000 - 45000 = maximum allowable offer of $145,000.
If your numbers are correct, you should be able to get a hard money loan for $195,000 (65% of 3ook), which should cover your purchase and 50k of your rehab. You will need another 15 for rehab, and, given a 6 months rehab and sale assumption, another 15k in holding costs. If you have that extra 30k, and if your numbers are correct, this is a good deal.
Seems to me that 300k homes in Atlanta are cheap. Sounds like a good deal, eh?
HR
Re: Advice Needed From Experienced Rehabbers - Posted by Mark ¶
Posted by Mark ¶ on January 23, 2002 at 15:42:01:
Mark,
If your ARV price of $300,000 is correct, a 65% LTV would give you a hard money loan of $195,000, which would give you the $65,000 you need to make the property “first class.” And, if your max purchase price works, you would earn a $100,000 profit after all is said and done.
If you can do that, I wouldn’t worry about the downpayment, owner carry option.
Are your numbers right?
Mark ¶
Re: Advice Needed From Experienced Rehabbers - Posted by Mark (Atl)
Posted by Mark (Atl) on January 24, 2002 at 09:21:14:
Al,
Thanks for the insight. This is why I like this forum so much- the mix of different approaches to the same situation.
If I get this house, I’ll definitely run the numbers your way and see if I can cash out in 30 days rather than 6 months.
Thanks again.
Give her 15%!.. - Posted by HR
Posted by HR on January 23, 2002 at 16:55:02:
As to your other offer (which I forgot to address), why the heck to you want to make it reasonable? Make it ridiculously unreasonable. Give her 12-15%. If you don’t refi at the end of 14 months*, she gets the house back with all repairs (but of course that’s not going to happen ms. seller…).
Make her greed glands salivate. Move her to yes. You are going to pay that rate anyway at hardmoney; the difference between 8 and 15% over 6 months is peanuts. Give her a great deal, so she will say yes. You are gonna make plenty of profit.
Try to get your owner carry loan longer than 12 months. Once you own a year, it’s easier to refi, if you have to. 14 months is perfect.
Good luck,
HR
Re: Advice Needed From Experienced Rehabbers - Posted by Mark (Atl)
Posted by Mark (Atl) on January 23, 2002 at 15:52:06:
The $195,000 is the gross loan amount. When their points and closing costs are taken out the loan amount is about $182,000. I’ve also estimated about $16,000 in holding costs and $21,000 for realtor commission (just in case).
Re: Give her 15%!.. - Posted by Mark (Atl)
Posted by Mark (Atl) on January 24, 2002 at 09:25:46:
HR,
Thanks for your ideas. I did make my owner finance offer at 15% interest only- for the first 9 months- and then an additional 27 months at 8% P&I, in case I have to turn around and retail it L/O or with owner finance.
Thanks again for the idea.
Re: Advice Needed From Experienced Rehabbers - Posted by Rich
Posted by Rich on January 23, 2002 at 17:12:02:
If the numbers you give are accurate I see a good deal here. I only pay a maximum of 6%commission($18,000), 1%,your side of closing($3,000), 6Pts to close the hard money loan($11,700), 3 months carrying costs @ 16% interest/year($7,800). Unless i’m Missing something else that means net of about $64,000. If you don’t want that deal let me know, I will take it.