Posted by Ronald * Starr(in No CA) on November 11, 2002 at 17:46:08:
RealDeal-------------------
Sounds like a good deal to me.
I am bothered by your range of comps: “$200K to $250K” is too wide of an estimate of value. Maybe there are some properties that have sold in that wide of a range, but some of those are not “comps.” You need to know the market value to a narrower range, perhaps within a $20-$25K range. Lower, if possible.
Probably similar for the rehab costs, but that much of a range might be ok, as there are different ways to spend money on rehab jobs.
But, you really don’t need to know the fix-up costs too much, let your buyer determine that.
Now, you say you are out to “flip” it. But that is a very broad range of possible activity. Given the price and the fix-up amount, that could either be a wholesale flip or a retail flip. As you don’t tell us what is wrong with the property, it is impossible to guess what you have in mind.
Now, for a wholesale deal, Ron LeGrande suggests buying for no more than 70% of after-repaired value less fix-up costs. Here we see: 70% X $225K = $174.5K less $25K fix-up is $149.5K . My view: there is plenty of play here and doing the deal is fine. The 70% may be necessary in $40-$90K properties, not so for one worth over $200K, I think.
LeGrande talks about a “sweat equity” deal. He arranges to buy a rundown property and then markets it to somebody who will live in it and will also fix it up. Now, not knowing where you are, it is hard to know if such a deal would make sense where you are. Here in No CA, it would, as houses of the prices you mention are low-end properties, so many potential buyers might have construction skills. However, in OKC area, where I also invest, that would be a top-of the line property and I doubt most buyers would want to get involved in a lot of fix-up.
One problem with the “sweat equity” deals is there is usually not much money at the beginning, only when your purchaser actually colses on the property and buys it.
Good InvestingRon Starr******