Is this a good deal for a flip? - Posted by Boomer

Real Estate Investing Vacation Rentals
1

Posted by Clint on March 01, 2005 at 06:20:37:

The higher priced house, the longer it takes to sell. Unless of course you are in a HOT market. Do you have the reserves to cover it, while it isn’t rented?

Good Luck.

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Is this a good deal for a flip? - Posted by Boomer

Posted by Boomer on March 01, 2005 at 24:22:23:

Found a house on the Oregon coast that is currently a vacation rental. Owner wants out. Asking 360K. Comps around 400K.

I’m going to offer around 340K rent it out for the summer then sell.

Is this too good to be true?

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Re: Is this a good deal for a flip? - Posted by Mike (WA)

Posted by Mike (WA) on March 01, 2005 at 16:54:02:

You are offering 85% LTV. That leaves very little wiggle room for profit.

  1. Is the place in retail condition? Will it be after you are done renting it (I doubt it). That means it’ll cost you 1% or so to spruce it back up for sale (or more if they break things.)

  2. Buying costs - Convention loan plus fees and fees will be around 3% of value (2 for loan, 1 for misc. junk fees) If Hard money, add another 5%. If all cash, take off 1.5%

  3. Holding costs - On such an expensive house, rent will not cover your holding costs. Assume loss of 2% of value here.

  4. Selling costs - Using a Realtor will cost you 6% in commisions, 1.78% excise tax, and 1% in junk fees. Selling yourself will mean advertising costs and lost time.

  5. Now the good news, perhaps the place will appreciate 2-3% in 6 months (maybe 6-10%, who knows). Still, I would count this as a bonus - not a reason to buy.

So start at 85% (assuming full price offer), assume loan costs for normal fees of 3% + 1% to fix up + 1% holding costs + 9% selling costs (realtor) leaves less than 1% profit - is it worth it?