OfflineEquity: $21,800
Property Type: Single Family House
After Repaired Value: $67,000
Cost of Repairs: $10,000
Asking Price: $35,200
If the equity amount is the same as the profit potential, is this a good property to buy? It seems as though the only money you would make off this property is equity? Is that assumption correct?
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Stephanie Cherry
Real Estate Wholesale Consultant
Hello Stephanie!
The Deal depends on Fix and Flip or Fix and Rent - what is the strategy of the buyer?
The Total "All-In" on a Fix and Flip should include carrying and closing costs: for this house probably $1,500 (taxes and insurance and utilities, plus buyers side closing costs of approx 2% of purchase price).
Total COST will be $38,700.
Selling the house for $67,000 - that number ARV must be formulated using DEAN QUALITY COMPS - no pulling it out of thin air... within 1/2 mile, within 20% +/- square feet, sold in last 6 months, similar type of property, and quality (2/2 house doesn't comp with a 3/2, or a house with a garage, totally different than a house without the 2 car garage).
You calculate 10% (some say 12%, Matt Larson says 10%) as closing / selling costs, so $6,700. Your flipper would NET at CLOSE - $60,300 - minus the $38,700 cost equals a NET PROFIT of $11,600.
If you asked for a $2,000 assignment fee, this deal still works at $9,600 net profit, but you have to have SUPER SOLID comps, or this deal gets thin FAST (that's true of any deal!)
This deal is especially awesome if you have a private money / hard money lender lined up with low costs (12% with 2 points, no or low closing costs, 80-100% purchase price funding).
Keep up the great work Stephanie!
Stephanie,
Mark already gave you some great input.
Start with the comps. The more comps the better, and are they truly comparable?
What I do is reverse engineer the project. ARV-Repairs-closing costs X .65 = Max Offer. So you're right about there. I'd start at between 25 and 35K.
John
Where is your whole fee? From my calculation the numbers are a little tight, depending on how much your plaining on making if your wholesaling or depending on how much your buyers are looking to pay. Dean and many of his students teaches us to subtract 30% from the after repair value and subtract the rehab cost, also minus your wholesale fee. Whatever number you come up with left is around the amount you need to get the property under contract.
Example of your deal
ARV $67,000
- 30% (Buyers profit and hold cost, closing cost, fees)
--------
$46,900
-$10,000( Repair cost)
----------
$36,900
Purchase price $35,200
Leaves you with $1,700 for a wholesale fee. If your good with that then go ahead but what if your buyer tries to negotiate you down on the wholesale price, your going to need room to budge. Make a lower offer than $35,200, unless you have buyers thats willing to make 20%-25% of the ARV price.
Reynold Orozco
click on links to see videos of Matt explaining it