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Hi 10FingersInk,
I will do some research and make some phone calls for a hard money lender…But let’s look at the numbers...I’m not trying to be discouraging in any way, but if this is your first flip I think you should know the facts....After that if it’s a risk you want to take, that’s fine, but here’s what I’m getting…
Most investors use the old (ARV X .7) - repairs formula. So therefore, if you turn the formula around and solve for the % of ARV. Using the most conservative numbers you would have: % = (Buy Price + Repairs)/ARV. The answer is (175,000 + 80,000) / 350,000 = 72.9%. If you use the higher repair cost and lower ARV you get an answer of 84.6%. This is just one way to look at the deal….Lower numbers might work, higher numbers, not at all, the deal is pretty skinny.
Here’s a different way of looking at it….
ARV (conservative) = $325,000
Commissions/Holding & Closing Cost = -$35,000
Repairs = -$100,000
Profit = -$50,000
Max Purchase Price = $140,000
There are other factors that may increase that purchase price. Re-analyzing the comps and repair estimates could lower your cost, thus raising your max. purchase price. If it is a very desirable property and I thought I could get a faster sell (In New Jersey? ) at the ARV price, I may lower my profit(there’s not a lot of profit here already?) , raising the max. purchase price.
I ran it using hard money at 65% with 5 points at 13%, 6 months to get it rehabbed and sold, which is very conservative if the house is currently unliveable. I came up with a number of 127K max price. That would give you about 45K net profit.
These numbers are EXTREMELY conservative for hard money the first time out. You might be closer to 6 points, 14% interest, which would make the deal a no go.
For me, the deal might work with the conservative numbers, but not the higher. Otherwise the deal is just to skinny… It always help to see the property and know the area well, but it’s really not necessary, the calculator doesn't lie.
You really should keep the numbers as conservative as possible. Lots can go wrong during a flip and you need some room, just in case and trust me it will. In repairing an unliveable house you will, without a doubt run into things that you couldn’t see needing to be repaired. I’d count on at least, a minimum of 20% - 30% in overages.
And I know what you’re thinking on 6 months, your going to get it done sooner and sold. Trust me, 6 months is being conservative, especially on a 1st time flip.
Whatever you do make sure you get a home inspection. It will give you a place to start. They might pick up on things you won’t be able to see.
I will email you hard money lender information….
You find a house that is run down and vacant; there's no for sale sign in the yard.
Through persistence and a little detective work, you locate the owner and negotiate a "risk-free" contract to buy the property at 50% below the after repaired value with a very low earnest money deposit ($10).
You contact an investor who rehabs houses in the area, offer to sell him the house for $3,000 more than your contract amount. When he agrees, you fill out a one-page "Assignment of Contract" form and get $500 in earnest money.
A few days later, the transaction closes at a title company or an attorney's office, depending upon which states you live in, and you get a check for $3,000 PLUS your $10 earnest money.
A word of caution . . .
You'll need to be very persistent--it's NOT always easy. Some months you may find two, three, or more houses you can flip. Other months you may not find any.
You'll constantly develop new leads. Some leads will work out; some won't. Some sellers will be very motivated, and some won't. But remember, that time has a way of changing everything. You must learn to stick with it, even when you are discouraged.
Where do you begin?
Start with the end in mind, so you'll know what to do after you find a motivated seller with a house you can buy well below market. If you try to find the house first then figure out what to do with it, you're in for a nightmare.
The first thing you need to do is line up your real estate investment team. You'll need rehab investors to buy your contract, a title company to close the contract or perhaps an attorney.
After this you'll just need to get out there and work to find yourself a house. If you'll read the posts above you can get more advice on how to get started.
Best of luck to you.