REO rehab to BIG for my first deal.

For your 1st deal, I think you're undertaking way too much...Jill & I have been buying, rehabbing, & flipping for over 10 yrs. & we would not buy a property that needed 2 times the repair costs as the purchase price. Despite the very large repair costs, when you factor in the time it takes for a rehab that large, with delays(& there will always be those), cost over-runs( & there are always those also); not to mention is the house still going to be
30% less than the surrounding comps, so you can sell it easy ... I think you should start with baby steps & work your way up. The holding costs on a project of that size are huge also, please be advised, I am not trying to discourage you, just guide you from experience. All investors will buy a lemon at one time or another, then you just take your lumps, chalk it up to a learning experience & move on ... if this happens on a 1 st deal, it would be devastating; not to mention how difficult it would be to pass it on to someone else.

Great words of wisdom from gceriani! Also, when advertising a deal you may want to list what the property will sell for (ARV) after repairs.

Good luck!
Michael Mangham
MD Home Acquisitions LLC

Ceriani,

Eric's post says "it's a project I am Not Ready for."

He's NOT planning on fixing it up and selling it himself. If he gets it under contract he can definitely go TRY and find Investors who might be interested in taking it as it is and doing an assignment or double closing, don't you think?

I just wanted to clarify that he DOESN'T plan on taking on the project himself. But I don't see any harm in getting it under contract as long as he has an exit clause that will allow him to back out if he can't find an investor to take it on.

Jordan

Sorry,
ARV is not easy on this property.
It stands out on it's own on the block & area.

We are estimating it to be $350-380K.

Thanks.

Hi Eric,

This is a good opportunity to learn how to get an accurate ARV and what you (your buyer) would actually list a property for. You would want to list it below whats selling nearby. If it is way more expensive that the surrounding houses you have to consider why a buyer would pay to live in that area when he could spend the same money and live in a nicer area. Also a $30,000 spread on the ARV won't work. It needs to be backed up with facts not estimates! Facts like sold comps in the last 90 days, comps currently listed and comps currently under contract. That way you will know the level of competition in the area, how long they are on the market and what they have been selling for.
Ask a realtor (not the sellers agent!) to come out and look at the property, show him the repair plans and ask what price you could list it at when completed to get a quick sale.
To me, just running your numbers and going with the High ARV of $380,000
I would not offer more than $50,000! 65% of ARV after repairs. Then you could flip it for $65,000. 70% of ARV. Remember your buyer will have commissions, fees and additional costs getting this thing ready for sale and sold. Most likely 6 to 9 months. Somewhere around $40,000 (If he is a cash buyer!). So $380,000 minus $40,000 commissions, fees minus $200,000 re hab minus $65,000 acquisitions cost equals $305,000. $75,000 profit. If you purchased at $109,000 that would leaves $31,000 net profit. These numbers don't reflect cost and time over runs that always happen. Do you see why your numbers have to be accurate? What if ARV is the low $350,000? He loses money!! At $380,000 no investor will pay out $350,000 to make $31,000 ($109,000 purchase price)!

Hope this helps, let us know what you find out!
Michael Mangham
MD Home Acquisitions LLC

You may be able to wholesale it to another rehab investor with more experience. Make 5K on the contract and walk. At least you'll get something for your efforts.