Margins On Flipping/Rehabs
Just wondering if some other fix and flippers out there can elaborate on their criteria for buy margins on a fix and flip.
I'm seeing homes going at auction for 82% or more of FMV. Is this just amateur hour shopping, or is it possible to spread your margin over multiple deals when buying that high?
Your thoughts.
my rule of thumb is 20% below market NOT including fix up. people bidding that high are vunerable for the unexpected & market slowdowns. I have seen bidding as high as 90% of fmv. Its crazy
Some investors bid high because they are doing a 1031 exchange. This means they sold a property and need to reinvest the money. So, the money they make is because of tax savings, not off the equity in the property.
Others bid high because they are new and haven't done their research.
Like anything else, it's a numbers game.
Every investor has a different strategy.
Hope This Helps,
Mrs. Meltzer
BiGWaVe,
I don't buy at the sheriff's sale, so I can't comment about that. When I'm looking at a property to rehab, I'm concerned with the ARV, not the FMV.
My rule of thumb is to be able to buy, repair, and pay my finance costs with 65% of the ARV. Low repairs (house in good shape) means higher purchase price, and vice versa.
Jamie
[addsig]
Thanks for the replies!
I'll keep my bobber out there and hope for the best. I'm bidding based on FMV not ARV, maybee that's a stumbling block or maybee It's just being overly cautious? (your comments)...I want good returns for my equity partners.
Anybody have real success with REO's in offers at 65-75% FMV range? I'm planning to start working these heavily as well and would like some feedback on specific keys to offers, to give a realistic view of rehab to the banks. If somebody has lots of experience with these types of offers please email me.
Try hard money loans. Your credit history and scores are not always a factor as these are "asset based" deals. You are looking for a property at 65% to a maximum of 75% LTV on the Fairm Market Value - after rehab. They usually include $ for the rehab if there is room in the deal. You'll pay 6 points for the money, not up-front, and from 12% to 18% APR - paid monthly at 1 to 1.5 percent of the principle. Good luck to ya.
Thanks, I've already got a HM lender setup, however I'm looking at conservative numbers and trying to figure above averages for hold time; mid range figure for rehab, insurance, utilities; and resale costs based on a 4% commission to get it viewed and sold as quickly as possible.
When you folks are talking about bidding a percentage of FMV that does NOT include rehab costs, do you simply mean that you will do comps, figure out what FMV is for a similar property, take 80% of that and subtract your best estimate of what the rehab costs are going to be?
Also, any good tips or ways to estimate rehab costs when birddogging vacant properties? Thanks, Dave
my formula for rehabs is
70%ARV-repairs-holding costs=max purchase price
Don't be affraid to add a % error for older properties (more than 25 years old) Have been in situations where 50 + year old house turned out to be much more of rehab than anticipated.... I would recomend to newbies to only buy 15- year old houses until you understand the contractor/insurance/market/headaches