Working The Numbers
Alright, now in terms of "doing the math"
I am asking all of these question from YOUR experience.
This is a sample deal I came up with, I have a lot of questions as to how to figure out if a deal will work for you.
When a wholesaler or an ad in the paper says " Investor special 3/1 45k, needs 6k in repairs worth 70k rehabed, 555-5555"
How do you figure out if this will be a good deal?
Lending:
From what I hear most hard money lenders will lend 70% of ARV.
- How accurate are the so called "appraisals" by the wholesaler or seller, from everyone's experience?
Closing Costs:
-What is a quick "safe" way to estimate your own closing costs?
-Do Hard Money lenders require closing costs up front or in the loan repayment?
Estimated Repairs:
-Usually How accurate are the estimated repairs the seller is claiming?
Are the selling prices usually negotiable?
Holding Costs:
I have heard of these, have no idea what they are or what to expect or how to throw it into the formula.
HELP, lol, please. What are they, what should I expect?
The formula:
-What formula do you guys use to decide whether a deal will work or if you have to pass on it?
I was going to throw another contractor question in here, but I'm going to give it it's own topic. Thanks for all the feedback from my last post!!
JB
[addsig]
Ok, this is what I've seen in my market, and from my experiences.
I've got a hard money guy that goes to 70%, only on a house over 100k. Most of them only go 60%, maybe 65%, and the guy I use rolls the cost of closing into the loan, but, again, some only roll part of it in, and require the investor to put up at least some money, so they have a vested interest in the property.
Wholesalers. Depends on the person, and their experience. Most of them, you can knock 40% off their ARV, and double the repair cost.
Holding costs, including closing, I'd add 20% to the purchase cost to make sure it's covered.
Selling costs. If it's a TRUE wholesaler, they might come down a grand or two, but don't expect a big drop.
Good luck with your investing....
jbinvestor,
you asked what holding costs are. They are the cost of paying the mortgage, taxes, insurance, etc... while the property is getting rehabbed, and then sold. So if you do all the work yourself, with no help, then your holding costs will be higher, and repair costs lower. Contracting it out to a GC will minimize holding costs, while making the repairs more expensive.
So time is critical. Or expressed as a mathematical equation,
Time=Money
There is a tradeoff here. It might be better to get a good GC, since it will minimize holding costs, and allow you the free time to look for more deals, and hang out at the local pub...
Of course if you get a bad GC, and he drags his feet, you will have high holding costs, and high repair bills....
The short answer, every deal is it's own animal, unfortunately there isn't any "usually" that can be applied.
Any seller is trying to get the most they can, thier opinion as to value or needed repairs mean nothing to me at all. Asking price means nothing more than a price I won't bid over, but there are some areas where even that happens.
I have made a purchase that was over 40% below the asking price and I have made a purchase where I paid the full asking price, bid what it is worth regardless of what they want for it.
Closing costs again vary greatly, my last purchase I think was $52, the highest I don't even recall, but it was probably a couple K or better. Cash purchase, no appraisal, seller pays title insurance it's pretty cheap. Bank financed, upfront points? appraisal, prepay escrow, title insurance, loan origination fees etc, it can get spendy.
How to judge if it's a deal worth doing? Just listen to the numbers, they don't lie.
On a personal note, be cautious. Make deals, but be safe. I've read most of your posts, I think you are scared, and not just normal jitters that everyone feels. Dig deeper into the deal, put the fears to rest or justify them. I will say my eyebrows went up when I read that the block is shut down to do the rehabs. 7K in rehab doesn't get you much, especially if someone else is doing the work, hard to imagine a block being made a construction zone for 7k per property. Check into what is being done to the other properties that will make them worth the 75K to be sure you are comparing apples to apples.
I don't mean to sound negative, real estate is a great way to make money. But, every house I own was an investment property for someone else before me, I bought them from the entities that ended up with them when the previous owners went broke.
I'm not a big shot, I'm a small time player in a local area, so value my opinions for what you will. My family has been involved in realestate for as long as I recall, so sometimes i may appear to talk as if I have more experience than I really do, not really my experience talking, just what I received through osmosis
Mykle