Fair Markup On A Condo Rehab & Flip?

Grumpy

I posted a few other threads about a condo I am going to try to buy and gutt then flip. It's about 8-900 square feet.

My anticipated sale price is $185k after I rehab.

I'm anticipating 4 months time from purchase to completion and sale.

I'm hoping for $30k gross profit. Is this too low?

Cole

Grumpy, research the market.

It will give you a better chance to see what everything is going for in that area.

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Grumpy

I know what I can sell it for. I am reverse engineering it from that fact. $185 is reasonable for a "quick sell" I could price it at $190-195 and get it but I'd be sitting on it for a few months paying mortgage and assessment fees and interest, so it's in my interest to quick flip it. Remember this unit is in the building I live in and I have been watching the prices for 3 years.

What I mean by reverse engineering is this. I know I can sell it for $185k. I am now determining what my cost will be to remodel the unit will be. I want to make sure my expected gross profit is reasonable then...

Sale price
minus cost for rehab
minus expected gross profit
equals my highest bid for the property

That's why I need to know if my expected profit is realistic.

Cole

Do you plan to do any work yourself?

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mdshunk

Your anticipated 30K profit is basically your "pay" for administrating the project for 4 months. You sorta have to do one to gauge whether 30K was worth it for whatever time and stress you have invested. I'm guessing you're going to be using subs, and basically administating the timeline for the project. Seems like you do that every day anyhow, so the stress might not be too bad. You're guesstimating at what you'll have involved (money wise) in the rehab, and you do that every day too. From where I'm sitting, if your 30K estimated profit is reasonably accurate (and I have every reason to believe that it is, because of your background and research), that's not too shabby for 4 months of administration and management. I know guys that will do a flip for 5K profit over and over again, and other who want their year's pay in one 3-4 month project and take the rest of the year off. I guess it depends on your temperament.

mdshunk

I may have addressed a question you didn't even ask. You asked if your expected profit was realistic, and I addressed whether it was worth doing a rehab for 30K profit.

Is it realistic? Sure it is. I've tended to pick properties with fire damage, mold damage, flood damage, vandalism, rodent issues, etc. You can double (or better) your money on these, since your average rehabber doesn't want to deal with these. If they're in otherwise decent neighborhoods, they'll sell just fine. Just about every decent neighborhood has one or two totally thrashed houses, and that's what I seek out.

I know guys that flip houses that look perfectly livable to me. They buy them in a condition that most people would be perfectly happy living in without any rehab. They do some "pizzaz" things to the property, and flip it in a couple of weeks. The profit on these is quite small by comparison to my first example, but the time involved is very short and they do lots of them in a year.

Whether your 30K profit is realistic depends entirely on how much less your candidate property is worth (or can be purchased for) presently than the average one in the neighborhood. Only you know that, I guess.

Teetorbilt

Potential is always the first thing that I look at. Second is how much $ it will take to bring it up to max potential. Third is the purchase price which is what controls 1&2 and establishes your profit margin.

Obviously, much of your profit depends on 'sweat equity'.

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locofoco

Since you live there and have been watching the market for similar condos, I'd go for it. Teetor is right, work backwards from your expected sale price, don't forget interest if you've got a loan and what about a Realtor. Can you sell it yourself?

Grumpy

Cole I am figuring in 20 hours of actual sweat equity (my time) into some unknown that I haven't anticipated... but yes I plan on using subs for everything that I am planning, I will just take care of any little unknowns. I am also marking up 10% of the total cost of the rehab for management.

Yes MD the way I look at it, I basically do everything involved now, except I have never done an interior remodel before, only exteriors. Also I have never done one for myself, only for customers.

Mike Finley

Only you can say if your profit is 'realistic'. Realistic is a really bad word because it has little to do with it. If you are reasonably sure +/- $5000 what you will sell it for, then you should be hopefully within 10% of the rehab costs and the holding costs so as far as the $30,000 profit being acceptable only you can answer that.

There are so many ways to look at it.

What is your ROI? If all you are doing is putting $30,000 cash up front and making $30,000 then that is 100% and then you have to factor the time. If you do it in 4 months then that realistically is a 1200% annual return on your investment. Unless you know of any other investments you can put your 30 grand into and get that kind of return then you have to weigh the other investment.

I know lots of guys who would do what you are planning on doing for a $7,000 net return. To them 7K a flip is good money.

It's up to you, nobody can tell you if it's worth it or not but yourself.

Grumpy

Mike I appreciate your input and I understand what you are saying. After inputting the numbers I realize that 30k may be unreasonable since my purchase price will have to be extremly low to accomplish this.

Mike Finley

So what happened?

Grumpy

They wanted 185 which is what a fully remodeled condo is selling for. I offered 115.

Mike Finley

115????????????????? huh?

jmic

Grump,
Sounds like you didn't get it. Do you know what it went for? Just curious! Oh yeah did you research to see what they paid for it?( the people selling it now)

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Grumpy

Mike, $115k is fair in my opinion since the unit is totally original and requires alot of work to bring it up to date. As far as I can tell NOTHING has been changed ever. $185k is unrealistic and they will never get it. If they do I am selling my unit for $215 instead of $185.

Jmic, It hasn't gone yet they are still showing it. I saw people in and out all weekend. Nobody left with a smile.

The unit is an inheritance. The lady who lived there bought it for less than $60k many many many years ago. I know what all the units have sold for int he last 3 years since I have lived in the building.

Mike Finley

I understand, but if your market is anything like my market out here fair will never enter into it. Out here there would be an investor willing to pay cash for the place probably for $160,000. They might put in $7,000 - $10,000 and sell it themselves for a $10,000 profit or even more likely somebody would by it for $180,000 lease option it for 3 years and then sell it for a $25,000 or more profit. It almost virtually impossible to get a property for a 30% discount like you want, out here at least.

Hope it ends up working out for you, but it sounds like you're not going to get it if you are staring off that low.

Grumpy

I have to do what's right for my situation. I can't worry about how other people are doing it or I'll lose money for sure. It's probably impssoble here for a 30% discount as well, but again that's all it's worth. If anyone pays more then they are overpaying. What they are asking equates paying new car value for a very used car. Would you?

Mike Finley

Would I do some of the stuff that sesoned investors do? No, I'm not on that level. Would I pay more than 115 for? Yes. Realistically getting that place for $115 here would be akin to a once in the lifetime winning the lottery, the odds on it are so low I wouldn't even waste the time making the offer.

I know I could do a complete kick ass rehab on any condo of that size for under $10,000, including carpet, paint, and any remodeling, and I wouldn't require a $30,000 profit for less than 1 months work. If I was positive $185K would be the after fixed up sales price I would pay $150,000 for it. I would put in my offer as a cash deal, no financing contingencies, in fact no contingencies of any kind, I would offer to purchase it as-is, no inspection contingencies, a clean fast deal with a super fast closing with cash in their hands.

185K
-10K rehab
-8k selling commission (I have a friend who will sell it for 1.5%) The other alternative is I can pay $250.00 to have it listed in the MLS and only pay the 3% coop commission which would bring this down to 5K.
-----------------------
almost for certain a $15,000 profit for 3 weeks, 4 weeks of work tops. + in reality I would be looking at getting another 3-5% over the highest sale previous because of the brand new condition it will be in, so my profit would most likely hit closer to $25,000.

Anyways, that's the way I would look at it. I understand where you are coming from, but it's almost impossible to low ball a place anymore, there is too much cometition and most of the competition would be looking at it the same way I am or even worse for a higher offer price because of the other investment techniques they might bring into play. You say you can't worry about what others would do, while true you can't worry about it, but what others are doing is your competition and if you aren't competitve you are just spinning your wheels over the whole thing. I don't know your market so you might have a chance low balling it, but you wouldn't even get a response out here for that offer under similar circumstances. I would offer $150K for it and ironically my chances of getting it might be 50/50 if the stars are aligned correctly.

Grumpy

Mike I figured differently (I have a full page spread sheet I went over with my accountant) and if all I am making is $15k I won't touch it. Besides there is no way I am goign to get a kitchen AND a bathroom completely redone for 10k, and then add in the painting and floors and finishing touches. $10k is unrealistic. I bidgeted $30 but I know that is a very high estimate (better safe thans orry). Not to mention I have to own the property for 6 months (I don't know why but that's what several lenders told me or I pay a penalty). Actually I figured I will make 15k but so will my brother. Thus the total is 30k before we split it.

Since this is a side gig for me I have all the time to low ball it. From everything I have read or heard when it comes to making money with real estate: Rule #1 make lots of offers. Rule #2 don't make any offer you don't feel emberrased to make. Also since this is my first one, I want to make sure I have lots of cushion for those unknowns. On the second or third I can bid "tighter".