Re: Flipping a Bank REO (JPiper) - Posted by JPiper
Posted by JPiper on January 19, 1999 at 21:34:11:
From a quick glance at your numbers it would appear that you have left out the profit for your buyer. Let?s assume for a minute that this profit is $20K.
It would appear if your numbers are correct that the repair cost is approximately $10K. Personally, I would not use 3 months for holding costs. My preference is for 6 months. Therefore, the holding costs might be something like $6000. There might be some upfront fees to obtain the loan for the new buyer. These could approach 10 points for hard money?..let?s use $8K. Selling costs are $9100 for a brokerage fee, and let?s say another $2K in other closing costs to be liberal. Then we?ve got your $3500 profit. The other real estate commission is paid by the bank, so is not an actual cost to you. Therefore total of all this is $58,600. This gives me a maximum offering price of about $71,500.
It?s possible that your buyer might take this deal on for less than $20K since the rehab is somewhat light. If this profit happened to be $10K as an example, you could go as high as $81,500K in your offer.
In fairness, I have some substantial carrying costs built into this?..hard money costs of 10 points and 14 % interest only payments. Again, use these costs with your discretion.
Your buyer may well be willing to pay more for this if HIS carrying costs are lower, or he estimates a turnaround quicker than 6 months, which would enable you to make more than $3500.
One other point. A bank may well not permit assignment?..so you may have to arrange a simultaneous close. Plan this accordingly.