I would pass, it looks pretty thin even if the wholesaler’s numbers are right. If you pay 5 points on the loan plus costs you’ll be looking at 5K, plus say 3K of closing costs when you sell. So…
73K purchase price
5K loan points and closing costs
15K rehab costs
3K closing costs to sell.
97K Total
That only leaves you with 8K profit, and doesn’t even count other things like holding costs. Most likely if this is your first deal you will LOSE money.
I am looking at a HUD property being wholesaled by another investor. The comps shows that the property will sell for $105,000 and the asking price is $73,000, it will need about 10 - 15,000 in repairs. The question that I have is, will this deal work or should I let it pass. It is a really nice property with alot of potential, but I am new to retailing and don’t want to screw up. I will also be using a hard money lender for funding. If anyone can assist it would be appreciated
Mike gave you the details, but left out a couple of little things; your hard money will barely cover the acquisition costs. You would still need the $15k in repairs available to you from another source; cash or credit to pay for materials, labor, and incidentals.
So you have to get a hard money lender, have available the extra money to rehab, and monies available for any cost over-runs or holding costs; and hope your estimate of $8k doesn’t get eaten away by any or all of these things.
I guess I shouldn’t even mention that you might have to accept $100k instead of $105k if the market turns. No, I won’t bring that up because you are probably wondering if you would have to pay the closing costs for the buyer if they can’t do it on their own and you need to sell quickly. No, I won’t mention that because that means you have turned into what everyone is looking for; the motivated seller.
For a net 7.5% profit over the retail price, it doesn’t seem like it is worth the risk.
What was it that Mike said so eloquently in his sujbect change…? Yes, I will mention that; PASS!!!