House #45: The WI-3 House

February 14, 2013 · 8 comments

We got our third house in Wisconsin under contract to purchase this week…

Apparently, there were 8 contracts before ours, all of which fell through. I guess most investors don’t like major structural issues. While my partner and I haven’t actually seen the house yet, our agent in Milwaukee gave us a good rundown of the property, and it included two foundation walls caving in. We had our foundation guy out to the property, and he determined that we’d need to excavate the exterior of two walls, straighten them and then brace them with steel beams. All for about $13,000.

Actually, it’s not as expensive as I was expecting, and assuming no other surprises, it should be a decent deal. In fact, there’s a reasonable chance we’ll do the foundation work and then try to wholesale the property to another investor to complete the rehab and flip it himself — it appears a lot of investors are interested in the property, but none of them want to tackle the foundation stuff. We’ll have to evaluate the various exit strategies (wholesale, rehab, etc.) after we see the place.

We’re buying the house for $94,000, the resale value after full renovation is in the $165-180K range, and I’m guessing we’ll have about $35-40K in rehab to get it to that resale value. But again, I haven’t actually seen the property yet, so who knows. It’s a bit of a risk, but even looking at the worst-case numbers, we should turn a profit.

We’re purchasing the property next week, and I’ll post more in about two weeks when my partner are up in Milwaukee again…

8 responses to “House #45: The WI-3 House”

  1. scott says:

    Those numbers are a fair amount above a 70% of arv minus repairs. Curios what you are utilizing currently to determine MAO. I understand you have not seen the property yourself, as of yet.

  2. J Scott says:

    Hey Scott,

    I’m not a big fan of the “70% rule”…I much prefer to use actual numbers to do the analysis. Here is the formula I use:

    For this property, ARV is about $175K, purchase is $94K, rehab is about $38K, our fixed costs are about $17K, so our estimated profit is:

    $175K – $94K – $38K – $17K = $26K

    That profit is about 15% of ARV, which is the minimum benchmark we try to achieve.

    The problem with the 70% rule is that everyone’s fixed costs are different; with our low fixed costs (since we pay cash), the 70% rule would miss a lot of deals that would work for us.

  3. scott says:

    I agree related to the 70% rule. I use that more as a guideline as it is too constrictive on higher price point homes and also not very appropriate for ARVs under 100K.

    I use it as a guideline and then use the project specifics to adjust and determine if it is a project I want to pursue.

    The fact that you don’t have a cost of financing is certainly helpful in terms of your ability to pursue some projects that would be too skinny for someone paying interest or points.

  4. gordon says:

    Can you find me a property that I can fix n flip? I dont want a cash flow property. I want to find a house that I can fix then sell within 60 days. I want a house that costs less than 100k.

  5. J Scott says:

    Hi Gordon –

    There are a lot of people who are looking for exactly what you’re looking for. I’d love to be able to find everyone properties, but I have enough trouble trying to find enough for me… 🙂

  6. Dennis says:

    J Scott

    Is that $17000 fixed cost a result of 6% (typical) commision, 3% seller paid buyer’s closing costs, and 1% for title, seller closing costs, etc ?? 10% total, as a rule of thumb ??

    I think that you have the benefit and experience of multiple rehabs so that you can estimate repairs much more accurately. I find that to be one of the hardest parts to insert into the calculations. And, of course ARV~~ in a turbulent market, can be a challenge.

  7. J Scott says:

    Hi Dennis,

    10% is pretty consistent for us, for both Atlanta and Milwaukee. On our Milwaukee deals, it’s breaking down like this:

    – 5.0% Sales Commission
    – 1.0% Seller Concession Towards Buyer Closing Costs
    – 0.5% Seller Closing Costs on Purchase
    – 1.0% Seller Closing Costs on Sale
    – 1.0% Holding Costs (Utilities, Insurance, etc)
    – 1.5% Property Taxes

  8. Renae B says:

    I live in Milwaukee; I’m shocked to hear about all the deals people are finding here-since I’m learning solo, I haven’t found any, nor do I know how to look!

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