ive been talking to a few hard money lenders and private lenders and i wanted to clarify a few numbers.

i find a rehab property and negotiated a purchase price of $150k. comps show after repair value of $225k. rehab will take 2-3 months to complete. property will be refinanced conventionally after 3 months and exit strategy will be seller financed.

i found private financing for 90% ARV, 8-11% interest only, 3-6 points, 1-2 year prepay(can be bought down), FICO 620 minimum

$225k after repair value(ARV)
$205k private lender (90% of ARV)
$150k purchase price

$55k left for rehab funds
$20k actual rehab costs

am i on the right track?

I guess that depends on your score.We get 100 percent financing on a investor conventional loan no points,no prepay penalty,but you have to have a score over 720 and reserves in the bank or an ira or 401k to meet requirements.

Rehab almost always takes longer to complete than anticipated,we always put a buffer of 10 percent to offset repairs we can't see or contractors that turn out to not be the best choice.

I would say if you have to go that route and it makes you money,why not?We aren't really messing with rentals much right now until we build up enough reserves to handle the up and down cycles.

Don't forget your holding costs during those 3 months.

How did you estimate your rehab costs. Are you planning to run the rehab yourself or pay someone to oversee the rehab. Did you estimate the ARV?

I would take that deal in a second if those numbers are correct. Get in touch if you want to partner up on something like that. I'm looking for a new project.

this was just a hypothetical scenario. i just wanted to understand how the actual numbers worked using HML/private lenders.


paul
i didnt include the holding costs, capital gains tax, remarketing costs, etc. we will be hiring licensed contractors to do the rehab. we might as well get it done right the first time right? eventually id like to hire a superintendant on our team and just give them a % of the net profits. this whole week im itemizing pricing and contractor bids so i can better estimate rehab costs during an inspection.

aaron
yes ill be happy to contact you when we find a deal in so cal. right now we're just focusing on gaining more experience versus making a profit. im gonna send you an email shortly in regards to your terms on private money.

hey super!
thanks for the advice on a 10% buffer. we're looking to make a small 5-10% net profit doing rehabs right now. HML/private lenders wont affect our short term goals of gaining experience. we know the bigger profits will come later on. when we finish the project we will do a triple net lease from our own trust with a tenant buyer. we plan to offer them 50% potential appreciation and tax benefits since they are assuming full ownership.

Alvin,
If you want to do it right then get an experience general contractor on your team as a partner to run the rehab portion. This will let you concentrate on finding more deals. Subs are a pain and require constant supervision. If you do not have someone onsite overseeing the rehab who has authority to make snap decisions your schedules are in serious trouble. You also want the person there to have a stake in the project to watch spending.

Make sure you figure your holding costs and it makes better sense to figure your minimum required profit into the holding costs.

Paul is correct....holding costs need to be figured in to the equation; especially considering that estimated repair times are usually optimistic. 3 or 4 months worth of interest, taxes, insurance, HOA fees, utilities, etc can certainly affect the bottom line.