Close to 100% gross profit realistic on a rehab??

[JackIce]

Hello - I have a realtor who is telling me that I can buy a really run-down house for $50G, put $40G in it, then sell it for $165G.

Is this really doable? What is the typical gross profit from a rehab? I was kind of expecting only 20%, but if what he says is true, that's incredible.

 

[kir]

Sounds like a good opportunity to check it out further.

Maybe put in an offer conditional upon a home inspection and an appraisal, then you have to determine

the before and after repair value (don't trust the realtor).



If there are comparables to support 165, sounds like you might have a winner.

40K doesn't sound a lot in a rehab project. This sounds like a TV show.

But if this deal was real...make sure you have him (your realtor) on your team in the future.





Kir.

 

[TangoWhiskey]

I would say 100 % ROI is possible in some situations. My partner does it buying 2-5 plexes from bank foreclosure in his target market and going to the studs, renovate retenant refinance leaving him with a super cash flow asset (often 200$ per door), no money in it and a doubling of the money in a tax free process. Example - bought 3 pex for 40K, renovated it and put about 40 in it incl changing utilities to be total responsibility of the tenant, retenanted and refi at the new income leve with a valuation of 140. Refi for 80 % therefore cash back of 112 which means 32 K tax free and an asset cashflowing 700$ month as he pays no utilities. Awesome system. This takes him 4-6 months



But you need to buy at the absolute lowest discount price, which means assets that reflect that, and since he does much of the renovations himself his labour cost is not built in so his profit is really a salary plus compensation for risk. So your 100% is now after all labour costs starting with an asset that likely was not at rock bottom value - harder to pull off. Since 40K may not go that far depending on the asset and size it may be hard to see doubling for such a small outlay. Doing this relying on the income approach works but i"m not sure about SFH's.

 

[Thomas Beyer]

[quote user=JackIce]$50G, put $40G in it, then sell it for $165G.

Is this really doable?


yes in some instances (but not all) it is doable !



However count all costs namely:

a) closing costs: land transfer taxes, legal fees, travel time, appraisal, property inspection costs

b) holding costs: utilities, mortgage payments (if any), property taxes, security, insurance

c) selling costs: realtor costs, legal fees, marketing costs, 40%+ taxes on business income



Thus, 100% is usually doable only if you have a mortgage or line-of-credit, i.e. you count the true cash outlay only. Without a mortgage it is usually well below 100% cash-on-cash ROI .. but often still quite lucrative.