Finding a San Jose Fixer Upper in San Jose is harder than finding a honest Wall Street Banker! But let’s assume you were able to find a Fixer Upper from REOs or Short Sales or at the Court House Auction. These are the top 5 questions you need to answer before you sign your name on the dotted line find a purchase it.
1) Get Repair Costs: Unless you a savvy flipper or a contractor you will be very reliable estimates for your repairs since majority of people underestimate the cost of repair. Allocate 20% for contingencies since you will run into repair needs that you were not anticipating. And finally make sure you include the costs and time allocated with getting Building Permits pulled from the City where your flip is located. If you are new to the flipping properties, you should get at least bids from multiple contractor and you will be shocked how they will vary even though they would be doing very similar work. You can also use the size of the property to come up with very appropriate
2) Determine Holding Period and Costs: Once you have repair costs and the estimated calender to get the repairs completed, you need to estimate your holding costs till the property is re-sold. If you are using a Hard Money Lender and they are charging you an annual rate of 9%, you should allocate 3 months of interest that will take you to rehab and resell the property.
3) Determine After Repair Value (ARV): Determine the resale value of your Fixer Upper before buying it. property. This will also help you avoid over-building on that street. Make sure your realtor finds the MOST expensive home that’s sold on the same street where your fixer upper is located. You can will need help from a realtor to find you remodeled comps that have sold in the last few months with similar floor plan, age, and proximity to your investment property.
4) Sales Cost: Allocate at least 3-4% of the After Repair Value to sales commisison. We offer our investors discount on listing their fixer upper after they have been remodeled.
4) Determine your Maximum Offer Amount (MOA): Once you have your repair, holding costs and your After Repair Value you can use the following formula to determine your MOA.
MOA = (ARV x 75% ) – Total Cost
For example if you are purchasing a fixer upper for with ARV = 1,000,000 and your repair costs are $100,000 you should not be paying more than
$650,000 to purchase this fixer upper.
Do you use a different formula that has worked for you!? Let us know.
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