A case study on 4800 Spring Meadow Cove, Austin TX 78744
The Spring Meadow Cove property was purchased on April 22, 2003 from HUD for $54,603. The property was built in 1984. The house was a 3 bedroom, 2 bathroom, 2 living areas, a dining area, and a 2 car garage. The house was immediately rehabbed and listed for sale at $115,000. It was sold for sale for $116,000. The repairs were complete by Remar Ministries. It required approximately $7,500 in repairs. The list of repairs included:
Drywall repair, Paint entire interior of house, Carpet, Rebuilding the kitchen countertops, rebuilding the master bathroom tub surround, new window screens, new ceiling fans, new garage door, new door knobs, and new rain gutters.
The repairs took approximately 2.5 weeks to complete. The tax appraisal on the home before the repairs was approximately $94,748. The after repair value per the appraisal dated April 19, 2003 was $113,000. The initial loan to value, based upon the appraisal value, was 56% (65K/113K). Below is a financial break down of the transaction. There were $2,612 in closing costs associated with the purchase of this property. Also there were holding costs of $975 per month for 5 months. The house was purchased using a “hard money” loan. The interest rate was 18% the total amount borrowed was $65,000
.The Maximum purchase price was determined by using the formula previously outlined The contingency factor should be added to the profit for this transaction because it is for emergencies or unforeseen repairs.
$Maximum Retail Value $ $115,000
(subtract the following)
– Purchase Costs -$1,000
– Rehab Costs -$7,500
– Holding Costs -$5,000
– Sales Costs -$6,500
– Contingency Factor -$5,000
– Profit -$35,000
$Maximum Purchase Price = $55,000
If the house was going to be held as a rental then it would need to be refinanced. If an 80% loan to value loan was used after closing costs and escrows TSG would have received a check for approximately $20,000 after paying off the hard money loan and closing costs. This property would probably be held for 5 – 7 years and then sold. If the market appreciates 3% – 5% per year (very reasonable appreciation rates) then this property will be worth between 132,000 to 144,000.
If this house were put on the Fast Sell Strategy track instead of the Rehab Strategy track it could have been sold to a rehab investor for $5,000 to $10,000 and the rehab investor would have used a similar formula to determine their profit potential.
Pictures before repairs:
Pictures after the repairs
We sold the house for 115K to an owner occupant with a 1st and a 2nd to us for 20K. They ended up losing the house in foreclosure on the 1st and my 20K second was wiped out! ((That SUCKS)). We made good profit and learned a good lesson about taking a 2nd behind an institutional 1st. Don't do it unless the profit that you get from the payoff of the 1st is good and you dont care about the 2nd. We could have reinstated the 1st but after they were 3k behind then it was not worth our while any longer so we just passed on it and moved on to bigger and better deals.
This was the only deal (1st and last deal) that I ever used hard money on and it was a learning experience as well. There was a tremendous lesson on who hard money really works in doing the transaction! For those interested please send me an email and I will lay it out for you.
As an aside the agent who I had worked with to buy the house ended up buying the house from the bank and went out and did the same type of transaction as I did! Funny how we even recycle houses in Austin!
Post your questions to the REICA board and I will answer some of them if any or send me a private email at Ron@theseaygroup.com.