Arizona rehab loans: Why you need educated estimates

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Arizona rehab loans: Why you need educated estimates

Don’t take out Arizona rehab loans without a good sense of a flips after repair value or the cost of rehab.The following case of one hypothetical house flipper, who let blind optimism plunge him into the depths of a never-ending nightmare. This is the flopping zone.

Our hypothetical house flipper spies out a property at the edge of a pristine neighborhood. A cursory internet search about the value of nearby homes reveals the homes astonishing potential. Houses just a street over are selling in the mid threes while this little gem is only going for about a hundred K!

Dollar signs fill his eyes, getting greedy he plans a complete overhaul of the homes interior and gets an impossibly low estimate of 25 K for all this work, from a contractor he’s never met before.

On paper here’s what his deal looks like:

• Purchase:132

• Rehab: 25

• ARV: 325

• Time till resale: 6 months

• Loan amount: 170

• Interest rate: 11

Projected profits? 117,000 dollars!

Just look at that ARV, just look at the initial list price, just look at that rehab estimate. This deal is just too good to pass up, and our flipper doesn’t’t have time to waste checking reviews concerning his contractor or consulting real estate brokers.

Here’s what could happen if you take out am Arizona rehab loans based on an overestimated ARV and underestimated rehab cost.

Let’s see how blind greed induced our flipper into making two crucial mistakes, which accumulated into snowball of doom, which may or may not crush him.

His first mistake was that he rushed into the project with a contractor who gave him an extremely low estimate concerning the homes rehabilitation cost. Of course, said contractor held our flippers project hostage, inevitably demanding extra money after the home’s interior had been gutted.

In the end our flipper had to pay more than double the initial rehab estimate to another contractor. This rigamarole resulted in a months’ worth of extra loan payments. Not only that, the complete gut job our flipper undertook amounted to four months of extra work, meaning four months of extra interest payments but it all paid off in the end right? Wrong.

Because when he considered the potential resale value of his house our flipper made a crucial mistake, he never consulted a real estate agent. After work was finished his agent practically laughed him out of the office when he mentioned his intended list price of 325 K.

Why? Our flipper neglected to consider the busy road in front of his home.

Not only are homes on this given street selling for a lot less, they’re not even selling.

Call a realtor and find a reputable contractor before taking out an Arizona rehab loans

12 months later, the home finally sells let’s see how things played out for our poor flipper:

• Purchase:132

• Rehab: 65

• ARV: 250

• Time till resale: 12 months

• Loan amount: 170

• Interest rate: 11

Total profits? – 345 dollars. Our poor flipper barely makes enough money to pay his Uber driver, but he feels lucky to have escaped this nightmare without making a loss.

This whole nightmare could’ve been avoided if prior to taking out a loan our flipper had consulted with a realtor and checked into the reputation of his contractor. Thinking he could make big bucks he took out a larger than necessary loan and undertook a longer flip that he needed to. His initial inaccurate estimate meant he paid more in interest, as his project took longer.

Before you take on financing for rehab project do yourself a favor, get a good contractor on board and call a realtor because ARV is everything.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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