Analysis of a Hard Money Loan Deal

Analysis of a hard money loans dea

Analysis of a hard money loans deal

A real estate investor submitted the following hard money loan deal for consideration:

  • Residential single family house, 3 bedroom, 2 bathroom, built in 2003, bank owned foreclosure (REO)
  • After repaired value (ARV) = $65,000
  • Estimated repairs = $5,000
  • The real estate investor intends to offer $40,000

I don’t have to run the numbers to tell that this deal is too thin and that the real estate investor should offer a lot less on this REO property.

A quick check of the recent comparable sales (comps) in the MLS indicated that his estimated ARV (future market value) of $65,000 was a valid number.  There are houses currently listed for sale in the $110k-$120k range, but the only properties that have sold in the past 6 months were foreclosures which brings the ARV down.

I assumed that it would take the real estate investor 6 months to turn the property around from the time he purchased the property, completed the renovations, found a buyer, and got the deal closed.

Estimated Sales Price


Purchase Price


Rehab Costs


Loan Origination Fee


Closing Costs (buy)


Holding Costs (interest $42k @ 15%, $525 month x 6 m)


Holding Costs (taxes @ $1,700/yr, $142/m x 6 m)


Holding Costs (utilities, maintenance, yard, $50/m x 6 m)


RE Commission (sell, est 6%)


Closing Costs (sell, est)


Total Purchase, Rehab, Holding, Selling Costs


Estimated Net Profit


That’s a pretty skinny deal.  The RE investor has no margin for error here and it’s a lot of time, money, and effort for very little profit and a lot of risk.  Could the investor sell the house for more than $65k? Maybe, but in the absence of any recent comparable sales to justify a higher sales price, you can’t basis your analysis on the hope that you’ll get a higher sales price.  Could the house sell in less than 6 months?  Sure, but the average days on market (DOM) in the area is  about 70 days, add in 2 to 4 weeks for the rehab, and 30 to 60 days for the buyer to get financing and you are at 4-5 months from start to finish.

The only way for this deal to make sense, is for the real estate investor to acquire the property at a much lower price.  As the saying goes, “you make your money when you buy, you get paid when you sell”.

Welcome to Atlanta Hard Money Loans

Welcome to Atlanta Hard Money Loans