Too Good to be True?

by Larry D. McGee, Denver Broker

No, such returns are happening every day in a narrow segment of the Denver real estate market.  Before you read on, be aware that there is work involved, and cash is mandatory.

Here is what is happening:

There is currently a seller’s market in recently foreclosed homes priced under $100,000 in Southwest Denver.  In most cases those homes are tired or trashed and need complete remodeling and updating.  After the work is completed those refurbished homes are selling for prices that net pretax profits of 20% per investment.  With a bit a effort and attentive scheduling, the original investment can be repeated 2 or 3 time during 2009, which would net a pretax profit in the 40% or 50% range.

These refurbished homes are selling quickly, usually under 30 days, sometimes in 1 day. There is a demand from first time buyers wanting the niceties of a new home, but unable to afford the $250,00 of the typical new home, if there were any available.

Hence, we have a market opportunity.

Real example of a house was purchased in September 2008 and resold before Christmas:

  • Rehabilitated Sale Price          —                                         $159,000
  • Seller concessions to buyer   —    $    3,000
  • Sale and Management Costs    —  $ 14,300
  • Acquisition Costs                           $ 99,000
  • Repair Costs                           —  $  21,700
  • SUB TOTAL                                    —                                    $138,000
  • Pretax Profit                                        $ 21,000

That actual scenario was accomplished in 3 months.