I have a SFR tomorrow to go sign on that I plan to wholesale. My offer is 27,900 (3bed 1bath, 1266sqft). Would probably be a good place for a dueplex, there is a newly constructed dueplex next door. The county assessor says the house is worth 77,000 and the land 31,500. The house is in pretty bad shape and probably needs to be either torn down or completely gutted to the frame and then some.
So I need prof of funding, earnest money, and a cash buyer… where do I began?
Hi,
You have quite a few problems before you ever get to earnest money, proof of funds and a cash buyer!!!
Assessors evaluation of property value is no good, you have got to run comps using a realtor and sold, pending and listed properties within the last 3 months!
1266 sq.ft. gutted to the frame will likely cost $55 to $70 dollars a quare foot for a total rehab! That’s $70k to $90k just to rehab!
Tearing down a house of this size can run $5k to $15k depending on basement, utilities and access, and whether asbestos or lead based paint is present!
Rebuilding new same sized home $75 to $90 sq. ft. + Fee’s
This house has to be worth at least $193K as ARV / FMV in order for this to work!
$28,000 Purchase Price
$90,000 Rehab
$ 7,000 Closing cost’s, loan fee’s, points
$135,000 Cost
$ 58,000 30% Margin
$193,000 FMV / ARV
And if you tore it down and rebuilt the numbers are even worse!
NEXT DEAL!!!
GR
Thanks that helps, I don’t think the ARV is going to be anywhere near 200k. I just need to let it go.
How do you come up with those numbers for repairs?
Hi,
Today it cost's roughly $75 to $90 dollars plus per square foot to build a new home, this does not include land value, utility taps and fee's or carrying cost's.
If you have to gut an existing building to the frame you have demo cost’s, then all of the plumbing, electrical and mechanical has to be re-done to code and then the structure refinished. The fact the foundation and framing exist help offset cost, however you still have to demo out the property and prepare for reconstruction!
I have a construction background so I am converting by experience actual individual cost’s into a cost per square foot!
GR
I am new here but old to the game … both as a realtor and a flipper/builder. The realtor’s job is to work in the best interest of the seller (unless you’ve contracted with them as a buyer’s agent). So their job is to get an earnest deposit as strong as possible. I’d say $1 is plenty. Know that realtors HAVE to present and and all offers to their client as written. Remember, this is a buyer’s market so you have the strong position and can command the deal.
Secondly, I would suggest ‘partnering’ up with some carpenters that are out of work. Let them get paid as a percentage of profit so you can not lose (correction … so you decrease your chances of losing). Put together a team of carpenter, electrician, plumber, excavation, landscapers, painters, etc that will work together as a percentage of profit. Notice I put partnering in quotations. You want them to work as independant agents and not partners. Partners share liability.
Without seeing the property, I would tend to think you over bid for it. A $100k home upon completion that needs to be gutted to the studs is probably only worth $3k … if anything at all. Price out the land value and subtract the demolition cost (make sure you include permits). (if it contains asbestos … then ABSOLUTELY WORTH NOTHING!! … RUN LIKE HECK!) Divide that amount by 2 to figure selling and carrying costs. Multiply that result by 0.7 to figure a 30% profit … and that should give you the MAX purchase price. Divide that by 2 and make that your original offer. If you are down to a $3k offer, then it is probably not worth while being involved (30% profit of $3k is $1000 … Not even worth reading my post for that!
If it is bank owned, I’d put into the agreement that I’d buy it at $3k (example) and want a $60k rehab loan. You may find the bank is willing to do anything to get rid of it.
So … before you walk away from it … Shoot for the moon! (if the moon is out on that deal, that is)
In my beginning days, I had this issue also. If you have a for sure buyer, you may want to risk that money, but $500 is a lot to put up if you are not sure if your deals is going to close in a week. Its up to you, but there are plenty of deals that realtors offer and plenty of realtors that understand what you are trying to do and won’t ask you for that binder.
great advice from jimb, jimb i’m thinking of doing the same buying low renovate and sell high, Earnest money down assign contract for 30 days renovate for 2 weeks have your end buyer in place and BAM…
Its best to build a cash buyers list first when wholesaling. For POF you can use the POF letter on this site and for earnest money you should never mention it and should be able to do the deal with putting any money down. If they insist you can send a copy of a check to the seller and to the title company and state that you don’t feel comfortable giving money to people and would like for the mutual 3rd party company to hold it. If they still insist move on especially if you are wholesaling there are to many deals and way to wholesale without taking risk.