Please someone help, I recently started wholesaling and well I think I make a mistake on my first deal. The house that I have right now was a listed property and it was put under contract. Well, now everyone who has seen the property thinks that it needs too much work and I think Im going to loose my deposit. My question is how much work seems like too much work. The house is being sold by me for $119,900 and the ARV is $230,000. It is estimated to need about $20 - $25,000 in repairs.
119,900 + 25,000 is… hold on… let me get my calculator…
Dont forget your holding costs, etc., but if you find any more of these deals and are unsure, post the details here.
If it were me, I’d be jumping for joy – sounds like you may pull in a very nice profit.
From your post, it appears you have not closed yet. Make sure you get the home inspected by a licensed inspector prior to your close. If real contractors have given you the estimate (not just friends guessing at what needs to be done and the cost) and the inspection pans out with something you can live with; you appear to have done very well on your first property.
Good luck to you,
Well, you see, I am flipping the property and no one is biting and I have to close by next Tuesday. Everyone who has looked at it has said that it is just too much for them. I think Im doing everything in my power to find investers. I have an ad in the paper, theres an ad on this web site etc. I just dont know. Its very frustrating. I would think that someone would bite at it. Even if there is $35,000 in repairs needed they would still make a profit…right.
Just curious, some basic questions…
How did you determine it needs 20-25k in work?
How did you determine it will ARV for 230k?
The repair costs were given to me by having some contrators look at the property and the ARV was found by researching comps, calling FSBO’s and it was a listed property so the realtor gave us an estimate also then we took the average of them all.
Cool! Sounds like you did it right.
fwiw I don’t think the other fsbo’s and listings mean anything other then peoples hopes. All the homes could be listed for 300k, but if thier only selling at 250…
I’d guess you already knew that though Just making sure!
Comps is what I’m struggling with at the moment =/
You can sell this house …just not to a rehabber.
Run an ad in your local newspaper that says this:
GREAT FIXER UPPER!!! FIX THIS HOME AND PUT TENS OF THOUSANDS OF EQUITY IN YOUR POCKET! MUST SELL THIS BEAUTY WITH HUGE POTENTIAL! NO DEALERS! CALL NOW XXX-XXXX
This will draw excitement in young people looking to get into a nice home cheaper and willing to do the work themselves over a longer period of time … like after work and ect. Also try to meet with the potential buyers at the property and help them visualize what it could be. It helps to mention that you wish you could buy the property yourself because its such a deal. Also help people visualize the equity by saying… after you have it all fixed up real nice in a couple years you’ll be sitting here with alot of equity while your buddies are still paying interest payments on their new homes. You gotta make them see the light. Don’t tell lies or over exagerate things. If you do have bids from contractors on the repairs mention something like…yeah the contractor said it would cost 25K to do the work but half of that is labor cost…do the work yourself and cut that in half…more money in your pocket. And I would say a appraisal or two might make an impressive statement to someone. not just a Average retail value or fair market value. We want to know exactly what it worth if we’re going to buy it. One more thing is you could offer to finance your part of the commision you will make. say your gonna make $15K. If you postpone your payment for say 90 days then an investor will only have to invest $156K instead of $171K, hey that sounds like a better deal already!
If you were a rehabber would you take that 171K and rehab 3 small houses and make $20 - $25K per house = $60 - $75K return on the same money. Isn’t that a sweater deal? Sometimes, Its all about ratio’s and percentages.
ANOTHER THING IS… People compare the ARV as if the rehabber is going to sell the home for 100% retail value. Rehabbers don’t sell for 100% retail unless they owner finance the sell. Rehabbers want to move the homes quick once they are rehabbed… which means they are selling for 10% below Fair Market Value. So the 230K homes realistic value to a rehabber is 207K. That $25K rehab money is more likely to be 35 - 40K after all expenses. A real estate agent fee will be 12K, sometimes you have to use them to sell a house quick if your not owner financing and need your investment back soon. So we have 52K in expenses on a 207K property. Add the 52K to your price of 119K and we see it is actually costing an investment of $171K. Sell for 207K minus the 171K investment leaves $38K. 38K minus taxes leaves $30,400. or $40,000 if you don’t use a realtor. There doesn’t appear to be enough profit in it for anyone it looks like.
The house might just be in a dead resell zone right now.
How many times have you seen a good deal sit there for months or even years decaying even more until an offer is accepted or the thing falls down.
WHAT REHABBERS DON"T WANT-
To me…I don’t want to mess with anything that has exstensive decaying or rotting or sagging wood because you are just guesstimating repairs.
You never know what you will run into doing repairs. I’ve seen rotted wood just keep going forever and ever. You can’t nail new wood to rotted wood and if the house sells, there might be an inspection and if everything is not great and right then there are going to be problems re-selling.
Take a roofing job…looks like it just needs a new roof…at first!
Then there are massive amounts of wood needing replaced and uh oh… there are 4 layers instead of 2…the price just keeps going up.
So, alot of times people are scared off by alot of little fix ups or a few major fixups, especially since you can’t see through roofing or flooring to see whats under it before you buy it.
Another huge thing to stay away from is houses with flat roofs, especially if the roof is over 5 years old. Flat roofs cost big money to repair and replace and most people know this, thats why there aren’t many homes with flat roofs comapered to shingle roofs. Metal roofs are great but very exspensive to repair. Flat roofs are commonly found on $1M homes. They are good roofs if installed correctly but they are expensive to install a 30 year roof system. Since all roofing work is expensive it is a must to inspect a roof before buying any home old or new.
Thank you everyone for all of your help. You have all been very helpful. Too bad I think we are going to lose this property but I have learned a ton so its not a total loss. Thanks again.
If all of your numbers are correct, then the only mistake made was not planning on the closing IF you didn’t find a buyer. Always have a backup plan just in case.
What I would do at this point is ask for an extension to the contract (which you may have to put more $$$ down to get) and then try to find the financing. There are a number of options depending on your income and credit score. Worst case, you can get a hard money loan in order to close the deal and then refinance later to a more conventional loan if need be.
I disagree with Chex about “not enough profit.” Even using his figures a profit of $38K is pretty good. Even if it took a full 12 months to sell and you made $38K, you’d have made the same as working fulltime for $18.25 hour. That’s not too bad in my opinion.
Hope it helps,