When wholesaleing, should the person with the contract inspect and have appraisal done?
Or should the person that accepts the contract have it done?
Asking from homeowner 165,000.
contract 135,000.
Comps not completely done but averages 85,000-150,000.
Area a little worn down, but growing about 4 blocks over.
In Miami, Fl
Doesn’t seem like a good spread but it is a start.
Do you drive a car or try on a dress before you buy it? This deal sounds shaky at best. A start to what?
Da Wiz
Wait a sec. I must be reading this wrong because this deal sounds like something that should NOT be done. Why would you try to sell a house for $165,000 in an area where the max value is $150,000?
Remember, a very common mistake beginning investors make is trying to create a market. They over improve the homes. If you go to an area selling $100,000 homes, and fix up a home with superior materials, etc and then try to sell it at $150,000, you will fail. The people that want a $150,000 home go to a $150,000 neighborhood. People that want a $100,000 home will look at your house.
Where is your profit in the above deal? You make your profit at the purchase, not hoping for the best when you sell. Always know your minimum profit when you offer and if you do more than that, that’s great. When you said “It’s a start”, if you do this deal like you’ve posted here, it will be the beginning of the end. You wil lose out and then lose interest in investing because you’ve failed. If you try to wholesale the deal, you will lose credibility with your buyers. This is what I get from your numbers:
Max after repair value sounds like $150,000 which may be high considering it starts at $85,000 but let’s use the $150,000. Your contract is for $135,000. Estimating low for 3% realtor commission on the sale that’s $4,050, estimate another 3% for closing costs that’s another $4,050. With this alone, your profit is $6,900. This does not include any repairs or updating, holding costs and if you use a realtor to market it afterwards, the 5-6% commission they will charge for the flip sale. An iffy $6,900 profit is not a deal.
I use the following formula when making an offer. I take the ARV less realtor commissions for both the purchase and the flip sale, less the estimated repair costs, less holding costs, and take 70% of the amount that’s left. That’s my offer price. This way I know what my minimum profit is up front.
To answer the question of wholesalers doing inspections or is it up to the buyer. If you want a good reputation then you will want to physically inspect the house. If you don’t, how do you know what your offering on? The buyer will likely do their own due diligence but it never looks good for you if they found something you didn’t. You’ll get a bad reputation for trying to sell shaky deals. Your buyers will likely do a lot due diligence when you first start selling to them, but as the deals pan out well for them, they will trust you more.
I always make the buyer do earnest money (in Texas it’s required) and they will pay for the appraisal if they want one. Remember, if you put up earnest money on the deal and your buyer falls through, YOU are the one that loses money. Not them. Establish a relationship with a good realtor and they will be able to give you good comps.
assuming you could get 150k, top of market, minus 6% commisions, you are at 141k. That leaves only 6k. That is before your purchasing closing costs, your holding costs, and repairs, etc. Most buyers want closing costs on the deal too! You are losing money!
DO NOT DO THIS DEAL! There is not enough spread.
Find a good Realtor who understands investments and work with a Realtor.
Jan