I figured repairs based on 5k method (a/c 5k, kitchen 5k, windows 2.5k, interior repair,doors, and paint 5k, bathrooms 5k, and landscape and exterior paint 5k)
House needs a lot of work. Looking to flip to rehabber. Did I miss anything here? Owner is asking 125k (!) Thanks in advance. Rob
I should also mention the house is paid off completely. I know this deal is a long shot but with the work the house needs and the estimated ARV it is all I can offer her. I’m also new to wholesaling and view the experience as invaluable and want to make offers whenever possible.
I would not even bother with a property like this. First look at the gap between his asking price and your assessment of FMV. Secondly depending on your market gives an indication as to how discounted you need to be, so if your market is stable and appreciating you can probable still do well at discounting 25%, where in a falling unstable market you probable want to discount 35%!
Your method to estimate repair cost’s can make or break your deal, I don’t replace an HVAC unit on a fix and flip unless it needs it? I think you need to be a lot more precise in your estimate of repair cost’s as this can be the difference in making or breaking a deal!
I know as a wholesaler your not doing the work, but when you make an offer to seller that contains an estimate for repairs that may be inacurate, you increase the chances of getting that deal rejected because maybe seller was thinking as little as a few thousand dollars might have changed the deal.
Now remember in a $95k home were not talking fancy, remember to not over figure your repairs or over build the home as you won’t get those dollars back and as a wholesaler it can make or break your deal. I would recommend that you look at hundreds of homes in the price range you expect to wholesale in and take note of finishes, paint jobs, appliances, upgrades, accessories, etc.
Get a copy of Home Construction Cost Estimating by RS Means, this will help you better access cost’s and make sure you look at homes in your area not requiring repairs to see what’s selling in what condition and for how much?
It’s great to make as many educated offers as you can, so good luck to you.
Gold is right! It’s like the saying goes, “If it ain’t broke, don’t fix it.”. Maybe the A/C needs
serviced (since most HVAC systems aren’t maintained every year like they should be. Something
like this, will cost anywhere from $30 to $300 (depending on the company), vS $3k to $12k (or more)
for a complete replacement. Does the house not have an A/C?
I don’t include buying/holding costs, either, as that is not what you need to be worried about
and leave this for the potential buyer to deal with. If you don’t, it will confuse you like
there’s no tomorrow. The repair estimate needs to be revamped, in my opinion. When you come
up with a better amount that you can offer (MAO price), give the seller the offer anyway. All the
owner can say is no. Better yet, fax her a contract. If it comes back signed, you have a deal.
I hope this helps you. Have a great weekend. :smile
I like the fact that you know it’s a long shot but want the experience. Good mindset.
Here’s the “quick and dirty” formula for determining repairs: Property SQFT x $8-$10 = Estimated Repairs. If the house is bad, you can go as high as $15.
Example: 2000 sqft x $10 = $20,000 repairs.
Now, how to make a deal out of a no deal: You have two negotiation methods.
Wholesale Deal: You’ve got to get that property with with sufficient equity to flip to a rehabber. I don’t use holding cost either. Just ARV x .70 - Repairs - Profit = Offer.
Negotiate a seller carry at 80% LTV of ARV with a 5 year balloon with payments at market rents and a $5k down payment.
You can structure the deal using one of these 3 methods:
Lease Option
Agreement for Sale
Subject to
This will allow you to find a buyer for $10K down. You’ll make the $5K spread.
I agree with everyone but wanted to add this: ONLY deal with motivated sellers. And the primary way to tell if you’re dealing with one is to quickly determine if they are willing to give away free equity to you (assuming they have equity to give).
This seller clearly is not motivated. They’re asking $125k for a free & clear $95k house that needs a ton of work. Either this seller is in the twilight zone or your numbers are WAY off.
The key is to have plenty of leads coming at you. Eliminate the majority of them immediately, which will be non-motivated sellers. Only deal with the few motivated ones in the pile.
For example, I have an appointment today in Maryland to view a $250-275k house in very good condition. They will take $180k for it. Seller moved to Houston, is making double payments, and the house is sitting vacant. THAT’S a motivated seller.