A lady called me a few weeks ago trying to assign a property. The property is in need of a major rehab ( everything ) but is in a historic part of town where houses can go for between 140k to 275k.
I did a walk through and determined it to be out of my league. This lady called me back and said she needed to assign this houe today or lose her money. Her original asking price was lowered and she has some one who can do the repairs for 30% less tan any other contractor. I looked this contractor up and found him to be a reputable contractor. Here is the details…
First list price was 68k
todays list price 58k closing costs included
contractor est. 55k can be finished in 2 months turnkey
Total 113k
House is almost 2000sf BTW
ARV is atleast 175k
I do know there are other costs but in general what do you think?
At present your offer is at 65 ARV which is certainly within the sweet spot of most hard money loan programs—is the seller is paying closing costs, I’d say you have a good deal…
sounds like a good deal to me but I haven’t seen the evidence. Has the contractor submitted a detailed estimate that he will commit to? Has he done this much work before? Does he have references. The work is approx 50% of your risk and unfortunately it’s the toughest to pin down. I’d add at least 20% to the work estimate based on what I know of your deal.
The question to ask here is WHY ISN’T THE CONTRACTOR BUYING IT???
If someone came to me with a $65,000 house that a “contractor” could finish for $55,000 (and remember HE’S making money at 55K) I’d figure I could have the work done for less, and double my money in 3 to 6 months.
Doesn’t sound right to me. No way as a contractor I’m not buying that RIGHT NOW!!! These types of homes are a contractors retirement pension. They buy 'em, rent them, and 10 to 15 years later they’re either sold or paying his country club membership or boat slip fee’s. I’m not leaving over $50K (potential profit after repairs) on the table after I do all the work. Somethings wrong here. And I guarentee if this contractor is as good as they say, he is buying it. My line of credit at my lumber yard is twice the amount this house is selling for.
I don’t think that is a valid concern. Contractors are not in the real estate business. He may not have the credit to buy it. Also his job is to do contrating. That is how he makes money to feed his kids. His kids may be hungry. He may have a car note due.
I’m not buying the $55k and done in 2months. If there is that much work be done, then his price estimate is well just an estimate and likely to be higher. Same thing for time. In my experience, contractors tend to toss out numbers and then bill you as it progress without little concern for what the original estimate/bid, etc was.
If nothing else, get a 2nd opinion from either another contractor so someone experienced doing a rehab of this size.