Appraisal and Home Inspection Before Rehab?
I am working on a deal where the seller is going to hold the note while I flip the house. In cases where there is no bank involved, would you get an inspection or appraisal prior to closing?
Tom
I'd likely get an inspection. Likely you have a good sense of the home's value or else you wouldn't be doing the deal in the first place, so an appraisal may be redundant if you're not doing any financing.
Be careful doing a rehab while the seller still owns it. Hopefully you have something in place preventing him from backing out of the sale once your stuff is done.
The seller will be acting as the bank and I will own the property. They could foreclose only if I don't pay. I told them I could offer them more money if they would hold the paper and not charge me any payments or interest for 7 months.
Tom
The fact that you're asking tells me that you're not confident in your ARV assessment or your condition/rehab assessment.
And, if you're not comfortable with those, you shouldn't be moving forward until you are.
So, yes, get an appraisal (for ARV, not current value) and an inspection.
I'd do an inspection for sure. I agree with @J Scott asking about an appraisal sends a signal you are not comfortable with determining the value of the property. I suggest you figure it out PDQ. An appraiser is not always correct. For instance, yesterday I had an appraisal come back well above (>20%) where I thought the property should appraise.
To be clearer it is your money so you need to learn how to determine the value of the property. I believe it is a necessity for flipping to at least get close.
J Scott
It's interesting you chimed in. The reason I ask about the inspection and appraisal is because both are listed on your project estimation spreadsheet. I figured if you did both before a rehab that I'd better at least check if they were needed.
I couldn't really think of a reason to do the appraisal since financing isn't involved. I guess I could see the point of the inspection just to make sure you caught everything on the walk through.
Tom
Originally posted by @Tom Scott:
I couldn't really think of a reason to do the appraisal since financing isn't involved. I guess I could see the point of the inspection just to make sure you caught everything on the walk through.
The only reason I could see doing an appraisal would be if you were unclear on the ARV. But, as Cal mentioned above, if you don't know the ARV, you're probably better off talking to a great real estate agent (listing agent) instead of an appraiser.
And yes, the reason for the inspection would be if you're not confident that you found everything and if you needed help putting together a scope of work...