What Should I Sell This For??? Can I Get a Pro Answer?
Hi guys and girls,
So I have a pretty great deal. It's in a very desirable town and neighborhood. It's a 3 Br 2 ba and the lowest comp in the area is $335K and everything is averaging about 350ish. It needs new plumbing throughout, a new roof, kitchen update, 2 baths updated, floors and paint. The floor in one of the rooms is also slightly slanted. I don't know repairs but I estimated and hope 80K would cover that work and anything else necessary. It doesn't need to be gutted to the studs. I just want to know what I should sell this deal for. I could go with the 70% minus repairs formula and sell it for about $150K (that's also using the lowest comp and not considering that everything in this house will be brand new, a rehabber could probably pull the higher 350K) but at that number I'm making an insane amount of money for a wholesale, although I've heard of people making these profits on wholesale deals before. I just would like to know because even at the 150K mark, the rehabber is still going to have about a $105K spread before he pays everyone, I would think on a worst case he would pocket $60K after the transaction is done. Any advice is appreciated everyone. Thanks.
Yep let's break bread when you have time. But I feel like I have to first do lunch with Keith Lutz and Amit Patel. Will connect with all of yall during the first quarter of the new year. I promise!
Deshone, I just sent you the info on the transactional funding.
Ibrahim S I'm from the Midwest, but I lived in JERSEY CITY for seven years before moving to CA. Hurts my feelings a little that you think I'm anything other than an inner city NJ girl. If you don't know me by now, you will never ever ever know me.
Deshone Drummond I don't use any formulas or rehabber profit projections when calculating my sell price. I'm totally against providing repair estimates. All it does is open you up for scrutiny for that which you have little to no experience. I suggest getting the property under contract and into escrow and not offering it to your buyers until then. Offer it for a price that works for you and let the buyers do their own repair estimates and due diligence.
I suspect your repair estimates are off. You don't mention electrical or HVAC or windows or exterior. If there is an unlevel floor that you can detect with the naked eye, that's a foundation issue. Could be simple, could be complicated. Let your buyers do the work of figuring out what the issues are and how much they want to spend and how much they want to profit.
If you go to J Scott's blog and read about the WI-1 House (I think it's house #36), you'll see that repair estimates can be a moving target, and that's for someone who has done dozens of rehabs. His finished re-sell price is similar to your deal and his purchase price was similar to what you are thinking of selling for, but his projected profit is less than some rehabbers will work for in that price range. There's no slam dunk profit for any rehabber as all active rehabbing takes an investment (and risk) of time and money. So I suggest not using that thinking when calculating your sell price. Focus on what the market will bear and accept an offer that works for you.
It will be a great learning process if you let more than few rehabbers make offers. I can assure that the experienced rehabbers will let you have it when it come to their ideas about repairs. Many rehabbers are blow-hards and they will make up all kinds of stories about major repair costs to get a good deal. This is a good thing, because you'll hear all kind of stories about repair costs, but the bottom line is their final offer. If you get two or three different offers that are close in price, then you'll know whether or not your asking price is workable.
@J Scott and Will Barnard When you haven't yet bought many props directly from sellers, I can understand why you ask why the seller doesn't put it on craigslist and get more. All I can say is someday, after your marketing has brought you dozens of deals, you will understand. The variables and needs of sellers are not anything like making offers to banks on REOs and sellers on short sales. You'll just have to trust me on that one. Sellers are not always (rarely in my world) bottom-line, rational thinkers like yourselves Keep that in mind when they call you. :)
K. Marie Poe, excellent advice. I plan on having at least 6 rehabbers take a look at the property. Would you recommend that I try to find more? I will look for their feedback and respect it. When it comes to the repairs it's definitely speculation. I try to pick a number based on minimal work, moderate, and major. I hope 80-90k will cover it but if after showing this to the best players I know, I get different feedback, I left myself room to adjust. Thanks so much for the advice.
K. Marie Poe - I always enjoy your posts going all the way back to CRE from 2002- 2009 as you and I share a lot in the manner we run and market our business. You give GREAT advice here as always.
But I could have sworn you told me on CRE Online years ago that you grew up in Westfield. My mistake. Maybe I was discussing Westfield and you chimed in about Jersey City :)
In any event my apologies.
Originally posted by Deshone Drummond:
K. Marie Poe, excellent advice. I plan on having at least 6 rehabbers take a look at the property. Would you recommend that I try to find more? I will look for their feedback and respect it.
Just be careful of the low ball cut throat rehabbers who try to scare you into accepting their low ball offer. You really need to find out why that floor is slanted. Knowing will help you counter their potentially outrageous claims. For instance you want to comfortably tell them that the house is settling when they claim they will have to jack up the house and replace floor joists. An experienced rehabber (or wholesaler) you trust can tell you the difference.
But honestly with the potential profit involved I would wait til I got under contract and then hire a structural engineer. Or better yet hire a home inspector with a structural engineering background and get a complete report. Get written permission (via your contract) from the property owner to break through a wall or ceiling in the basement to investigate the problem. IMO the slanting floor issue, the response from the rehabbers on it and how you respond to them (knowledgeable and confident vs. 'I'm new and have no idea why the floor is slanted') will make the difference between a nice profit of $40k+ from a double closing and a decent assignment fee under $15k.
Ibrahim S
Originally posted by Ibrahim S:
K. Marie Poe - I always enjoy your posts going all the way back to CRE from 2002- 2009 as you and I share a lot in the manner we run and market our business. You give GREAT advice here as always.But I could have sworn you told me on CRE Online years ago that you grew up in Westfield. My mistake. Maybe I was discussing Westfield and you chimed in about Jersey City :)
In any event my apologies.
Thanks for the kind words IB. No apology necessary. That was just my attempt at drama queen humor, ala P. LaBelle. Jersey City is a little different from Westfield. I don't know why I think I deserve a merit badge for my years in JC.....but I do! Kristine-CA
Originally posted by K. Marie Poe:
@J Scott and Will Barnard When you haven't yet bought many props directly from sellers, I can understand why you ask why the seller doesn't put it on craigslist and get more. All I can say is someday, after your marketing has brought you dozens of deals, you will understand. The variables and needs of sellers are not anything like making offers to banks on REOs and sellers on short sales. You'll just have to trust me on that one. Sellers are not always (rarely in my world) bottom-line, rational thinkers like yourselves Keep that in mind when they call you. :)
I'm starting to realize that. Though as a logical person, I'm having trouble really believing it... :)
I will admit I have much less (very little to be precise) experience dealing direct with regular non institutional sellers, however, the experience i do have here in CA and in other states, sellers were typically overshooting values of their homes, very rare to find one that undershoots it by that much. That said, I do know it does happen.
Will Barnard Your comment illustrates my point. You think a seller that sells for less than what you think they can get is "undershooting" value. There are SO many other things that go into why they need to sell and money/valuation is only one of them. I bought a property this summer for $12.5K even though it was worth more (I sold it for $38K to a rehabber). The seller knew and didn't care it was worth more. She had special needs that required that it get sold as-is, with her crazy relatives using it for storage, and with back taxes and code compliance issues. She wanted her hands clean of profit, so she sold it only for the taxes she had paid for ten years. It had been deeded to her for safe keeping by the matriarch of the family. She repeatedly offered to deed it to the the heirs after the decedent died, as long as they would make her whole on back taxes. They wouldn't. She needed someone, a third party, who could make the paperwork and transfer smooth. We did it all by email and one phone call. She didn't need the money as much as she needed to sell to someone who would take on all the issues. That's just one example of many.
A seller with pie in the sky valuation usually has the luxury of time and resources that enable them to continue thinking their property is worth more than anyone will pay for it. When time or money runs out, motivation sets in.
Ibrahim S
Yep let's break bread when you have time. But I feel like I have to first do lunch with @Keith Lutz and @Amit Patel. Will connect with all of yall during the first quarter of the new year. I promise!
We do, we do! Why not get all four of us to sit down after the new year, or better yet maybe we should start a NJ BP meet-up?
Keith Lutz - I like your style. Let's ALL meet up during the 1st quarter of next year and discuss it!
K. Marie Poe I am fully aware of circumstances that would urge sellers to sell for much less than current value. i do it all the time with institutional sellers. We are actually on the same page here, I agree with you.
Ibrahim, Keith, & Deshone,
I DO live in Jersey City and would love to join your meet-up.
Hi guys!
Yes for sure Ibrahim, I would love to get together with you guys and talk Jersey real estate investing!!
Just let me know when and where and I willdo my best to be there!
Look forwarad to it!
regards,
Chris
So we've been progressing nicely (thank God) through this deal. So after careful thought and further evaluation of the property (it only needs about 60-70K in rehab work) I've decided to sell it to the person who it would benefit me the most to sell to. A local rehabber and I have formed a relationship and he understands that my goal is to be a rehabber. He's going to show me the entire process and in return I'll make sure he has a steady stream of deals coming in. We're actually going to be partnering on some deals where we come 50/50 to the table with money, I'll find the deal, and he'll run the rehab as he shows me the process so I'll be there most, if not all of the time.
So now on to the numbers. I have the property contracted with the seller for $100K. I have the property contracted for $150K with the rehabber, after he rehabs the property, he should easily get $350K in this neighborhood, as it will be the nicest place on the market. The house didn't need as much as we thought and the only contingency that we have is to inspect the underground storage tank. If it's fine, that's a huge blessing and that's what I'm praying and believing for.
So I'll keep you guys posted as we should be out of attorney review Monday. Thanks once again for everyone's help and advice. God bless.
Good job leveraging the opportunity you obtain
~ Make wholesale fund
~ Hands on-hand mentoring
~ Future equity partner
~ Foot hole connection with other potential investor/rehabbers
Thanks Jenkins, that's exactly how I was looking at it.
Hello everybody!!!!
Happy New Year to all of you guys and your families.
I have some pretty exciting news about this deal. The Lord is still working miracles. So I've been able to do a little more due diligence on this deal I locked up. It was in a beautiful town and I was using freedomsoft to give me comps. Well it ended up being way off because it doesn't take into consideration that this house is about 1700 square feet but it sits on about 3/4-1 acre of land. The highest and best use of this especially in this neighborhood is to build an addition. Then the ARV will be about $400-$425k. We're looking at about a $100,000 rehab.
I called the rehabber that wants the place and told him that with the higher ARV I'm going to have to raise the price a little. He said "no problem there's still room for you to go up but nothing crazy". Now I know I shouldn't be worried about his strategy but he said he's lined up a partner on the deal because its such a big project. As I explained in previous posts most likely we'll be partnering on some deals this year, but his profit is now going to be split in half.
So here are the numbers because I don't want to go too high unless you guys tell me that I should.
My purchase price $100,000
Rehabbers purchase price $165,000
Rehab $100,000
ARV $425,000
Potential gross profit $160,000
Now I know he's using a hard money lender but I guess as a wholesaler I can't concern myself with how much he's spending on financing that will affect his profits because I know other buyers that use private money that would love this deal. At these numbers he's getting the deal for about 62.5% of ARV. Do you guys think I should stick with this scenario?
Also even if he sells it at the worst case of $400k, he's still at about 66% of ARV and a potential gross profit of $135k. Good thing is his wife is a realtor and is going to sell the place for them which will save them 25k on commissions so I guess it does work out for him too.
Deshone Drummond, Incredible deal! If he is bringing in hard money, than why not partner with him now? Don't let him partner with someone else, this way you both make more, no? Start your re-habbing goals a bit earlier.
FYI - when all is said and done, I need to know the address, I was doing some Drive by's myself this summer and want to know the big fish that got away, if you know what I mean!
Hi Keith, the hard money lender is not his partner on the deal. Im not interested in being in for 6 months for a 3 way split. I'd rather get out in 2 weeks. The way this one worked it just made sense to work with this rehabber. It's an investment into my career, but I'll definitely give you all the details in a few days. Your big fish is on the way brother. God bless
Well you guys are not going to believe what's happened over the last 24 hours. The town that this deal is in is hot and the property the house sits on has a lot of room to expand the house, but that's not the point. I went to sit down with the realtor from the town thinking we were just going to develop a business relationship and I thought she was going to try to list the house and sell it as is. She also brought the comps. She throws a curve ball at me when she says that her and her husband want to buy it. She said their kids are grown and they are looking to downsize so they would buy this house and put their house on the market which is also in Westfield but in the higher end side.
She offers me $200,000 cash.
So on the way home after the initial shock I called the rehabber who I planned to sell it to and he said that they want the deal and will bring me in on it. He said that we could work out a profit split. So they would buy the property for $175k then work it out where I end up getting a percentage of the profits where it equals close to $200,000.
Now I told him I'm making a lot of money at this point. If I sell the house to an owner occupant who pays me $200,000 I blessed them because when they finish remodeling that house is worth close to 400,000 if not more. It's different with a rehabber, I do business with rehabbers, I have the utmost respect for then because that's where I'll be shortly, I feel a little bad. But I can't ignore that this woman offered me $200,000 cash and can close in a week.
So he said that the exit strategy could bring a higher profit because they're going to have a builder expand the house and hopefully get it up to close to half a million so he still wants the deal. And going with him I'm still learning the process, still can go to the job site and I'm doing a huge deal with someone that I plan on working with for years, although i get $75k upfront and have to wait for the backend profit. If I sell to the realtor, it's just one deal but its $100,000 minus me pulling the oil tank and title work. I need some opinions on this one. Thanks in advance. God bless.
Deshone Drummond Correct me if I'm wrong but didn't you tell the rehabber you were going to sell to him?
If you haven't verbally committed or lead anyone on, I personally (with limited knowledge of the situation) would go with the 75k upfront and profit on the back-end (as long as it wasn't a 5k difference). You could make more money that way and who knows, you might need some capital a couple months down the road.
Thanks Michael, I did say I wanted to sell the property to him and wasn't looking for any other buyers on the deal. I went to sit with the realtor to discuss an accurate ARV or so I thought. That's when she hit me with the 200k offer and I couldn't leave acting like I didn't hear that huge number especially since I didn't have a signed contract with the rehabber yet. Thats why i immediately called him to tell him what had just happened. But I agree with you. My only question is how to structure this deal now. Should I do a percentage of an unknown profit or make it a guaranteed $20,000 on the back end?