Timeline of flip purchase?

5 Replies

Good afternoon BP,

I am looking for my first deal to flip and I was hoping to get some clarity around the early stages. 

If you’re acquiring a property from a wholesaler, do you typically have a contractor ready to go with you when you see the property the first time to do a scope of work and verify rehab estimates? I know there is a limited window of time because the wholesaler has a set amount of days to back out of contract if they don’t find a buyer, so I know there is a need for speed. 

Is this the typical first step or so you go in and eyeball the repairs with a small scope of work to ourself and bring in a contractor after you sign to get more specific? 

Would appreciate any feedback as I am trying to do my diligence and be as prepared as possible for when that first deal is found. 

Thanks!

@Andre Watts A vast majority of the time, the wholesaler's idea of rehab costs is absolutely worthless.  What you have to do is find out how much the property is actually worth in it's distressed state.  

I would say, YES, you need a contractor to work with to put together a scope and cost ranges BEFORE you sign anything.  If you have the know-how, then do it yourself. 

Evaluating your deal is the key to success.  Here's how I do it:

  • Get good comps on the property.  
    • Don't use the seller's comps.
    • Make sure you consider age of the home and anything else that provides a comparable.  Ex. You can't compare a house that has a garage with one that does not.  
  • Find a retail target (a few recent comps that you can emulate). Create a target value for the property.  
    • Verify the retail probabilities with a trusted retail realtor. 
  • Work up the scope of work with the rehab costs.  
    • Ask the question - what type of rehab will it take to hit the target?  
      • How much will it cost?
  • Add in any holding costs, selling costs, taxes, anything else. 
  • Now, add in the return you require to make it worthwhile. 
  • Now you know what the property is worth to you. 
  • Don't pay more than what it is worth to you.  
  • It's always ok to walk away.  
  • Your success is determined by the purchase price of the distressed property.
  • Do Not depend on a glamorous retail sale at the end.
  • Do Not think you can "make" the rehab fit, or force it to work.  

Yes, this all needs to be done very quickly.  If you lose the opportunity because you couldn't move fast enough - then get better.  Don't kick yourself for not rolling the dice. Mitigate your risk at every opportunity.  But don't ever buy without knowing what your deal really looks like.  Don't let someone else make you hurry. 

If it don't make dollar$, it don't make ¢ents.

Hope that helps a little. 

It’s going to be difficult to find a contractor to walk the property with you before you have it under contract. You could try offering to pay him for his time to do so. Have you done any type of rehab work in the past? If not, see if the wholesaler would entertain a week long inspection contingency so you can get a contractor over there once you have it under contract. Either way, you can be sure that the wholesaler’s rehab estimates are low, so factor that into your initial analysis.

Originally posted by @Ritch Bonisa :

@Andre Watts A vast majority of the time, the wholesaler's idea of rehab costs is absolutely worthless.  What you have to do is find out how much the property is actually worth in it's distressed state.  

I would say, YES, you need a contractor to work with to put together a scope and cost ranges BEFORE you sign anything.  If you have the know-how, then do it yourself. 

Evaluating your deal is the key to success.  Here's how I do it:

  • Get good comps on the property.  
    • Don't use the seller's comps.
    • Make sure you consider age of the home and anything else that provides a comparable.  Ex. You can't compare a house that has a garage with one that does not.  
  • Find a retail target (a few recent comps that you can emulate). Create a target value for the property.  
    • Verify the retail probabilities with a trusted retail realtor. 
  • Work up the scope of work with the rehab costs.  
    • Ask the question - what type of rehab will it take to hit the target?  
      • How much will it cost?
  • Add in any holding costs, selling costs, taxes, anything else. 
  • Now, add in the return you require to make it worthwhile. 
  • Now you know what the property is worth to you. 
  • Don't pay more than what it is worth to you.  
  • It's always ok to walk away.  
  • Your success is determined by the purchase price of the distressed property.
  • Do Not depend on a glamorous retail sale at the end.
  • Do Not think you can "make" the rehab fit, or force it to work.  

Yes, this all needs to be done very quickly.  If you lose the opportunity because you couldn't move fast enough - then get better.  Don't kick yourself for not rolling the dice. Mitigate your risk at every opportunity.  But don't ever buy without knowing what your deal really looks like.  Don't let someone else make you hurry. 

If it don't make dollar$, it don't make ¢ents.

Hope that helps a little. 

Ritch,

Thank you so much, this is exactly the sort of insight I was looking for. It sounds like it is about speed, but not at the expense of accuracy. Appreciate all the information and will keep this in mind.

Originally posted by @Jen R. :

It’s going to be difficult to find a contractor to walk the property with you before you have it under contract. You could try offering to pay him for his time to do so. Have you done any type of rehab work in the past? If not, see if the wholesaler would entertain a week long inspection contingency so you can get a contractor over there once you have it under contract. Either way, you can be sure that the wholesaler’s rehab estimates are low, so factor that into your initial analysis.

Thanks for the words Jen! Yeah I could see that being an issue as few people will want to give something for nothing, it seems the best route would be to just try and improve my own ability to estimate repairs at first, then after getting it under contract to bring in a contractor and tighten it up.

Thanks

What Jen says is correct.  What you can do is identify a good contractor to do this, come to terms and agree how it will work. AND do this before you begin considering properties.  Also, line up your source for solid comps. You are creating the team before you have to make quick decisions. BUT dont jerk them around - they are KEY to your success.

Best wishes!