Sure Need My BP members/friends (frustrated)
Wilmington, NC · Member since 2011 · 160 posts · 1 vote
Sure Need My BP members/friends (frustrated)
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Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13yIMHO, if you're told the owner you're going to pay him $35K you should buy it for $35K. Realistically, though, if you can't, or if that's a bad deal, you're not going to. Wholesalers should be upfront in my opinion that they actually have no intention of buying the property and are going to try to find a buyer. Yes, the contract you use is a purchase and sale agreement rather than the listing agreement an agent would use. But you are doing the same job.
Its essentially that you know the values for the area. And have a pretty good idea of the repair cost. Otherwise, its hard to know if you have a good deal or not. In this case, an investor is offering you $15K. You asking (guessing about your fee) $37K or some such. So that investor is telling you its worth less than half of what you thought. Now, that may be the investor trying to get an especially good deal. Or, it may reflect the true value vs. what you through. Likely some of both. Now you need to reassess your figures and see what you can do.
When an agent lists a property, they put down some price. Potential buyers make offers. Usually, the two agents do some of the negotiation. You're filling the role of both, so, yes, you absolutely have to negotiate with both the buyer and seller.
30 Replies
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes13y
Sorry, but what's your question here?
Is it really worth $35K plus your fee to an investor? Or is $15K a more reasonable price? Did you evaluate the comps and value yourself? Hopefully you're not just relying on an appraisal from the seller. Have you evaluated the repairs?
Or, is it that you just don't like negotiation? That's pretty much the job you signed up to do when you chose to start wholesaling.
- Wilmington, NC · Member since 2011 · 160 posts · 1 vote13y
Jon Holdman- to be honest I don't know what the question is. I am learning as I go along and getting great information. Yes I did evaluate the property. I guess my big concern is I offered the owner 35k. Aren't I suppose to honor that? I truly didn't know about the negotiating. Thought I'd find an Investor that would either buy or not at my price. I love learning and this is just a learning process
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes13y
Louise, you Have to know what the house is worth, so that you have an idea what you can sell it for, in order to make an offer.
The investor who looked at it, probably could tell you were new, and will go back directly to the seller later.
I get offers for half of listing price all the time, and I ignore them without a second thought, because I Know what the house is worth. - Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes13y
IMHO, if you're told the owner you're going to pay him $35K you should buy it for $35K. Realistically, though, if you can't, or if that's a bad deal, you're not going to. Wholesalers should be upfront in my opinion that they actually have no intention of buying the property and are going to try to find a buyer. Yes, the contract you use is a purchase and sale agreement rather than the listing agreement an agent would use. But you are doing the same job.
Its essentially that you know the values for the area. And have a pretty good idea of the repair cost. Otherwise, its hard to know if you have a good deal or not. In this case, an investor is offering you $15K. You asking (guessing about your fee) $37K or some such. So that investor is telling you its worth less than half of what you thought. Now, that may be the investor trying to get an especially good deal. Or, it may reflect the true value vs. what you through. Likely some of both. Now you need to reassess your figures and see what you can do.
When an agent lists a property, they put down some price. Potential buyers make offers. Usually, the two agents do some of the negotiation. You're filling the role of both, so, yes, you absolutely have to negotiate with both the buyer and seller.
- Wilmington, NC · Member since 2011 · 160 posts · 1 vote13y
Jon Holdman- I did evaluate the comps and value. That's how I came up with the numbers.
- Wilmington, NC · Member since 2011 · 160 posts · 1 vote13y
Wayne Brooks Jon Holdman- Thank you so much! I really think she could tell that I am new. I studied this process intensely before i decided to step out on my own, Not to mention I have you all who help me out tremendously!! However i don't know much about pricing repairs, but that is also something I studied. Im going to get what I asked for. I'll report back!
- Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes13y
Post the details (numbers not address) and let's see if we can help. What's your market/area? House size, condition, what repairs are needed? How much did you budget for those repairs? What's ARV, etc.?
- Residential Real Estate Broker · Bremerton, WA · Member since 2013 · 494 posts · 142 votes13y
I agree with Troy. I'm not a wholesaler. But I think there's some ppl here who may be able to help. Please do post some numbers. It sounds like Troy may be able to help.
Until and unless you are willing to learn the factors that determine both the retail value and cost of repairs your street credibility is non-existent.
You would be wise to hang with construction estimators or take class like the fix up class that Norris Group does in California. Since you are making offers to people who believe you can perform with money that you don't have, you are essentially misleading people, based on the way you are trying to structure your deals. Eventually, someone will call your bluff and sue you if you put them in a further bind based on your promises. I'm sure that's not what you want or intend.
Given that people often use the term wholesaling t mean bird dogging, you'd do we'll to find the investors and see what the expect prior to causing any serious trouble. When I met my hard money mentor 20+ years ago I could not longer pull the wool over his eyes and he was quite direct about values with me. There was no fudging and he called the shots, not me. A piece of crap house with a flat roof got hit harder than a cute bungalow because, hey, it's not as easy to sell and costs more to repair.
Don't kid yourself about values and costs. If you expect to make a (profit) margin because of what you know, you need to understand what value you add to to the formula not just guess. People may be counting on your (not forthcoming) money and may have made plans. You don't want that on your conscience, do you?
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes13y
Simply put, wholesalers should not be running around tying up property and making promises to people with zero capacity to perform. That is called brokering.
There have been probably 20+ heated threads about this same issue. Feel free to read through them. If you have no idea what the property is worth and the cost of repairs I am not sure how you arrive at a wholesale market price to investors.
- Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes13y
Louise Whidby you're aware of the 70% rule of thumb, right? You start with the ARV, determined by careful evaluation of comps. Then you take 70% of that number. Then you subtract the conservative repair costs. Then you subtract the fee you want. That what you can pay the seller.
Is the $35K number in line with that formula?
For a very low priced deal like this, that formula may be optimistic. That's because the profit potential isn't very big with that forumla. For example, let me assume you need $30K in rehab, based on teh "40 years without updates" implied by what you posted. Let me guess that you're wanting to make $5000. So, that puts the price to the rehabber at $70K. So, ARV needs to be $100K or better. Profit potential is about $15K. An unexpected $5000 expense cuts that by a third.
Now, if ARV is only $70K, 70% is $49K. Less the $30K fixup leaves $19K. That may be how your potential buyer is estimating it.
OTOH, its entirely possible you have good numbers and the investor is low balling you. That's just part of the business.
- Wilmington, NC · Member since 2011 · 160 posts · 1 vote13y
Jon Holdman @Joe Delia Stephanie Dupuis Troy Sheets
Indicated by sales comparsion approach
market value 66,000
x.65
_______
42,900
repairs - 2,500
________
40,900
my fee - 5,000
________
35,000
My view:
Bathroom & Kitchen tile needs replace
Leak in one bedroom
masonry work (minor)
front porch beamInvestor's view:
Louise: This is a good property, but it is in need of extensive rehab. The woman who lives there has been there over 40 years and I would say little has been done during that time. Bathroom/kitchen was probably updated in the 70s, but both need to be done again. Also, I actually forgot to check the windows, but the external doors were original, so the windows probably are as well. There is a leak in the ceiling on the 2nd floor and the roof has not been repaired. The ceiling would need to be taken down in basement, flooring would need to be replaced throughout the home and there is some masonry work (nothing major) that would also need to be done. Doors in home would also need to be replaced. Also, given the age of the house there is probably some electrical and plumbing work that would need to be done to bring the house up to current code. The woman also has a cat that has left its scent of pee throughout the home. Finally, given the leak in the roof, there is probably also a mold issue which could cost several thousand dollars to remediate.
I could offer you $15K for the property. - Real Estate Investor · Oklahoma City, OK · Member since 2012 · 81 posts · 20 votes13y
If you are sure of your numbers then you need to increase your efforts on marketing the property.
Get some more buyers looking at it.
Then if they all only offer in the $15000 dollar range you can be sure you most likely overpaid.
Explain to the owner as best you can. Try to renegotiate. If that proves futile, just bow out gracefully losing only your earnest money.
The sooner you handle this the sooner the seller can begin their attempts to sell again. - Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes13y
Just another view: You've only gotten one offer. I get lowball offers all the time. I only pay attention to them if all my offers are similarly low and no one buys the property. I sold a property last year for $36K. My asking price was $36K. I got two offers between $15-18K. And enough of them over $35K so I could select a buyer. The low ball offers were most likely from wholesalers. In fact, I know one was. And there was a long song and dance about repair costs from him. But who cares. I knew the as-is value was $36K or pretty close. And so did the buyers that were serious about getting it.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes13y
Originally posted by Louise Whidby:
Jmarket value 66,000
x.65
_______
42,900
repairs - 2,500
________
40,900
my fee - 5,000
________
35,000
My view:
Bathroom & Kitchen tile needs replace
Leak in one bedroom
masonry work (minor)
front porch beamOk, now I get it. I'm thinking you need more repair cost knowledge. At the very least you should use a much bigger repair number to account for your lack of knowledge. I just don't think there is any house that doesn't need a minimum of all new interior paint and flooring (either new carpet and vinyl/tile or refinish hardwood). Exterior paint sounds likely necessary. That's easily $5K (using cheap crews) without account for any real repairs.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes13y
Hi Louise,
A critical part is WHAT is the investor doing with the property??
There is rent ready and then there is resale ready.
I think your 2,500 based on what is said is way off and it's much higher. I also think though that there is a major difference between repair and replace cost for getting it rent ready for buy and hold investor and cost for a flip investor selling to a home buyer.
2 totally different levels of cost, repairs, and time needed to achieve the end result. For example a renter might put up with an older but functional kitchen and bath but a new homebuyer will not unless the price is really cheap.
Hope it helps.
One phrase for you to say over and over to yourself "KNOW your target investor".
- Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes13y
If the roof is still leaking, there is an unknown amount of rot in the house, and/or mold in the attic or walls. Which means your rehab budget is way off. That could be the problem.
I don't know rehab costs in your part of MD, here in the Northeast you can barely remodel a bathroom for that.
And I agree, one offer is nothing: go market to more investors and see what you get.
- Wilmington, NC · Member since 2011 · 160 posts · 1 vote13y
Ann Bellamy thank you
- 13yDerreck WellsPro MemberSpecialist · Pelham, NH · Member since 2013 · 547 posts · 269 votes
I tend to agree on the repair cost. If the roof is leaking and the shingles need to be replaced, you'll end up in the $5,000 range just on the roof. Then comes the floors, plumbing, electrical, paint, appliances, the beam could be structural on the porch, demolition of basement ceiling, repairing any rot in the attic, etc., etc., and I'd say you're in the $15-$20k range on repairs. Always assume high and call it $20,000. You have to consider electricians charge about $100 per hour, plumbers are close to that, and construction crews go about $65 PER MAN on the job. You not just paying for materials, you have to pay for the labor too.
Repair Costs = $20,000Next consider the fixed costs. Those would be title fees, RE sales taxes, agent commissions (times 2, when they buy and again when they sell), etc., etc., and you add about another $10,000.
Fixed Costs = $10,000Then comes the variable holding costs. That's the amount it costs to hold the property till it sells. How's the market in the area of the house in question? Do they sell quick or take 2-3 months. Consider mortgage payments, insurance payments, maintenance costs (lawn mowing, cleaning, etc.) and multiply them by the number of months the buyer can expect to hold the property for. I can't really estimate those without some serious research into your area, so I'll just keep that one high and say it takes 3 months to sell. That's $300 in lawn care ($25 per week to mow), $900 in mortgage, 1/4 of the annual tax bill (guessing here) $300.
Holding Costs = $1,500You're now up to $31,500 in associated costs to the buyer. Add your fee to that, and lets call it $35,000 in total costs to the buyer/flipper.
Now to me, $15,000 sounds reasonable. That's a total investment of $50,000 to the buyer, only leaving a $16,000 profit margin for their investment. If there are any unexpected issues (property liens, etc.) then that number will shrink. There's not much room there for shrinkage.
If you were to market it to a homeowner as a "Handyman's Special" for $40,000 or even $50,000 you might make a quick sale, but to an investor, it's not a deal. Sorry.
- Wilmington, NC · Member since 2011 · 160 posts · 1 vote13y
Derreck Wells-Thank you so much. It's a learning process and I thank you all for being kind enough to help
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes13y
Louise Whidby you have gotten great advice already.
I agree with K. Marie Poe you can't judge anything based on one offer. For all you know it is another newbie wholesaler that is just trying to get a great deal and doesn't know the value either. That was going to be my original comment until I read you analysis of the deal.
Your logic is fine and your calculations are fine. The problem is the repairs. I am in Baltimore too so I know NOTHING needs only $2500 in repairs. A property that is "Ready to Rent" probably needs that much.
The housing stock in Baltimore is old and from the description in the reply from the investor, this house is dated and needs a fair amount of work.
Now there is another factor others that don''t know the market haven't yet brought up. A $66K house is NOT a rehab to a homeowner deal. Right now there are not many homeowners buying in that range. The problem is that the people who can afford that range can't get financed.
That means this property is likely to go to a landlord. This means it will be evaluated by a different formula. Typically a landlord will want to be all in for $50K. In many areas of Brooklyn poss less. I have a deal I can be all in with very nice condition for $30K and I am going to pass and auction it off.
You can send me the address privately if you like and I can give a better comment on the value. I sell a lot of properties for $20K and under but in the right area someone should snap up a $35K house. Good luck - Ned
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes13y
Ned Carey Good point about some houses not being able to go retail. I work a few area where values are too low for anyone to get financed except the by the seller. I also work one area with lots of houses with wooden footers right to the ground with no concrete perimeter or piers. They've been there 75+ years and are fine but they are nearly impossible to finance since the Bubble. The days of drive-by appraisals are long gone.
Can you tell more about the auction process you will be using to sell the house you mentioned above? Do investors buy that kind of thing at auction? I have something to re-sell that I think would do well in an auction environment, but know nothing about how to set one up or what kind of service to use.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes13y
Originally posted by K. Marie Poe:
Can you tell more about the auction process you will be using to sell the house you mentioned above? Do investors buy that kind of thing at auction?Absolutely investors buy that kind of stuff. I just go to one of the real estate auction houses in town. There are four or five big ones in Baltimore. These guys do auctions just about every week.
Some of the auctioneers do foreclosure auctions on the courthouse steps also, but these are on site auctions. The bidders can go inside and inspect before the auction. I have sold a dozen properties so far this year by auction. Most in the $8k - $15K range.
I am sure Google will find auctioneers in your area. - Ned
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