How to Make Offer if Cap Ex is Unknown

Question

Hi Friends,

I am looking to buy a long-distance property that, according to pics, needs some cap ex (plumbing, electrical, & roof). How do I go about making a fair offer if I don't know how much cap ex is? This is from a wholesaler, so there is a little time crunch factor. Thank you in advance!

Corby Goade · Answer

Retailers like supply stores won't refer you to vendors because they don't want to alienate their customers.

I don't mean to be a debbie downer here, but if you are thinking of buying a property in a different city that you haven't seen and you have no relationships with contractor and you don't have enough experience to estimate capex, it might not be the right opportunity for you.

I'm defintely all about taking action, but there are so many unknowns here and you are in a perfect position to get taken for a ride by a wholesaler or contractor.

The action I'd reccomend for you right now is to get out there and network with other investors and start developing relationships with people who you can either partner with or get referrals and advice from so that when another opportunity pops up like this, you can lean on their resources.

Best of luck!

Ned Carey · Answer

@Eimen Ung if you don't have someone in the area to check it out for you, you probably shouldn't be investing there. Out of state investing increases your costs and risk.

That said, contact a local REIA or Meetup group or even Facebook group and see if there is a contractor or someone else in the area to help. You could certainly hire a property inspector but that gets expensive fast if you don't do the deal.

Bill B. · Answer

Zero chance I’d be interested. You assume this was emailed to local investors as well correct? People who know the area, know the value, and have local contacts to do the repairs. Yet they didn’t already bite. I wonder why?

This is absolutely a case of “Don’t invest ANY money you can’t afford to lose 100% of…”

If it’s not worth driving/flying there, spending a week looking at properties and neighborhoods. Meeting the wholesalers/property managers/repairmen in person. It’s not worth investing in.

You’re pretty much hoping strangers on the internet aren’t out to rip you off, even by accident. And that they have your best interest at heart. First the wholesaler isn’t hiding defects, or inflating values. Then the rando electrician, roofer, plumber, etc etc you find don’t just take your money and do poor or no work. (Then what? Hire another stranger and hope the pattern doesn’t repeat?) Obviously you “hope” nobody says your place was broken in to and stuff was stolen and they’ll need more money. And you hope the PM you find is good and agrees you can charge what the wholesaler said. (Obviously he and the locals didn’t want it.)

I want to repeat the message of “Not trying rain on your parade.” Just trying to protect you from getting burned on deal #1 and losing too much to try again.

Adam Bartomeo · Answer

You can make them a fair offer and then during the due diligence period you will discover what really needs to be done. At that point you can beat them up on price, if necessary.

Eimen Ung · Answer

Thank you Corby and Kerlous for your advice. Getting estimates has been more difficult than I thought, and this is something I need think about.

Kerlous Tadres · Answer

Hey Eimen,

In my opinion, the best way to approach this would be to get a rough estimate of the repair costs. If you’re pressed for time, you can try reaching out to a contractor for a quick ballpark figure on the plumbing, electrical, and roof work. If that’s not possible, I’d suggest looking at similar properties in the area that needed similar repairs and using that as a guide.

Once you have an idea of the costs, subtract them from the property’s after-repair value (ARV) to come up with a fair offer. It’s always good to leave a little room for unexpected expenses too.

Eimen Ung · Answer

Thank you Ned for helping me out. The wholesaler did an inspection, so I know what is wrong with the property, I just don't know how much it will cost to fix. I called the hardware and plumbing supply stores to ask for a referral for a plumber, electrician, and roofer, but it was just a dead end. Thank you for the idea of contacting a local investor -- I hadn't thought of that.

How to Make Offer if Cap Ex is Unknown

Most Popular Reply