Deal or No Deal? (I need contractor & cash buyer perspective)
Hi everyone, in talks with a seller (I'm looking to wholesale) that has a vacant house in an Atlanta neighborhood commanding $600, $700, + $800K. Hes asking for 400K bc of this. His house is 1,527sqft, in really bad shape (moldy walls, squatter damage, etc). This is my first potential deal and I could use some insight knowing that some construction estimates are needed to see if the numbers could work. Could you help me out and share your opinions? Deal details below :)
Current property: 1,527sqft | 8,000sqft corner lot | 1930s | ranch | 3bd 2ba
- Wants: 400K
- Still owes: $240K on the mortgage
- Condition: full rehab at the very least
- Comps: $260/sqft average across based on flip comps within a 3 block radius in the past 6 months
- Other Info: He received an estimate from a contractor to demo and build a 2,500sqft house for 285K, which is $144/sqft (homeowner says he will flip it himself if he doesn't get 400K)
The only option that I've gotten anywhere near an MAO of 400K:
- Adding on 1500 sqft (total of 3,027sqft)
- 3027 x $260 = $787,020 ARV
- $233,445 repairs/reno cost --> add on 1500sqft (@ $120/sqft in Atlanta) + $35/sqft to rehab the existing 1527sqft
- (787,020 x .70) - 233,445 = $302,469 MAO
My Questions:
- 1) If my future cash buyer is spending let's say $315K on the contract from me, $230K on the reno, is a retail value of 787K enough margin to be considered a good or even great deal? (rough profit of $242K aka 30.7% of the ARV)
- 2) If its a great deal, do you think a buyer would spend more than $315K to snag the contract? The seller is only going to budge for as close to 400K as possible.
Thanks!