Deal or No Deal? (I need contractor & cash buyer perspective)

1 Reply

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!

@Morgan Pen depending on what area you are talking about in Atlanta, an $700-$800k renovated house is going to have nicer finishes. Your construction prices are too low, to rehab the existing space you are probably looking at $80-$100/sqft depending on what finishes you have to use, how many baths, etc and $140-$170/sqft for the addition again depending on finishes, baths, etc. by the price point I am assuming maybe you are in Brookhaven, Ansley Park, etc and in those areas you will need nicer finishes