First Fix and Flip Under Contract - Need Advice on Renegotiation

10 Replies

I've recently put a 2,888 square foot house in Seffner, Florida under contract for $150,000.00. I've gone through an inspection and consulted with a contractor, and frankly the property needs more work than originally expected. I feel a price renegotiation will be necessary. A conservative ARV is $230,000.00. Max ARV I believe due to location is $260,000.00. I expect the rehab to cost between $70-90k depending on quality of materials.

Thoughts on a target renegotiation price? Due to the large scale of the rehab, may it be best to renegotiate and wholesale the deal to a full time fix and flipper? Any input will be helpful.

@Jarryd Dalfino

Hm.  How many of these deals have you done, Jarryd?

From my experience, most contractors if they're looking out for their own skin will inflate construction prices.

Florida's likely to be different but 70-90k is a HUGE budget.  It would have to be a full gut job and entail quite a bit of exterior work to justify that.  Consider getting a different contractor?

The other consideration here I believe is that concessions for folks buying these types of deals are a risk.  When we buy a place with cash that needs a lot of work, part of the 'value proposition' to a seller is that we're investors so it's less likely that we'll want a bunch of concessions.  If something is there that we didn't see, we'll deal with it because we're supposed to be pros at evaluating deals...

I think that can help with the credibility factor when we come in with aggressive offers.

All this said, we had one deal that we backed out of because of some unforeseen regulatory items.  

If you've got language in there to do it and it'd be a big enough hit to you to follow through with the project, sure, do it.

Jarryd mind running through where the rehab costs he got are coming from to build it to that price?  Although with a house just under 3000 sqft I can see why the rehab can run so high especially if it has foundation, termite and the electrical isn't up to code.  Also one appraisal price will never be enough.. a minimum of 3.. but finding your own sub contractors and having them compete for the jobs lowers costs substantially.         

First you need to know your arv,  that is to much of a variation.  The market is to competitive right now, houses are getting 5+ offers on each one of them, you need to get your numbers closer before you do anything else.  If you can tell us what a few of the bigger priced items are we can give you a ballpark.  Hope this helps.

Based on those numbers there's no money to be made on this deal buying anywhere close to $150k.

@Jarryd Dalfino That's a huge rehab budget, have you done flips before? Might want to consider an easier one if this is your first time. I'd renegotiate as low as you can go. Point out everything little thing that you weren't expecting and offer 100k or less. The worst thing that happens is they say no.

I agree, your ARV spread is way too far apart. Is it a $230k house or a $260k house? Also is your rehab $70k or is it $90k? If your a cash buyer, the house is worth $260k all done and the rehab is $70k then your offer isn't terribly far off. If the house is worth $230k and needs $90k, you need to reduce your offer a LOT to make this any kind of deal.

I also don't know that you are going to be able to assign it to someone else. If it is that large of a rehab, there will be high costs no matter who the buyer is, and the big players will want a larger spread than I imagine your deal will offer.

@Jarryd Dalfino , based on those numbers, I would pay in the $70-80k range. $150k is entirely too high for this property

Hey @Jarryd Dalfino I would recommend at least getting 2-3 more bids from contractors as well. Some may have some inflated pricing. Have you also considered maybe doing some of the work yourself to reduce those costs and finding individual subcontractors for the other jobs that may be too difficult to do?

What area of Seffner is this in? Prices there fluctuate A LOT based on subdivision.

Hey @Jarryd Dalfino ,

Try getting a couple more bids ( preferably from contractors who have worked with investors in the past) and if they are itemized look at it in two part; labor and materials.  If your labor quotes are all coming in at about the same dollar figure see where you can get creative with the material budget.  Finding a better discount on flooring or fixtures doesn't necessarily mean any reduction in design or quality.  Buyers look a the whole package not the individual receipts. 

If the numbers still don't work for your business plan, and you have contingencies in your contract, ask for a price reduction based off the repairs.  Remember don't fall in love with the deal. If the numbers don't make sense, they won't make cents! 

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