Should I go under contract with buyer at early stage of rehab?

2 Replies

I bought a house 3 months ago with the intent to rehab and flip. It is in a highly desirable neighborhood and location in which few homes become available each year. I purchased the house for $320,000 and am doing a lot of the rehab work myself and with the help of friends who have appropriate licenses but can give me a great price and do the work at a slower pace.

Ive spent about $40,000 and have the plumbing, electrical, and drywall completed (among other things). I expect to spend another $60,000 in flooring and finishes to bring the total cost to $420,000. These numbers include carrying costs. I don't have a mortgage.

I think I will be able to sell somewhere between 525k to 600k depending on how the finishes come out.

Ive been allowing a few well known realtors in the area bring a few clients thru here and there. I have a buyer thru a buyers agent i trust who wants to make a deal in which I finish the house to specific specs and scope and they go under contract now at a price we could agree on. Do you see any reason that i would want to do this?

I am at least 3-4 months out at the current pace I am at which allows me to save a huge amount of cost by putting in a ton of sweat equity.

What would a contract even look like for this scenario? All i can't think of is a builder situation where GC might build a house for a client to certain specs. But this is not something i am familiar with and I am not a contractor.

I am considering offering them a price to purchase the house in its current state ... unfinished and then they would take on the risk of having it finished to their liking by a contractor and I would take a quick profit. I am thinking of offering 460,000 as is. The catch there is that I know they will have trouble getting financing with the house in its unfinished state.

I am thinking my best bet is to just finish out the house and put it on the market this summer when the market is at its best in my market.

Any thoughts or advice is greatly appreciated!

What's the saying - a bird in hand is worth two in the bush? If the specific finishes don't negatively affect resale value in the event the contract collapses, locking in now at a price that meets your numbers sounds like a good idea. No guarantees on what things look like 4 months down the road. Good luck!

@Michael Hunter Building a home to buyer specs and dealing with their expectations is a whole different business than rehabbing. You should be an experienced building contractor to do that. It could really go south.

Your idea of setting a current value and selling is good. They may feel some attachment to the property that would draw them in to that.

But while @Mike M. has a point, you know the numbers and own the project. If you are confident in those numbers the market isn't going to change in the short term...hang in with your original plan. That's a sweet little take.

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