I found a property located in a very wealthy area (Red Bank) that is an estate sale with highly motivated sellers that is being sold in "AS IS" condition. The sellers (of estate) need to push this property fast and just reduced the price from $520,000 down to $405,000 and wont really budge as they have to pay a REVERSE mortgage off. I have reviewed and verified three recently closed homes on the same street that were completely renovated but were similar in terms of size (within 200 Sq.Ft.) room count and lot size (as per city assessor) to this property. One sale was at $590,000, $625,000, $700,000 and the house next door sold at $665,000. My estimated cost to cure/repairs is estimated at $60,000. I am going to utilize transactional funding for this deal as it seems the best solution for wholesaling. I offered $360,000 and they laughed at me!!! What is the most I Should pay for this property as I want to make a minimum of $12,000 on the deal??? If I estimated the house at $665,000 (most similar comp) and use the formula of 65% of that would be $432,250 - $60,000 - $12,000 = $360,250. However, an investor (rehabber) friend of mine in the area says that his company does not do a deal unless they make a minimum of $90,000. In this case they could make ALMOST $150,000-$200,000 even it if pay full price of $405,000 as the formula does not appear to be consistent in this high end market. Somebody PLEASE help me to structure this deal, I don't want lose it. If I use the 70% ARV I could pay $390,000 . What would you do ? Thank you
You don't need the 65% rule for this exit value price point. My only other concern would be the average days on market for homes of this caliber in this particular area. if that is not a big number, most rehab buyers in this market would be very happy at 70%-75%. At full ask of $405k and $60k in rehab, plus your $12k fee, the rehab buyer would be all in for $477k which is 73% of an exit value of $650k which, based on your comps, is more reasonable, though it am basing that only off the 3 numbers you gave and not knowing anything about your market conditions.
Offer $395 and see what they say. If they take it, you could make $20k easily assuming that $650k and $60k rehab is correct.
How did you come up with the $60k rehab?
If $665K is the sale price, $405K is the purchase price and the property needs $60K in repairs, then the likely profit potential for a rehabber (figuring 10% of ARV as the purchase/holding/selling costs) is about $130K. If you subtract your $12K, the rehabber still makes about $118K.
This meets the criteria of your buyer, so assuming your rehab and ARV numbers are correct, it sounds like you can pay full price.
That said, if these numbers are correct and this is a publicly listed property, I imagine it would have been sold very quickly and wouldn't still be available. You should verify your numbers...
@Will Barnard @J Scott
Thanks a lot guys this is probably one of the hottest markets in NJ and is all driven by Wealthy New Yorkers leaving the city for a small city suburb with NY direct train line. The median home is $680,000 and the inventory is low right now with homes going in less than four months. The price on this property was reduced only 3 days ago from $499,000 and I jumped on it. It is an estate sale and they only need the money to pay off a reverse mortgage lien and are dumping it. My repair costs are always difficult as I got one estimate from another investor at $70,000 and another one who is renovating a similar home in the area is same condition is spending $56,000. Therefore, my estimates were based off of the estimates his contractor gave him. The house next door similar in size closed at $650,00, I need this deal to work lol. Thanks for all the help investor bros
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