Why its critically important to estimate correct and NOT be greedy

[David Schach]

I was looking over some notes on a property that I missed on back in 2010 in a decent area of Oakland, CA. It was a a lead from a BP member that i wont name. He was trying to wholesale the deal to me and had a contract on the property (and as my notes state someone else was also trying to flip this contract as well, be careful of that. Person A was in contract at 290K and was selling it to me at 315K, Person B was also trying to pitch it to me at 339K!!!) At the end of the day I went around all of them and direct to the real estate agent that was listing the house. Also not a good idea to wholesale a property at 25K over the listing price when an agent just put it on the MLS. Anyway....

here are the notes from the wholesaler:

ARV - 525k

Purchase price- 315k, Rehab - 67k, Commission -26k, Escrow - 3k
Net Profit - 114k

Notice he has no carrying costs, but we can over look that for this post.

My notes had an ARV of $449K on the high side and with a worst case exit of $399K

We had a rehab of 50K, other figures not changed much.

Just out of curiosity I did a property search on this, I always wondered what happened to it. Well, it closed escrow at $290K, asking price. It has been rehabbed and was re-listed in Jan 2011, not sure list price. The price was lowered in March and closed escrow in June at $415K!!! YES... $415K nearly $110K less than the wholesaler estimated. He was off 20% and he didnt account for 1 year of carrying costs and whatever cost overruns there had to have been.

Moral of the story, dont get greedy wholesalers and never over estimate your ARVs to your buyers. Nobody likes to lose money. Just as an aside, we did make a written offer of $250K, that was our MAX we felt was possible given the costs and the highest potential upside we saw on the ARV.