I'm a newbie and I have a newbie question. Okay, as you prob know, the "Sandy Houses" here on Long Island are going up for auction. The Big Tim Investors have been chatting about this like a bunch of old hens!! Anyway, A property close to the area of Freeport/Long Beach (where Sandy hit hardest) is not on MLS yet and was given to me. It's in a very affluent area, on the water, with great schools and all that Freeport/Long Beach does not have.
The realtor who offered me the property said that it needs one of 2 things. Either 100,000 worth of work or to be torn down and made into a mansion.
I'm wholesaling and I haven't come across this scenerio before. How can you run numbers taking off 100,000 for rehab?
I'll take all the advice I can get!!
Thanks in advance,
My advice comes from my experience flipping - I've done a mansion, and I didn't love it. It took a lot of time, took an enormous portion of my budget, and I could have done way better on 4 deals that were each 1/4th the size of the mansion and made 5 times the money.
Big houses have big problems. Don't know about the area you're at, but in my home town there's not a large demographic of people who can afford a mansion, so it also took a lot longer to move.
I agree with @Blair Poelman The bigger the house, the bigger the asking price, the smaller pool of end buyers you have...which means it will sit on the market longer which will increase all of your holding costs that on a property of that size won't be cheap!
As mentioned previously, there is a smaller pool of buyers. If the realtor has been in the area well before the storm, the realtor will be a good source for information.
I would think that you run the numbers the same as any flip. You have to get an ARV that is based on as much information that you can gather. You bring in a contractor, since it is a bigger than normal job and the disaster part, and work the numbers for rehab. You determine initial purchase costs and holding costs. The potential profit is then calculated.
There are two factors that are very speculative, ARV and holding costs. You will need to determine what confidence level you have in those and what happens to the potential profit if those number vary from predicted.
Some of the decision would definetly be based on your funding mechanism.
It would also depend on the exit plan. Funny about your chicken reference. It would be nice to get it under contract through the auction. Every auction I have seen recently artificially raised the prices.
I wouldn't always take a realtors advise on rehabbing, most I've met don't know half as much as an experienced flipper and they seem to like saying its a total tear down, I've proved them wrong before.
Wholesale it as land only, 100k is almost a complete tear down. Still it is the same number running, just input as MAO with 100k as rehab costs. Most of them, the numbers wont work.
Better check Flood Insurance, etc. Imagine, insurance is astronomical!!!
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