I have a wholesale deal offered to me. It is on a busy street - 4 lane with about 30 cars / minute passing. Comps are 155 / sf. I am estimating 5% less on my ARV due to busy street. The deal does not leave me much profit if any - here is the catch. I have a great private lender and would like to get him paid and build the relationship. The rehab is simple and I am confident in my numbers. Should I risk not making a dime or even losing several thousand just to get this under our belt? I'm looking at this philosophically at this point.
A busy street can be a tough sell or to rent. Families with kids will likely pass on the opportunity to buy or rent. It might require finding that specific buyer. You would likely have to put in some good windows to drown out the noise of the cars.
The margin seems much to slim on that one. I would pass. That isn't accounting for closing costs either which leaves very little profit for you.
I know there are drawbacks - just wondering what they might cost in value or time to sell. Here are the numbers just for fun...
ARV - 236,000 (160/sf)
Buy - 170,000
Rehab - 25,000
selling fees - 17,000
8 months holding - 7200
Cost of $ - 16,000
That is about break even - would be fine if I knew I could get it just to make my investor money and open some doors. Avg DOM is 88 on all comps. Funny - only 2 comps on that busy street and they avg. 163/sf AND 68 Days On Market! Not enough comps on that street to draw a stronger conclusion.
I did a deal with a house on a busy street. It wasn't as busy as yours, but was also across from a high school. The discount vs. other houses off the busy street is more like 15% than 5%. The even bigger problem is just finding comps. Only other properties on that same busy street are good comps. You're also finding this, I see. In the case of this property, comps supported one number at the start (we were the lenders) but a far different number when we finally got the property sold. As in about $215K vs. $170K. A similar property off the busy street would have been more like $200K.
@Lance Gorton no way! Practice on a flip when the odds are tilted more in your favor. Unless, you are gluten for pain, punishment and the depletion of funds.
By the way, on my deal, my partner and I ended up losing about $2000 on this deal that took 15 months. We would have expected to have made about $25K over that period for the cash we had involved.
But that's not so bad compared to the rehabber. We believe he lost about $30K. There were other issues in addition to the busy street. The busy street was a significant factor, though.
Much thanks and respect to you all.
No way is my vote! If you do not find flips that you can make money on you will not need an investor! As an investor, I would not want to lend to a borrower that is not making money. Just my 2 cents. Be patient. The right deal will come along. On my first deal we looked at probably 20 house and made offers on several before we got the right one. On that one our Worst Case Scenario was that we broke even and target was $20,000. We ended up making $17M. Our patience paid off.
The only way we buy houses on busy streets is if it is a rental in a very sought after area.
Otherwise there is to much risk.
Just a thought you don't want your first deal with this investor to end being a bad deal with both of you potentially losing money. Be patient and find the right house to put all the odds in your favour for a successful outcome.
This post has been removed.
The deal does not leave me much profit if any
If you really have a good HML he will run the numbers and not do the deal. lts important to a good HML that you make a good profit. If your not making good money then what's the chances a year from now you will want to keep doing deals for free? It is more important to be substainable than worrying about impressing him. Just my thoughts
I hear what your trying to accomplish with getting into this deal to create the relationship.
Put all your cards on the table with private lender. If they see you are cutting it close, they could be more flexible with the terms... or they might not want to be in the deal period. If you are cutting the margin that close, then the lender might lose out also. It is always good to have someone check your numbers, having the sounding board has saved me $$$$$.
Originally posted by @Lance Gorton :
...The rehab is simple and I am confident in my numbers. Should I risk not making a dime or even losing several thousand just to get this under our belt?...
This sounds like the definition of a bad deal -- find a better deal to make money on. This isn't some sort of investment simulation funds to play with on a new brokerage account.
See if the price is negotiable with the wholesaler. Offer a purchase price that works for your estimates(I would agree the discount maybe more than 5% for the road). You could mention to the wholesaler that you think the street will be an issue in selling the house.
Houses that have been sitting for more than 2 months can be of limited usefulness, because all you know about those prices is what someone wants to sell for, not what someone is willing to pay.
The 70% rule(which may not be realistic) would mean you should be all-in(purchase and rehab).
No you'll lose the investor permanently if you don't make money on the deal EVEN if he gets paid!
If you are doing a deal just to make a lender happy you are doing it for the wrong reasons. This deal having little to no profit makes it even scarier. If something goes wrong and there's no cushion this happy lender will turn into a very unhappy lender.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.