Hello everyone, I am working on a few deals right now, one of which I will resell for sure and the other I haven't decided yet. My question is... If I did decide to resell one or both of these deals to a rehabber how much should I calculate as profit for the rehabber when the property sells to the end buyer after rehab?
I have one property at the moment that needs A LOT of work so I assume the rehab will take 6 months roughly. If you were going to put 6 months of time and money into a property how much would you like to make on it? I am accounting for financing costs, closing costs and of course rehab costs. I estimate the rehab will cost between $80 and $95K. I'm not talking about a home run here but a solid deal for sure.
I am trying to calculate a fair asking price for the situation. Any advice will help!
Thanks in advance.
It is hard to answer this question with the information given. When selling to someone interested in flipping the property - most people also find fair prices based on % of ARV. Some markets people pay 60% and some pay 80%. The complex and expensive rehab will obviously play a role in this value
@Paul Wakim This is going that could have many answers, but I would say in general I would try to get the investors between a 10 and 20% return on investment. We factor in this return with the investor paying a 6% listing commission, so that return could be higher if they are listing the property themself. What we have found is even if you do market the property at 20% return, there are so many investors out there that bid it up to a 10% return that I would recommend doing it at a 20% return because your buyers will recognize you as a person that puts up good deals and you don't get a reputation as being a greedy wholesaler. As part of the 10-20% we do not factor in holding or finance costs, but we look at it that it is up to the buyer to make that determination of what their actual return is. Lastly, the most contested thing I feel that wholesalers and buyers will disagree on is the amount of repairs necessary to get the ARV that the wholesaler is listing so we simply give our buyers the comparables and let them determine the ARV themself. There is going to be a lot of differing opinions on this. Lastly if this is too complicated for you, then send it out to a few experienced investors that you know and ask what they would pay for the property. I know a number of successful investors that just put up their properties they wholesale auction style.
Casity, I like your Idea about ARV and allowing them to determine it based on the comps. Unfortunately, one of the properties I am working on is unique in that it has a lot of land in a great area but the structure is awful. Rock solid comps are few and far between.
@Paul Wakim If it is a basically a teardown then I would send comps of lands and developed properties if you even want to. Your target group is going to be very small, so you will want to just tell people it's likely a teardown so you don't waste your time with pretenders. Your end buyer will reverse engineer it to determine what is highest and best use whether that be hunting land with a shack or farmhouse with livestock. I would definitely make sure you give yourself twice as much time to unload the property and find out who is building or taking on large developments at your local REIA.
@Casity Kao Fortunately I have a few developers and builders interested. This specific property should turn out really nicely. Thank you for your help.
I am a flipper. I use HELOC funds so am "self-funded" - here is a recent average deal for me: I paid $100K in June, I sold for $161,500 in October, I did zero work myself, I pocketed $9500 after all expenses. At the same time I had another more complex deal going. I paid $80K in June. I sold for $185,500 in December. I did zero work myself, I pocketed $33,500 after all expenses. To be honest, I don't use formulas. I do the rehab math and figure ARV and then decide if it is something I can live with.
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