Georgia rookie investor, about to pull the trigger.....MAYBE!

Rehabbing & House Flipping
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Georgia rookie investor, about to pull the trigger.....MAYBE!

Brian Drawdy
Investor · Saint Marys, GA · Member since 2015 · 22 posts · 1 vote

Thank you all in advance for any input.  I have been interested in RIE for a long time, but I have always been too chicken to give it a shot.  I am trying to lock up a deal, and want some input as an exit strategy.  I want to do one or the other, and nothing else.  So if anyone can please tell me if I should wholesale this deal or fix and flip it?  Or is this not a deal and move on?  

Long story short: I drove for dollars, sent out some mail, and took inbound seller calls. I have a seller interested in selling. There is motivation. He is retiring, in his 70's and doesn't want the headaches anymore. He wants what he owes on the property, 62K, to sell to me. I am obviously going to talk him down, because he bought the property in 2004 for $65K and has rented it out for the past 14 years. So either he has refinanced, or something went terribly wrong somewhere, haha. He says he has put a new roof on and a new A/C in the past 2-4 years. He said a local realtor told him that the ARV is $125K. He believes the cost to do the flooring and paint and what-nots will be $15K, for a move in ready rehab. So, worst case scenario, purchase for $62K+closing costs+$15K rehab+$1K carrying cost=approx. $80K. Say that we get $110-$115K for the sale, and buyer pays closing costs, it's a sellers market right now. That is between $30-$35K approx. profit. Is there a margine for a wholesale profit, or should I take on this rehab myself? Is this a wise first investment? What should I do? Any advice would be super appreciated. I am supposed to talk with this seller on an appointment in less than 48 hours. Thank you in advance for any input. By the way, I love the Bigger Pockets community, and I look forward to contributing more in the near future.

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  • Kenny Lee
    Fort Worth, TX · Member since 2018 · 41 posts · 21 votes
    8y

    Based on what you've said, don't worry about what exit strategy just yet, but focus on getting a signed contract if the numbers add up.  And it appears they look good based on what you know and/or you've been told.....which leads to the next point.

    Do your own homework on both ARV and rehab costs. What you're describing is probably best-case scenario, not worst-case. Don't take an agent's word secondhand on ARV and don't take the owner's word on supposed rehab costs. They both may be right on the money, but best to confirm both numbers to a reasonable degree of probability yourself. If A/C and roof are good, it sounds like the rehab wouldn't be huge by any stretch assuming no structural issues. But $15K for any kind of rehab seems very minimal and there's more often than not other issues you will have to address that you weren't aware of. What's the square footage? That would give some idea of what a basic cosmetic rehab cost would be. Than add some contingency for other items along the way. $3-5K would be my norm.

    As far as exit strategy, again assuming your numbers are fairly accurate, I'd lean to wholesaling as-is if you can get anywhere close to what you would get post rehab. The first reason is time. You will be in and out quicker, have your money back to move on to the next deal, and therefore your carrying costs will be less as well. Secondly, you will be less likely to face appraisal issues if you're listing at or near the top of the market to get the ARV you need to maximize profit. For example, if you think you can make $35K post rehab if everything goes perfectly and you get the price you believe you will get, then getting $30K for a quick as-is sale (more than likely to an end user) makes more sense and takes away the risk of unexpected problems during rehab and/or the appraisal issues I mention. Not to mention when selling top of the market, you'll be more subject to inspection issues which could cost more money to fix or else a giveback to the buyer to compensate. You could always put it on the market listed as-is for, say, $95-100K for a week or two and see if you get any bites before starting a rehab. That would net you $30K+ and be pretty close to what you think you could net with the rehab.

    I love to rehab, but sometimes the wholesale/as-is listing is the way to go.  Either way, sounds like a really solid deal based on the info you provide, especially based on the cost.  Good find and hope it works out!

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  • Brian Drawdy
    OP
    Investor · Saint Marys, GA · Member since 2015 · 22 posts · 1 vote
    8y

    Kenny Lee, I appreciate your suggestions, and that would be great to get it wholesaled at that price, just not too sure if someone would buy it at 95-100K, but I never know unless I try. Would that require me to purchase (cash)the property as is in order to list it on the MLS? Or can I just lock it up in a purchase agreement? Thanks!

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  • Kenny Lee
    Fort Worth, TX · Member since 2018 · 41 posts · 21 votes
    8y

    You would have to go ahead and purchase the home, which you would end up doing in either case. Then just list it on MLS for a price that makes sense. Just guessing that $95-100K range. Basically you're listing it for what you would post rehab minus rehab costs and with an added discount. Think of it from a potential end-user buyer's perspective.....buy the house for $100K, put $15K into it (or less since they may do some of the work themselves) to fix it up. They end up with $10K equity right off the bat. Plus you make close to what you would have with the full rehab without the risk/potential hassles and issues.

    It depends on your area and the market there, but there are neighborhoods/markets here where that happens all the time because the area is flooded with end users.  Much of it also depends on the current shape of the home.  But if your $15K rehab estimate is anywhere close, it doesn't sound too bad. 

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  • John Webster
    Winston Salem, NC · Member since 2017 · 201 posts · 56 votes
    8y

    Great ideas. I would wholesale like others mentioned maybe more closer to 85,90 for a same day or week sale. Reason is for an end buyer most likely they arent going to flip, everything has to be perfect for them to make a decent profit no wiggle room for price reduction if needed. 10k equity to an experienced investor isnt much. I am thinking buy and hold or rental, end buyer. Def check arv, Dom and repairs etc like others said. Great find!

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  • Kuba F.Pro Member
    Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes
    8y

    For a $115K sale at a $65K purchase to another investor is pretty thin for a cosmetic flip, probably around 5-10K profit in the end.  I mean it's money, but if it takes 6 months to make 10K, then you're making something around $9/hr over the span of 6 months closing to closing (many assumptions made).  

    That being said, those numbers are still good for a first flip because if you're making a little bit of money and learning on an easy cosmetic flip, then that's a good way to learn without putting too much at risk.  

    On the other hand if you wholesale it and get it under contract for $60K and assign it for a $5K fee, then you take a short cut to getting to your $5K profit, but you miss the opportunity to learn the rehab part.

    As has been said before, verify your numbers...trust no one's numbers but your own, assume nothing.

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