My Dad always says, "What you don't know, and what you can't see can hurt you"
I need some clarification/guidance on what this process is supposed to look like.
Please critique the hell out of this:
- Find RE Agent
- Look for properties
- Walk through a potential deal, and estimate costs
- Make an offer
- Accepted - Due Diligence begins
- Confirm Clean Title, Wait for HML to underwrite deal, and get Home Inspection
- Everything turns out great, we close, start/complete work, sell, make money.
Assuming this is right, I have an agent who's been finding properties for me. However, I'm stumped at the estimate costs/offer part, and to a lesser extent financing as well.
On the one hand I kinda need to know how much I'm going to spend on repairing/renovating the property, but on the other the likelihood of a contractor looking at properties with me for free won't happen unless I have a property under contract. On top of that, with how hot RE is at the moment, if I include any kind of contingencies (Home Inspection/Financing) my offer probably won't get accepted.
As for financing, I have spoken to an HML, and a Broker - 18 lenders total. They all require an underwriting period to determine if they'll even lend on the deal, and do so based on the Asset unlike traditional financing.
So BP, how am I supposed to accurately determine (or at least ballpark) repair estimates, so I can make a sensible offer and respect my General Contractor's time?
For financing, am I on the right track with who I've talked to already, or do I need be someone who throws leverage to the wind and simply keep a fat wad of cash for PP+Rehab costs in my bank account until it's time to use and simply skip financing all together? Do investors really pay all cash for these properties, or are they simply referring to HML's when they say that?
Thanks for reading, and I look forward to your input.
Chritopher, Generally cash buyers may be willing to pay you to transfer you contract to them and they be the ones to actually buy the house but at a substantial discount from AVR values. I mean what they will want to do is take the money they pay you to transfer the contract to purchase over the them, add that to the repair costs and still be at least maybe 30% below market of ARV so they can make a profit after they sell the property to a permanent buyer. Everyone is trying to make money along the way and the end user or retail buyer is the one who pays everyone off in the end.
You mentioned waiting to save up all the cask to do it all yourself and that sounds doable to you but the seller may not be willing to wait for you. How much would you be willing to pay for the house in an as is condition? Then figure what you may be facing from the local municipality. Will they provide you with the time needed before they demand you get the repairs done to make the house livable and marketable? Some municipalities will allow you only 6 to 9 months. Wil this be enough time for you to raise the required capital. It is really nothing more than the standard risks flippers take in order to make a profit worth taking that risk.
You are considering the difference between being a wholesaler and being an actual cash buyer and flipper.
Typical wholesaler mentality says get the house under contract, get all reliable cost figures and present the deal to a cash buyer. If dealing with a contractor who will refuse to provide you with free and accurate cost estimates then you have to add that costs on your end in order to even work a deal out as a wholesaler.
It used to be contractors were more than happy to offer free and accuarte cost estimate but it would not be long before they figured out people were just using them and had no intention of ever hiring them and of course this cost in time and some labor adds up and people need to pay their bills so , no more free estimates, make sense?
I mean I used to work as a licensed contractor and for an estimate I would charge $47.00 per half hour of my time , still quite affordable if you ask me Plus that would put me first in line to contract with the cash buyer. However getting a cash buyer is by no means a guarantee so spending a little money is just the cost of doing business.
They say, " if you can't take the heat then stay away from the fire", in other words if you can't absorb the cost of doing business then you are in the wrong business, simple as that.
This is why I can't stand all of the jerks selling people on the concept that people can do real estate with absolutely no money, no credit, and no experience.
They say, "there is a sucker born every minute". but guess what even suckers deserve to be treated with dignity, respect, and concern for their interest. That is my take on it, anyway and how I choose to treat every one I deal with.
I have journey level skills in just about all building trades and I am an architectural designer so when I want to wholesale a house I am willing to join my fortune or luck with any of my cash buyers . I never, not ever just take the money and run and hide somewhere looking for a sucker, never. If yo do not want to pay a contractor to be a part of your team then take the time to interview a few contractors at their job site so you get familiar with typical cost to do things in your area so you get better at determining accurate repair costs. This is what we call investing in yourself. Even be willing to pay contractors to provide an education to you.
Another way you can go about this is to interview local architects in your area. They typically will get a piece of the action and get maybe 10% of the construction cost as part if not all of their fees. They are a good source of repair cost information as well as stuctural engineers. It may cost you some time before you find any architect or engineer willing to cooperate with you. typically you have tp pay your dues one way or another, but again this is part of investing in yourself. I mean there are also numberous repair cost books called construction estimating books but who in the world understands them and how accurate would they be in any particular case? Even when working as a licensed contractor those repair cost books proved to be absolutely worthless to me , but that is just my opinion.
Construction trade union offices and centers are also a good source of cost information as well as construction trade educators at schools and colleges. You can also take the time to interview people that are paying contractors to work for them. These people are often looking for or would welcome a shoulder to cry on and spill the beans on what everything is costing them.
Just suggestions . I hope you do not mind.
Your feedback is greatly appreciated Gilbert. Thank you for taking the time to reply, and may you have a great day!