St. Louis, MO · Member since 2019 · 52 posts · 7 votes
Hey guys I'm wondering about a few different finance options on a larger scale flip.
I found a 4 bed 2.5 bath on 6.8 acres about to go into foreclosure. It's been on market around 100 days, they're asking 115k for it. I think with the time on market and the amount of work needed, I'm thinking 90k for this property with around 70k in rehab.
It has the bones to be a great sell. The almost 7 acres, in ground pool, 4 car garage, but it needs work. Fencing completely replaced, garage needs to be rebuilt only the foundation is good, yard needs to be cleaned up. Inside is not terrible, but it needs to be basically gutted and updated.
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Will Barnard I appreciate your response but we'll have to agree to disagree.
Contractors should provide itemized bids - which is by far the easiest way to gather the cost of rehabs, and you should definitely negotiate or exercise your option to terminate if the rehab costs come in higher than expected. That is why we have an option period in Texas, to have a due diligence period (inspections, bids, etc.) to ensure there are no hidden or unseen issues.
I honestly don't know a single investor that would proceed with the same offer if the contractor/inspector told them there was an unforeseen issue that costs $40,000 to fix.
While this doesn't happen often, and our intention is to get it all right the first time, we can't be 100% accurate on repair costs all the time.
@Will Barnard I appreciate your response but we'll have to agree to disagree.
Contractors should provide itemized bids - which is by far the easiest way to gather the cost of rehabs, and you should definitely negotiate or exercise your option to terminate if the rehab costs come in higher than expected. That is why we have an option period in Texas, to have a due diligence period (inspections, bids, etc.) to ensure there are no hidden or unseen issues.
I honestly don't know a single investor that would proceed with the same offer if the contractor/inspector told them there was an unforeseen issue that costs $40,000 to fix.
While this doesn't happen often, and our intention is to get it all right the first time, we can't be 100% accurate on repair costs all the time.
You disagree with oranges when I am talking about apples above. I think we are more on the same page but you are misunderstanding my point. You specifically stated/recommended that an investor re-negotiate the price if the contractor estimate comes in higher than you estimated. This is where the knowledge of the investor comes into play and the bad rap for RE-trading based on simple errors on the part of the investor as opposed to renegotiating based on some specific item or items hidden from the original walk through. Obviously it is appropriate to re-grade if a hidden foundation, mold, major appliance, etc deficiency is uncovered during the inspection period.
I am fully aware of the TX option period as I have done many, many deals in TX. We have a similar “inspection period” here in CA for a contingency period on the purchase contract. But again, renegotiating based on hidden items is fine and appropriate, doing so because the investor could. not properly estimate rehab costs or because the contractor they selected priced things too high is not a valid reason to re-trade in my opinion. That’s all I am saying.
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
6y
@Will Barnard I agree but I still think an investor has a valid reason to re-negotiate if repairs/reno costs come in high, or exercise the option to terminate (in Texas you can exercise your option to terminate for any reason). Investors should do what they can to be as accurate as possible but sometimes things happen and that's why we have an option period. Investors get better (I know I did) as they do more deals and use the same contractors, so the uncertainty goes down. But to tell a new investor to not re-negotiate or exercise their option if their repair estimates are exceeded is simply bad advice.
I'll reiterate - negotiating used as a bait and switch tactic is unethical.
@Will BarnardBut to tell a new investor to not re-negotiate or exercise their option if their repair estimates are exceeded is simply bad advice.
You are misquoting me again, I Never stated that. I said I don’t believe it is good advice to tell a newbie investor to get some free quote from a contractor as a means to learn the costs of renovations and then back out using the option or inspection contingency because the quote came in higher than expected. I stipulated the importance of new investors finding a means to learn how to properly calculate rehab costs BEFORE they start making offers without abusing the valuable time of contractors expecting them to teach them for free.
@Will Barnard I appreciate your response but we'll have to agree to disagree.
But again, renegotiating based on hidden items is fine and appropriate, doing so because the investor could. not properly estimate rehab costs or because the contractor they selected priced things too high is not a valid reason to re-trade in my opinion. That’s all I am saying.