How To Fund High End Home To Flip or Wholesale? Risky?

Rental Property Investor · Member since 2019 · 38 posts · 21 votes

I may be able to acquire a very nice property in one of the most desirable locations in the SE. The home was built in 2004 and needs little to no work, it is simply facing foreclosure. After running the numbers, there is potential to get the home around $900K with an ARV of $1.4 million on the low end. It could be a great flip or even great for both wholesaler and flipper.

There is a slim chance of getting this financed, but would love to know if this may be a multiple partner deal? Also, even if funded, there exists the possibility of the home sitting unsold.

If anyone has experience with the higher end homes and the best way to go about this one, I would be very grateful for the input!

@Will Barnard is the best at these deals and does amazing work. Perhaps he will have some insight?

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Greg Dickerson

Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes

@Wade Haldeman I have done hundreds of multi million dollar homes, spec, flip and custom.

You didn’t mention how much it will cost to get to a value of $1.4 that’s a big factor in profitability, funding and determining whether to flip or wholesale.

Definitely do your homework on the market as most areas in the SE are a little soft over $1 million right now but that’s market and location specific.

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Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6y
@Wade Haldeman I have done hundreds of multi million dollar homes, spec, flip and custom.

You didn’t mention how much it will cost to get to a value of $1.4 that’s a big factor in profitability, funding and determining whether to flip or wholesale.

Definitely do your homework on the market as most areas in the SE are a little soft over $1 million right now but that’s market and location specific.
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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Greg Dickerson I know I was a bit (or a lot) vague on the repair costs as I have been running numbers utilizing the calculators for a wholesale and a flip. My apologies. Here is a bit more info.
I went with the median ARV as it has much more square footage than neighboring homes. With ALL fees included, the following is what I have:
ARV - $1,600,000
Repair costs - $50,000
Investor/Flipper Profit - $500,000
Wholesaler Profit - $50,000
Max Offer - $918,000
I know those are rounded numbers, but I do have a great realtor who sells most of the homes in the community to do comps as well as overall market conditions. Plus, my brother has a home a street up and over. This area tends to be a bit independent of the rest of the area. It's very high end, close to everything, and near Biltmore Estates in Asheville. People are willing to overextend themselves just to get a home at the bottom of the hill. I'm just afraid the market will not hold up and could end up holding for some time. That I cannot do, but there is plenty of profit for the flipper.
The home needs very little unless a plan to change the layout is in order. However, the home takes up much of the property and I don't believe it needs to be changed.
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Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6y
Originally posted by @Wade Haldeman:
@Greg Dickerson I know I was a bit (or a lot) vague on the repair costs as I have been running numbers utilizing the calculators for a wholesale and a flip. My apologies. Here is a bit more info.
I went with the median ARV as it has much more square footage than neighboring homes. With ALL fees included, the following is what I have:
ARV - $1,600,000
Repair costs - $50,000
Investor/Flipper Profit - $500,000
Wholesaler Profit - $50,000
Max Offer - $918,000
I know those are rounded numbers, but I do have a great realtor who sells most of the homes in the community to do comps as well as overall market conditions. Plus, my brother has a home a street up and over. This area tends to be a bit independent of the rest of the area. It's very high end, close to everything, and near Biltmore Estates in Asheville. People are willing to overextend themselves just to get a home at the bottom of the hill. I'm just afraid the market will not hold up and could end up holding for some time. That I cannot do, but there is plenty of profit for the flipper.
The home needs very little unless a plan to change the layout is in order. However, the home takes up much of the property and I don't believe it needs to be changed.

Small world. I lived in N Asheville for 2 years from 95-97. Awesome area.

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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Greg Dickerson With very conservative numbers, there is a 47.73% immediate ROI and 290.38% annualized based on BP calculator.
Thank you for your response and I will continue to research. It would be a shame to see this foreclosed on and everyone miss out. I don't have a problem trying to get it under contract, but I do not know that I can reasonably tell them I will be or have a cash buyer. That is above my head until I network with the right people. I am a few minutes away and would be happy to assist anyone who invested in the property any way I can.
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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Greg Dickerson Oh wow...yes it is! I actually grew up in Iowa and moved out here 10 years ago. Biltmore Park is crazy nice and many people are coming to the area still from Florida. It is fantastic, but our baseball team is called the "Tourists" for a reason, I guess!
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
6y
How is this foreclosure being sold off? Public auction?
Don't generally see those kinds of margins these days for publicly available deals, which leads me to believe your ARV or rehab estimate may be off.
Just something to consider...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @J Scott:
How is this foreclosure being sold off? Public auction?
Don't generally see those kinds of margins these days for publicly available deals, which leads me to believe your ARV or rehab estimate may be off.
Just something to consider...
Yup agree J if those numbers are real most likely there will be spirited bidding if this is indeed a true foreclosure sale.
I also question 50k to rehab.. that does not go very far on a 1. something house.. heck you can spend that on a decent paint job. :)

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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@J Scott

Mr. Scott...good to hear from you and thank you for chiming in!

Right now it is a Pre-Foreclosure record and after some research see a past due tax bill as well. It has not officially been foreclosed yet...just a claim as Wells Fargo as Plaintiff. So, to attempt to answer, I believe this would simply be a hail mary to try to "help" the owners.

Because it is not actually listed, foreclosed, etc, they are still living in the home and I have not been able to get in to see what costs there may be. It is only based on a "curb view" and appears to be in great condition. Also, the ARV is not confirmed by my agent, only median value based on comps.

So, you are correct in that the estimates are likely off as they are best guesses at this point and it is not publicly available...yet! However, they built it new in 2004-2005 for land and home total of $720,000 and last years tax assessment was based on $1,299,900. Very rough numbers for the time being.

I guess my question was more of "IF the numbers work" type scenario. Would I still be way over my head to even try to put it under contract? Due to the large value I cannot hold as well as the market potentially hitting me hard, should I walk away even if a great numbers deal?

Again, I would be happy to assist in something like this for the experience alone. Aside from funds, I can actually bring quite a bit to the table and would be more than willing to do so. I'll research more and get firm numbers so perhaps someone can benefit.

Thank you as always for your input. I really appreciate the "Big Guns" responding! @Greg Dickerson
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Brent Paul
Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
6y
There is always that risk the house doesn't sell. I can imagine the property taxes on a million dollar house would be tens of thousands of dollars. What is your Plan B if the house sits for 6 months and doesn't sell? Always have a backup plan for the worst case scenario. Make sure the title is clean don't just take his word for it. Also check with the city and make sure there aren't any issues with the house or property. All it takes is for something so simple as the city saying an addition isn't grandfathered in and your whole budget is blown. It seems silly but you would be surprised how many times this comes up. When my dad submitted plans to have his garage built the city re surveyed and found out the neighbor had a shed built 10 feet onto my dads property.
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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Jay Hinrichs

Thank you as well! I appreciate all of the comments as they do help see things from other perspectives. Very helpful to me and much appreciated!
It is a Pre-Foreclosure, so not public yet...but there will be blood in the streets to obtain it if auctioned. Honestly, if there are no additions, which the property will not allow with this 8100 sq. ft. home, it is in great condition, fairly new, etc...and not sure $50K is even required. This would really be more of a buy cheaper, sell at market. Not terribly realistic, though.
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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Brent Paul
That is exactly my biggest concern...sitting too long with holding costs that big...wow! The taxes are $12,400 a year.
I know those things come up, especially from the city. I'm from Iowa and that very scenario you mentioned happens all the time! People find out and once good neighbors turn into BIG enemies!

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Tim Johnson
Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes
6y
I have completed a couple of these high end ones. They are normally trashed on the inside and outdated. A high end home wants high end finish. If this was built in 2004 its dated for today high end buyer. I would run your numbers with rehab at about 300k and then see if you are still drooling. You talking 8100sqft this is going to take time and lots of money to complete. 6-9 months rehab timeframe. They won't settle for cheap finishes at this price point.
If you where going to spend 1.6 mil would you want 15 year old finishes, maybe, but you would also want a discount.
After you factor in holding costs for 9 months to 1 year, then you numbers might hit the 20% rule. This could work for a wholesale deal, but you need to shop for some of the big players in your market and plan on holding it for a few months.
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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Tim Johnson
The holding costs are a big concern as well as funding, buyer period. It has been kept up, but can't get in to see how dated it truly is. Though, I do know they have kept up on quite a bit, you never know.
I was thinking a possible high end wholesale, but afraid I would not get a buyer. That helps answer my question though, so thank you all for the great thoughts!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Wade Haldeman:
@Brent Paul
That is exactly my biggest concern...sitting too long with holding costs that big...wow! The taxes are $12,400 a year.
I know those things come up, especially from the city. I'm from Iowa and that very scenario you mentioned happens all the time! People find out and once good neighbors turn into BIG enemies!

I wish our tax's were that low if its that great then it begs the question why does the owner simply put it up for sale ?

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Tim Johnson:
I have completed a couple of these high end ones. They are normally trashed on the inside and outdated. A high end home wants high end finish. If this was built in 2004 its dated for today high end buyer. I would run your numbers with rehab at about 300k and then see if you are still drooling. You talking 8100sqft this is going to take time and lots of money to complete. 6-9 months rehab timeframe. They won't settle for cheap finishes at this price point.
If you where going to spend 1.6 mil would you want 15 year old finishes, maybe, but you would also want a discount.
After you factor in holding costs for 9 months to 1 year, then you numbers might hit the 20% rule. This could work for a wholesale deal, but you need to shop for some of the big players in your market and plan on holding it for a few months.
I bought a 3.4 finished 10k sq ft mansion from an NBA player that ran out of money.. we spent over 1 million finishing it.. now to be fair 250k was in the landscaping alone.. but your point is well taken..

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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Jay Hinrichs
@Tim Johnson
All very good points. They likely refinanced and took home equity loans to pay for the Denali, Escalade, Range Rover, and Mercedes in the drive! They probably owe $4 million on it and can't list it because it's trashed and needs $2 million in renovations...
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Tim Johnson
Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes
6y
@Jay Hinrichs Sounds like a fun project.
300k is going to get you lipstick on 8100sqft house just enough to get a high end buyer to low ball you 20% off ask.
I would try and get a look on the inside and see what the conditions are like but overall it sounds like a money pit.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Tim Johnson:
@Jay Hinrichs Sounds like a fun project.
300k is going to get you lipstick on 8100sqft house just enough to get a high end buyer to low ball you 20% off ask.
I would try and get a look on the inside and see what the conditions are like but overall it sounds like a money pit.
I build this one last year all high end https://www.redfin.com/SC/Char... finish's but only 2600 sq feet and we spent about 850k to build it.
exit was 2.2 to a cash buyer from New York.. there is a big difference when your buying faucets that cost 2k :) etc.

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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
Got it...thanks.
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Tim Johnson
Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes
6y
@Jay Hinrichs
You did a real good job at making it fit it with the others in the neighborhood. First look you can’t even tell it’s a new build looking at the pictures at quick glance. Even small details like door handles look period correct. It’s nice to see the old world character with the walls panels and so on. Most builders on spec skip the details and just slap some crap against the way and hope it sticks.
Hats off to your contractor and designer they really pulled that off.

nice work
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Ray A Delfi
Rental Property Investor · Poughkeepsie, NY (Hudson Valley Area) · Member since 2019 · 188 posts · 102 votes
6y
@Wade Haldeman hey there! I read through the comments and you got a lot of good advice and you have several of details left to review and discover especially the fact that the inside may be outdated or trashed depending on the owner’s situation. $50k in Repairs/upgrades does sound a little low as you won’t be updating the counter tops with pressboard and Vynl. There aren’t too many million dollar home buyers out there, that is, in a national scale, but I’m not familiar with your area so their could be. You can lean on your realestate agent for that as they should know how many shoppers are out there attending open houses and such. I may have missed it but I didn’t see anyone ask what’s the homeowner’s situation. You mentioned they are still in the house, have you spoken to them? How bad are they in default any leans on the property? Have you considered taking title, bringing them current, and offering them a lease option. Their situation maybe temporary as I’m sure they would have packed their bags and hit the road or listed it for sale. Go and knock on their door, bring some cookies or a bottle of scotch find out what’s up and bring your tool bag of exit strategies with you so you guys can figure out a plan that works out for the both of you! What ever you decide, just be sure to have a lawyer review the contracts.
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Syed H.
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
6y
$50k will do nothing for a $1.5-$1.6m house. Last Reno we did on a $1.6m house was a $350k Reno budget. That was with an extension. With my costs, it would be at least $200k id assume for a $1.6m house with no extension. So run the numbers with that plus a 12 month hold + financing costs.
Also, I'll tell you from firsthand knowledge high priced homes are sitting right now in high property tax areas. The SALT limitations has really messed things up on the $1m+ homes.
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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Ray A Delfi
Hey there...glad you dropped in!
I think you nailed a great answer to the actual question once again. I must have misled with my heading, but essentially was asking what the best way to handle a high end deal...IF the numbers work...to avoid getting in over my head. IF the numbers were there, would a wholesale even be feasible. I like your idea of the lease option and will continue to look into the numbers and the home. I can't say for certain, but it seems they are simply too far behind to catch up. That is what we are researching and I wanted to make contact with the owner to see what the situation may be and perhaps work something out. The personal aspect is where I was headed, but wasn't sure what the best route, or contract to have, was best.
Again, there is a lot more to research, but you came through with great advice!
Thank you so much for your help!
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Robert D DismukesPro Member
Flipper/Rehabber · Memphis, TN · Member since 2019 · 37 posts · 36 votes
6y
@Wade Haldeman Down side to this is that it’s almost and end user situation. That’s going to be difficult to wholesale. Start looking for a buyer and NO MATTER WHAT, you better leave yourself and exit strategy. Me personally, it’d be a property to fix and flip. But , not everyone has that kind of capital. Be that’s just my opinion from what I’ve read.
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Wade Haldeman
OP
Rental Property Investor · Member since 2019 · 38 posts · 21 votes
6y
@Robert D Dismukes
Thank you, Robert...that is what I wondered. I would love to fix and flip, but again, don't want to end up stuck with that kind of holding cost! I appreciate your input!
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