Pittsburgh, PA · Member since 2016 · 24 posts · 9 votes
Looking for some advice. I am not a seasoned house flipper. I have renovated one property I inherited. This is my first crack at a purchase and flip.
I walked a property and put an offer in with a wholesaler. I didn’t think I’d get the property, but my offer was accepted. I estimated 50k in rehab. My contractor said 70k minimum. Hoping to split that difference. Pittsburgh market. 3 bed 1 bath.
Offer 75k.
Rehab estimate 60k.
ARV 180-185k.
Having some trouble with lending because the margin is so slim. I have put the 2,000 hand money down. But now I am really worried I’m in a bad situation.
How bad will this be if I back out? I don’t want to be blackballed. But I don’t want to screw myself. If I’m unable to get funding, is it common to be forever blackballed by the wholesaler?
Why are you spending so much time and energy worrying about whether the wholesaler will like you - or blackball you? The wholesaler is NOT the major stakeholder here. The wholesaler has nothing in this deal but air so if the deal doesn't seem right to you, don't do it. Why ask anybody else their opinion - they won't be renovating it or making the payments on it.
Make a decision on what is best for you financially and make it now. It's not worth doing so everybody is happy but you -and to be left with a renovation that doesn't excite you. Your gut is telling you to bolt. If you don't trust yourself, why trust a bunch of strangers on a forum.
And, please do yourself and everyone else a favor: never make an offer unless you want to do the deal. A lot of chaos was created by that single act. So, it's win some, learn some...chalk this up to lessons learned and move on.
I am curious who thinks that margin is slim. A 40-50k profit on a $135-145 investment sounds pretty healthy to me.
What are they saying? They don't believe ARV? Is it because of your lack of experience? I would try more lenders. Generally, with wholesalers as I understand it, you don't come through and they will not take offers from you again, or at least you will be last on their list.
One upside is wholesalers generally are a dime a dozen, so you can get on other wholesalers lists, and most around me don't share lists or talk about people that fell through.
I think the ARV is a concern. The house literally next door sold within the year for 180,000 and it was simply a well maintained house. Not an updated/renovated house.
The lender has not mentioned experience as a factor at this point. However, he knows my agent so there is some comfortable guidance.
My only other “flip”, although it was an inherited property that was renovated, did sell. So I’m batting 1.00 there haha.
I have rental properties, but I’m just getting going with flipping.
But I’m with you that I think this is a healthy margin. Though this lender has really led me to second guess myself. He seems to be legitimately concerned that he doesn’t want me to hurt my own situation.
I’m just starting to second guess myself, and wondering about all the negative impacts I might face if I back out.
@Michael Majer I have spent more to make less and been happy. I would reach out to the lender and just get a better understanding. Maybe it is the ARV, maybe it is the rehab scope and budget, but I would try to work with the lender. Again, a 30-40% profit margin seems healthy, especially if this is a fairly cosmetic rehab.
And if you agent knows the lender, maybe leverage that relationship as well to get more info.
But this lender isn't the only one, I am sure. Trying to find another can't hurt.
Looking for some advice. I am not a seasoned house flipper. I have renovated one property I inherited. This is my first crack at a purchase and flip.
I walked a property and put an offer in with a wholesaler. I didn’t think I’d get the property, but my offer was accepted. I estimated 50k in rehab. My contractor said 70k minimum. Hoping to split that difference. Pittsburgh market. 3 bed 1 bath.
Offer 75k.
Rehab estimate 60k.
ARV 180-185k.
Having some trouble with lending because the margin is so slim. I have put the 2,000 hand money down. But now I am really worried I’m in a bad situation.
How bad will this be if I back out? I don’t want to be blackballed. But I don’t want to screw myself. If I’m unable to get funding, is it common to be forever blackballed by the wholesaler?
Looking for some guidance. Thanks.
I would think hard about this one. If the contractor says $70k it could run more so you need to be prepared for that. You will also have carrying costs and commissions when you sell so you do not have a 30-40% or $30-$40k profit margin after all is said and done. You may break even or loose money depending on your interest cost, holding costs waiting for a sale etc. One option is to go back to the wholesaler and let him or her know the repair cost estimate from contractors is well over your estimates so you need a better price in order for the deal to work. They should have some room.
Why are you spending so much time and energy worrying about whether the wholesaler will like you - or blackball you? The wholesaler is NOT the major stakeholder here. The wholesaler has nothing in this deal but air so if the deal doesn't seem right to you, don't do it. Why ask anybody else their opinion - they won't be renovating it or making the payments on it.
Make a decision on what is best for you financially and make it now. It's not worth doing so everybody is happy but you -and to be left with a renovation that doesn't excite you. Your gut is telling you to bolt. If you don't trust yourself, why trust a bunch of strangers on a forum.
And, please do yourself and everyone else a favor: never make an offer unless you want to do the deal. A lot of chaos was created by that single act. So, it's win some, learn some...chalk this up to lessons learned and move on.
I would speak to a lawyer or your agent about your current obligations to the deal and repercussions of backing out. Exact information we don't have, as well as difference in state real estate laws and regulations might result in bad advice.
Originally posted by @Patricia Steiner:
...And, please do yourself and everyone else a favor: never make an offer unless you want to do the deal. A lot of chaos was created by that single act. So, it's win some, learn some...chalk this up to lessons learned and move on.
Not only that, but you may incur some damages by failure to perform that could range anywhere from covering a few costs to being sued for specific performance.
@Patricia Steiner thanks for the response. I wouldn’t say I put an offer in for sport. I have been outbid before, so I expected my bid to be outbid again as I do tend to go conservative on my bids. But I have to start somewhere, just so happens that this was my first accepted offer.
It’s a property that interested me, and the wholesaler accepted my bid.
Contractor and I agreed that the house is structurally sound, does not need new windows, does not need a new roof. So after those big ticket items cleared the gauntlet, it didn’t seem that there was 70k worth of work remaining.
Well, yeah, you're going to lose the earnest money. If you're not a total jerk about that, the wholesaler isn't going to blackball you. But it is YOUR fault this deal isn't happening. Goodbye earnest money.
Look at this scenario logically. If you walk away you loose $2000. If you stay and can not find money to finish the project then you could be out way more than $2000.
If I was you I would run my numbers by some local investors (the ones who have outbid you before). I am sure if there is money to be made there a well funded one (like one with 70K) sitting in the bank would love to take over your position.
Give them your position in the deal for $2000 or any number that you don't mind losing to walk away from this deal untarnished.
If that doesn't work, then walk away and lose your $2000.
There are many more scenarios that you could go through. You just need to find the one that you are most comfortable with.
You don't seem to be in a good position to be putting bids on properties that you can not complete the transaction on. You need to go back to the drawing board and secure your game plan a little better.
I'd get more bids. If you can get bids closer to 60k its a good deal but at 70k minimum that can easily turn into $80k+75k purchase +10k or so carry/closing/commissions maybe more with hard money.
I agree with others that if the contractor says $70k, it'll go over 70k. The larger the rehab budget, the more it'll be off...
Get some more quotes.
Maybe it's just me...but if this is your first flip, if you can breakeven or make a little money, that's worth the hassle.
Else, you'll overthink every offer you make going forward...soon months and months will go by and you haven't made an offer because of your fear of what happened here.
Most folks first deal is never a huge moneymaker. You're doing it to learn the business. I think there's enough wiggle room here to NOT LOSE money (unless you over improve, or something terrible not budgeted has to be done)
I just crunched the numbers on that, and even at a 70K rehab budget that is still a 75% deal. I don't have extensive knowledge of the Pittsburgh market but here in San Antonio, TX a 75% deal is pretty good.
Also as others have mentioned, there's still time to get other contracting bids and negotiate.
Why did you lock up the property with your deposit before walking it and getting a rehab estimate with your GC though?
I'm in the wholesale business and I never let someone lock up a deal with their deposit until their contractor has walked it and given them a solid scope of work unless they're experienced. Believe me, we don't want deals falling out. It sounds like you could still make this one work and make a profit so I wouldn't suggest tossing your deposit.
I would also look at lowering your scope of work. Are you shooting for immaculate or will to FHA standards for say 30k end up bringing you 165? Can some scraping and painting bring some things you were going to swap out save money? Obviously I haven't seen it/don't know the area or contractors in the area etc.
I would also look at lowering your scope of work. Are you shooting for immaculate or will to FHA standards for say 30k end up bringing you 165? Can some scraping and painting bring some things you were going to swap out save money? Obviously I haven't seen it/don't know the area or contractors in the area etc.
Good luck in whatever you go with
Thank you for the response.
Yes I think that the scope is a big thing I need to reevaluate right now. I think this will be something I have to redefine.
I just crunched the numbers on that, and even at a 70K rehab budget that is still a 75% deal. I don't have extensive knowledge of the Pittsburgh market but here in San Antonio, TX a 75% deal is pretty good.
Also as others have mentioned, there's still time to get other contracting bids and negotiate.
Why did you lock up the property with your deposit before walking it and getting a rehab estimate with your GC though?
I'm in the wholesale business and I never let someone lock up a deal with their deposit until their contractor has walked it and given them a solid scope of work unless they're experienced. Believe me, we don't want deals falling out. It sounds like you could still make this one work and make a profit so I wouldn't suggest tossing your deposit.
@Stone Saathoff
Thank you for the response. I did walk with my agent and his recommended contractor. My agent said that the deal can work and while I won't make a huge profit, at the very least I can make some money and gain the experience. He also thinks that 70k on this property seems high. Not replacing roof, not replacing windows, no structural issues. Kitchen, bathroom, cosmetic. Then the unforeseen.
I really do not want to back out. I want to see a project through and learn from it. But once I talked to a lender, the lender had me seriously second guessing myself. His concerns line up with some of the posts on this thread.
I have scheduled 2 more contractor walk through this week. Going to be more clear on my budget and expectations.
I agree with others that if the contractor says $70k, it'll go over 70k. The larger the rehab budget, the more it'll be off...
Get some more quotes.
Maybe it's just me...but if this is your first flip, if you can breakeven or make a little money, that's worth the hassle.
Else, you'll overthink every offer you make going forward...soon months and months will go by and you haven't made an offer because of your fear of what happened here.
Most folks first deal is never a huge moneymaker. You're doing it to learn the business. I think there's enough wiggle room here to NOT LOSE money (unless you over improve, or something terrible not budgeted has to be done)
Thank you for the response. Yes I have scheduled 2 more walk through's to get some perspective. Being clear with my budget and expectations this time.
And yes, I am very much inside my own head now. I do not want to talk myself out of every single opportunity, and I can see that happening going forward. I NEED to learn and get hands on experience.
Since you aren't a flipper, I wouldn't assume you can get it done for $60k vs a contractor $70k bid, bc that $70k bid after some change orders is $90k. So I would agree that if the ARV is 180-185 you have a slim margin. There's carrying costs, closing costs, & selling costs; etc as well.