I Accidentally May Have A Property Under Contract - Now What?

[Jason Eyerly]

Hello everyone,

I threw out an offer to get a property under contract. Comps are 180k and they're asking 160k but it's a motivated seller. I highlighted the landscaping needs, significant reno and rehab, and offered to get it under contract for $65k. I just spitballed a signfiicant reno cost of $60-$70k assuming it doesn't need an entire roof. However, it'll need landscaping and everything cosmetic replaced and brought into the 21st century. Popcorn ceilings scraped, new appliances, bathroom redone, I don't even have a contractor to handle this. My best bet may be wholesaling but maybe I bit off more than I could chew and uh....I'm not sure what to do next.

Built: 1972
-Asbestos? Lead?

SqFt: 1,125

Beds: 4

Bathrooms: 1.5

Location: Eutawville, SC

[Mitch Messer]

Quote from @Jason Eyerly:

Quote from @Mitch Messer:

@Jason Eyerly Congratulations on getting a property under contract.

Just don't celebrate too soon...

Your next step should be to quickly perform due-diligence, to see if you really have a deal or not!

At an ARV of $180K, with $70K in repairs, your MAO should be closer to $56K.

So, you're already in the deal nearly $10K too high!

That means if you're unaware of any major (yet hidden) repairs, you may end up LOSING money on this deal.

Get an inspector (or GC) out there ASAP to see if that $70K rehab budget is real or just wishful thinking!

 How do I go about getting them out there while I'm remote? We haven't signed anything or made any agreements but I didn't want to ask for a contractor to run through before I have anything under contract - I'll exhaust my contractor already. Based on what I plugged into the BiggerPockets Calculator if I wanted to profit $25,000 and there was $70k in repairs it said max allowable was $78,000 so I actually told them $65,000-$70,000.

Fortunately, you're in a city with a strong investor presence.

I recommend you reach out to one of the many local real estate investor associations (google "Charleston REIA") for solid contractor recommendations.

I'll bet someone good would do it for a couple hundred bucks.

I'll just say this about using anyone's calculator: You need to understand the assumptions behind it. The MAO formula (max_allowable_offer = 70% of ARV - Repairs) has been around far longer than BiggerPockets.

In order to make a profit on a fix-and-flip, you've got to know your rehab costs, but you ALSO have to account for:

- Financing costs, including origination and interest payments (unless you're paying cash)

- Holding costs, including property taxes, insurance, utilities

- Selling costs, including real estate commissions, buyer concessions, closings costs

If you were to pay $78K, put $70K in to rehab, and then spend another $15-20K on financing, holding, and selling costs, you will NOT be seeing $25K profit.

Anyone saying different should be required to show you their math!