Potential Deal II - Flip To Buyer

Real Estate Deal Analysis & Advice

Potential Deal II - Flip To Buyer

Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes

Guys,

I'm simply not going to give up locating a good deal for my buyer. I met w/ my buddy (REO agent) last week and he took me to one of his homes. 3BR/2BA (20yr. old home), rancher w/ deck (needs work), two car, decent community, good schools, close knit comm.. Hasn't been listed yet...agent and I are friends, but business is business and he wants to see if I can deliver. The numbers are below. Did I miss anything? Please let me know:

ARV - $120k
PP - $42.5k (also includes DP, CC, Insp., LF, RE Comm., and Appr.)
Repairs - $11k (this includes a 15% markup and addition of SS kitchen appliances â€“ always my recommendation)
HC - $1440 ($480mo x 3[Avg. DOM], Taxes, Insurance, Utilities)
Selling Costs - $9900 (RE Comm., CC, Warranty)
Wholesale Fee - $5k
Total Cost - $69,840k
Sell below market @ $110k
Potential Profit - [b]$40,160
[/b]

63% ARV

Keep in mind that I can save him some commission cost due to me being an agent.

P.S. Spent most of this morning putting up more bandits signs and speaking w/ folks that are still responding to my rent-to-own signs that I put up a couple of weeks ago.

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes

If those numbers are accurate, sounds like a great deal. A few things to keep in mind:

- Make sure the ARV is accurate. Don't take anyone's word for it...verify the comps yourself

- Why do include a wholesale fee in there if you're selling to an end-buyer?

- Are you confident in the rehab costs? 20 years is the typical life span for roofs and mechanicals, so if the house is 20 years old, you may need to replace those, which could add $7-10K to your rehab costs. If you don't replace these, keep in mind that the inspector may flag these things.

- You assume three months of holding costs. Remember that if you plan to sell to a first time homebuyer, they will likely be going with an FHA loan...selling in less than 90 days FHA can be a challenge. I like to assume at least 5 months of holding costs, though my average DOM is 102 days...so if I save on holding costs, that's a bonus.

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
If those numbers are accurate, sounds like a great deal. A few things to keep in mind:

- Make sure the ARV is accurate. Don't take anyone's word for it...verify the comps yourself

- Why do include a wholesale fee in there if you're selling to an end-buyer?

- Are you confident in the rehab costs? 20 years is the typical life span for roofs and mechanicals, so if the house is 20 years old, you may need to replace those, which could add $7-10K to your rehab costs. If you don't replace these, keep in mind that the inspector may flag these things.

- You assume three months of holding costs. Remember that if you plan to sell to a first time homebuyer, they will likely be going with an FHA loan...selling in less than 90 days FHA can be a challenge. I like to assume at least 5 months of holding costs, though my average DOM is 102 days...so if I save on holding costs, that's a bonus.
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Dave Gibson
OP
Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes
16y
Hey JScott (The Man),

Glad that you were able to chime in:

1. The ARV is accurate as I pulled the comps myself since I'm an agent.

2. Wholesale fee is included as I am flipping to an investor.

3. Keep in mind that I have a team in place that includes a contractor - even though my contractor is my "go to" guy, I still have another contractor carry out a walk through for me. Just in case......so the numbers are pretty accurate. Mostly cosmetics....roof is in good shape, etc...biggest thing looks like we'll have to patch some walls as it looks like someone to a baseball bat to the place before they moved out, some doors are missing, and carpet throughout will need to removed.

4. End buyer is an investor....I'm not sure if he's taken out a loan or not. Even so, I'm outlining this as if he is taking out a loan. If cash, then cool....I can pair him w/ a local bank to bypass any seasoning issues. I will adjust the holding cost as you mentioned and explain to him why if he ask.

As mentioned in an earlier post, he knows that I have tenant buyers (I have qualified buyers now)/retail buyers too...we can do the property management and my wife can do the staging, if needed. So we have it covered.....I just wanted to run this by the big guns (you guys) first. As I am committed to not sending him crappy deals and wasting him time....

If I can get his deal for him and show my buddy (REO agent) that I can deliver, this triangle will be a good one. :-)

Thanks, JScott.....appreciate your advice.
2 Reply
Curtis Gabhart
Real Estate Broker · San Diego, CA · Member since 2009 · 119 posts · 54 votes
16y
11k is REALLY cheap. I own a construction company and can't even do cleanup, landscape, paint, flooring and appliances for that.

It's the construction end where I see most people mess up with their numbers
2 Reply
Curtis Gabhart
Real Estate Broker · San Diego, CA · Member since 2009 · 119 posts · 54 votes
16y
If you go to my latest blog post (the cat pee house) that house costs us about 20k and it was a light rehab (There was an additional 15k to remove the septic and hook up to the city. But the construction was about 20k)

I do a lot of these and get great prices. I also know my costs to the penny.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Dave -

I didn't realize this was a wholesale deal for you. Since you'd be able to make $45K ($40K plus your wholesale fee) by flipping this one yourself, why don't you do that instead? Is that an option? $45K profit on a $120K sale is fantastic.

At very least, I would try increasing your wholesale fee to $10K. Even if your investor-buyer were going to realistically make $35K on this simple project, he should be very happy to pay you $10K. If it were in my area, and those were the numbers, I'd happily pay you the $10K.

As for Curtis' point, can you be more specific about what exactly needs to be done for the rehab?

Sounds like a typical one-story 1500-1800 sq ft rancher, so I would imagine at the very least it would require $2500 to paint the interior, $2000 for new carpet/vinyl, $1500 for faux stainless steel appliances and then another $500 for things like cleaning, new door knobs, smoke alarms, new registers/returns, new outlet/switch covers, etc. I generally also replace all the light/fan fixtures (about $1000) and all the plumbing fixtures (about $1500).

That's about $9500, which is the minimum I've ever spent on a rehab. It sounds like that's about where you are, with your "15% markup".

Other stuff is where it starts to get expensive -- cabinets, doors, windows, roof, mechanicals, plumbing, electric, landscaping, etc. As long as you don't have *any* of that stuff, your budget is probably not too far off...
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
To add to what J Scott stated:
What about exterior paint, stucco repair, etc.
What about landscaping (curb appeal is muy importante!

Even if the rehab was $20k, you have yourself a good deal and if it was in my area, I would be all over it.
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Curtis Gabhart
Real Estate Broker · San Diego, CA · Member since 2009 · 119 posts · 54 votes
16y
Curious -

Why don't people just get their real estate license instead of trying to wholesale a deal? Sounds like a friggin pain in the neck to try to wholesale UNLESS you are capable and willing to buy it yourself if you can't wholesale it.
2 Reply
Dave Gibson
OP
Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes
16y
JScott, Curtis, and Will,

Thanks for your responses.....As for the rehab, the contractor is my father-in-law and he's been doing this for nearly 20yrs.. He's good at what he does, but he also provides cost effective estimates...here's his break down. Investor is getting materials as needed:

*Painting (including wallpaper removal and patching)
3BR/2BA
Two LR
Hallway/Entryway
DR
Total - $2150 (we have most of the materials on this)

*Popcorn ceiling removal = $1200

*Laminate flooring installation (w/ removal and disposal of carpet)
1550sq. ft. x $2ft = $3100

*Four door installation = $800

*Painting and repair of shed = $200

*Fence replacement (144ft) = $500

*SS apps = $1750

*Total = $9650 x 15% = $11,097

Outside looks good....I should add in some landscaping, Will. I'll make the adjustment...windows are good, roof is good. Inspection will bring out costs, if there's any other functional issues....if there are electrical issues, we can address as we have an electrician.

JScott, I would love to do this myself, but I simply do not have the funds, nor am I in position to do so (from a credit standpoint - me and my family lived from hotel-to-hotel some years ago and we're still recovering...almost there....finally know what my purpose is in life and that's REI), YET. I'm working to get some cash, currently repairing my credit, and then will start doing what you suggested. I'm holding off w/ increasing my wholesale fee, because I know that he's outlaying funds for some materials.

Will, outside is in good shape. Not stucco, full brick. Exterior paint not needed, except for the shed. Again, yes, I'll adjust as landscaping will be needed.

Anything else I'm missing?
0 Reply
Curtis Gabhart
Real Estate Broker · San Diego, CA · Member since 2009 · 119 posts · 54 votes
16y
Lights, hardware, cleaning, have you considered taxes on the material?
Not sure how you can put in 144 ft of fencing for 500, that's 3 per lineal foot and wood fencing is 10 per foot for material almost.

Does the water heater work and strapped? What about the heater? Do you have gfci plugs in the kitchen and baths?

If the took a bat to the place have you checked the plumbing to make sure they didn't do the ol cement in the drains trick?

Looks like your close though. Jv with a contractor or get a hard money loan

If you have a good written plan demonstrating you understand your project, you have a team in place and a good exit srategy and your numbers are accurate you can probablyget away with only having to come out of pocket for closing costs, holding and construction costs.
1 Reply
J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Dave -

I'm still a little confused...

If you're wholesaling this property, why is your father-in-law doing the rehab? And why are you shelling out $$$ for the labor costs? Wouldn't you just assign the contract (or sell the property) to your end-buyer and then let him take care of the rest?

If you're putting out some of the cash (for example, for the rehab) and/or taking some of the risk, you deserve more than just a wholesaling fee.

Or perhaps I'm just misunderstanding something...
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Dave Gibson
OP
Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes
16y
JScott,

Response to "Why is your father-in-law doing the rehab?"

My father-in-law (FIL) may do the rehab. it's up to the investor. My FIL is a part of our overall business strategy as he is a contractor and has a team.

"Why are you shelling out $$$ for the labor costs?"

I'm not shelling out cash for the labor, the investor would be paying us for the work IF he decides to use my father-in-law as the GC - that's up to the investor - who knows, he may use his own team. I'm simply providing options to him from contracting all the way down to property management - he can choose us or he can go with someone else.

Curtis, keep in mind, he's handling most of the material cost. As for the water heater, it's in good shape and is working properly....

Anything else? JScott, have I answered your questions? Again, I'll add in landscaping after I get some quotes....
0 Reply
Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Originally posted by Curtis Gabhart:
Curious -
Why don't people just get their real estate license instead of trying to wholesale a deal? Sounds like a friggin pain in the neck to try to wholesale UNLESS you are capable and willing to buy it yourself if you can't wholesale it.

Curtis - the OP for this stated in this thread that he is a licensed agent - but he still wants to wholesale this one.

But I have to agree with you nonetheless ...
0 Reply
J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Originally posted by Dave Gibson:

I'm not shelling out cash for the labor, the investor would be paying us for the work IF he decides to use my father-in-law as the GC - that's up to the investor - who knows, he may use his own team. I'm simply providing options to him from contracting all the way down to property management - he can choose us or he can go with someone else.

Got it. Sounds like a great plan...keep finding deals like that and keep offering lots of help to your buyers and soon enough, you'll have a great business going...

Still think you should earn more on your fee for this one, but $5K is still a good payday! Congrats...
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1 Reply
Dave Gibson
OP
Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes
16y
Steve and Curtis (your tag lines are hilarious),

Yes, I am a licensed agent, but my funds and credit are limited.....see my earlier post. Wholesaling (to be more specific, all the due diligence done) is not a pain to me. When you do something you enjoy, you don't view it as a hassle or "pain in the neck"....so my investor may be makin' off w/ some good profit and I'm receiving not as much as I should for my fee.....I understand. But, I'm learning the ropes and will adjust going forward. Guys, after what I've been through in my life, this is truly a piece of cake. And as an IT projects guys, the planning, number crunching, etc. is easy. I wanted you all to review and pinpoint possible pitfalls and you've done that. I appreciate it.....anything else before I contact him?
0 Reply
J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Originally posted by Dave Gibson:
...anything else before I contact him?

Given the numbers you provided and the due diligence you've done, it sounds like you're good to go. Plus, your investor will likely verify the data himself, so if there's anything missing that you don't know about, let him find it...

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Dave Gibson
OP
Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes
16y
Got it.....thanks, J.

Will let you know the results later this week.......
0 Reply
Tyler Carpenter
Real Estate Investor · Aurora, IL · Member since 2008 · 125 posts · 14 votes
16y
Congrats on getting this far Dave. Im a little unclear how you get this property under your name. Since you dont have a lot of money, or credit, how do you get the bank or your buddy the reo agent to get you to get the property under contract? Im more asking so I can learn and try to get going down this road to help raise some more capital as well.
1 Reply
Dave Gibson
OP
Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes
16y
Thanks, Tyler. I don't have the contract yet. Don't want to do that until my buyer wants it - then I'll get it under contract and double close. I'll get a discount for the B-C close at the title company - as a result of doing IT support work for them, I had a chance to meet and explain my business to one of their closing attorneys. He gets it and knows that it could be a good thing for the both of us. It'll be private funds or worst case, transactional funding (that'll eat up a good portion of my profits). The hardest part of it all is getting enough capital to do deals yourself - it's teaching me patience, though - it's finding the RIGHT folks to fund your deals and your ability to put in laymen terms what you're doing and showing how/when they'll get paid. Regardless, I wish you the best in your endeavors as well.
0 Reply
Curtis Gabhart
Real Estate Broker · San Diego, CA · Member since 2009 · 119 posts · 54 votes
16y
Dave,

I would recommend partnering with a client but keep your name in the deal. Make the equivalent to a wholesale fee + get a commission on the back end, run the construction and then you would have successfully flipped a property.

This is how you start building a track record. Once you do 1 or 2 deals you won't have problem getting money for deals like these.

The money is the easy part the REAL deal is the hard part. The problem I find is everything thinks they have a diamond in the rough but they really have a turd in the yard (just made that up btw)

If I weren't in San Diego i'd be all over that deal (based on your numbers and assumptions)

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Dave Gibson
OP
Real Estate Investor · Huntsville, AL · Member since 2010 · 44 posts · 11 votes
16y
This is why I love BP. Thanks, Curtis. Don't know if I have the time now to do what you're suggesting, but I'll certainly try.....

P.S. "Turd in the yard"? That's hilarious.....
1 Reply
Luis Leon
Roofing Contractor · Spring, TX · Member since 2010 · 69 posts · 21 votes
16y
Originally posted by Dave Gibson:
Steve and Curtis (your tag lines are hilarious),
Yes, I am a licensed agent, but my funds and credit are limited.....see my earlier post. Wholesaling (to be more specific, all the due diligence done) is not a pain to me. When you do something you enjoy, you don't view it as a hassle or "pain in the neck"....so my investor may be makin' off w/ some good profit and I'm receiving not as much as I should for my fee.....I understand. But, I'm learning the ropes and will adjust going forward. Guys, after what I've been through in my life, this is truly a piece of cake. And as an IT projects guys, the planning, number crunching, etc. is easy. I wanted you all to review and pinpoint possible pitfalls and you've done that. I appreciate it.....anything else before I contact him?

Hey Dave,
Congratulations on at least getting to this point which is further than most will live to see. I've spent years doing what paid the bills because it was a job. Since i've began doing what I love, the money just rolls in! Doing what you love can only allow you to do one thing - your best. Good luck, I'm sure you will do fine my good friend.
1 Reply
Champak Shah
Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes
16y
Yes --good deal -- for comments on construction costs from California--its much cheaper here in Alabama and Georgia. Jason has good comments --Jason we do have many deals like that in Atlanta also.
Numbers are good --and seems like he has done legwork. Main question why not get
Buyers list first --if other agent getting deals any way. Will be hard for end buyer --owner occupied to do rehab --no money and no knowledge. Yes --if Investor is ready go for it --take $10K or $7.5k your fee-and dont be too greedy with commissions--build relationship with Investor s--for repeat business.

Is this a REO or from home owner ? If you have Rent to own ( Lease Option ) buyer --then you and father in alw shoudl buy as partner and keep profits -- Also for end buyer --give more discount or pay closing costs --
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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Originally posted by CHAMPAK SHAH:
Jason has good comments --Jason we do have many deals like that in Atlanta also.

I invest on the west side of Atlanta...for properties with an ARV of about $120K, we consistently see profits in the $20-25K range. So, for me, a property that sells for $120K and generates a $35-40K profit is a home run!
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Champak Shah
Stone Mountain, GA · Member since 2010 · 267 posts · 72 votes
16y
Yes --Jason --I understand you are in West Cobb area --I have seen in Gwinnett and Dekalb --houses with ARV of $100k to $120K with $40k plus profit --One deal I
saw last week in Deklab had $84K
equity --but was sold when I approached --of course that does not include lot of costs we are taking about --still --If I assume expenses of $30K and I take $10K my fee --still there is $44K profit --- I am trying to concentrate some upscale --$500K up where equity may be over $150K -and less rehab required.
0 Reply
Melvin Estrict
Investor · Uniontown, AL · Member since 2009 · 31 posts · 4 votes
16y
i live in alabama. interested in the property tell me more. why are you selling?
thanks,
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