Just talked to my first seller today. He owns a vacant property that needs a ton of work. After speaking with him he definitely seems eager to get rid of the property, he owes 3 years of back taxes on the property and after talking to the tax accessor they will be foreclosing in May. When I asked, "How much were you thinking of selling the property for?" He said he wasn't sure and wanted me to come up with some numbers. He told me he knew that the property would need a lot in repairs (which I already knew). I told him that the back taxes would be a big part of my total offer which he seemed fine with.
I have seen the property, there are holes in the roof, all the windows are busted out, mold, kitchen is not too bad but the bathrooms are going to need to be redone, etc. I believe it will be a total renovation so my partner and I are assuming a huge number of repair costs... (Approx. $100k)
Would it be a good idea to bring a contractor out to take a look at the place to give me an actual bid? Should I just assume with a total renovation that even if I overshoot the repair costs it's okay because that improves the flippers profit?
Side note, I was told by the city that they work with investors and Lowes to reduce repair costs, offer grants and can even help sell the property to retired veterans.
What is my next best course of action? I could use all the help I can get!!
If you are questioning getting a contractor, then definitely get a contractor. I would look for a few and get more than one quote. I wouldn't ask for their opinions (as in what do you think? Is it a good deal?), just quotes as most contractors have no idea about real estate and investing. I would not take into account anything the township says they will do. Maybe they're trying to entice you. I would offer maybe a couple grand over the loan amount. It won't be your last property if it does pan out, just move on. There will always be another deal, better deal right around the corner.
Wow, there's so much wrong in this question.
First thing here, if this is your first seller, it's way too big a project for you. Perhaps you can sell the lead to a seasoned investor.
Next, you're "assuming" a number that you think might be "huge"??? We have plenty of renovations over $100,000 that don't need nearly this much work. Naturally, we don't know enough from your question to "guess" whether or not you're close, but the fact that you have no idea tells me you shouldn't touch this.
As @Saul Pizzuro said, never "assume" what the city is telling you will happen. Figure your true costs and always go by that. But never, never, never just "assume" you can offer higher than what they owe. A huge percentage of our offers are less than the seller owes, and the seller pays us to take over the property. Plenty of sellers, even retail sellers, write checks at closing. Do not simply offer "a couple grand over the loan amount."
You can never guess at numbers, unless you want to fail. You MUST know true costs of repairs and ARV as well as all the other myriad of costs you will incur in a purchase, renovation, hold, resell. It absolutely sounds to me like, even if you have a contractor estimate repairs and if this contractor is actually correct in the number, you are not skilled enough to take this on.
Until you know how to figure costs, especially on a project of this size, continue going to meetings where you can learn information and find investors who will work with you through some deals until you get the experience you need to be successful.
Please let us know what you do here.
Wishing you much successful investing.
You should not consider wholesaling until you know the basics. I don't want to discourage you. I am only suggesting you start somewhere else.
I agree with everything that @Karen Rittenhouse says. This is not a good first project for anyone but especially not for you. Not only do you not know how to estimate costs but you don;t seem concerned about what the property is worth. You must know what it will be worth when you complete the repairs. If you are planning on flipping this you must know what you can sell it for. That is not always the same as what it is worth. In order to know these values you must know the area, what has sold and how long the homes were on the market before they sold. Obviously, the seller doesn't think this is worth more than the back taxes owed or he would have paid them. Why do you think you know the value any better?
@Karen Rittenhouse said it all..
Build a Team to help you
Start on smaller projects
Know your limits...this isn't Monopoly
Get Educated some more.../
Wow... I guess this post back fired. Reading my post I guess I didn't really lay out my question clearly. I have done comps for the area so I have an understanding of what the ARV will be. My plan is to wholesale the property which is why I posted in the wholesale forums...
My question... Basically was since I am not an expert in estimating rehab costs 100% accurately should I have a few bids done by professional contractors prior to making an offer on the property... I didn't know if I could do that since I don't own the property but this is a potentially really great deal but I obviously want to do ALL of my research.
I understand the wholesale process I just want to be as accurate as possible on the rehab costs.
Thank you to everyone who posted so far... I will try to be clearer
@ Karen, I agree. I was kind of in a hurry, I shouldn't have said that.. Not enough info.. I agree that this is too much for you. Keep looking. You are going to make mistakes no matter what. Don't make the biggest one in your life by jumping on the first deal to come your way, also don't be the kind of investor that goes in and rewires and replumbs the house and puts all new windows in just because it makes you feel good. It's all about the numbers. It's easy to make money in real estate with experience. Some people are real good at it and some just are not cut out for it. You won't know until you do one or two.
You definitely need a second and third opinion on cost from some contractors. Eventually you won't need contractors in advance as you'll already have a good enough idea of cost with experience.
@Michael Hartman To answer your new question...YES
So long as the Property Owner is notified by you and has started some form of dialogue with you, you simply ask them if it's OK to do an inspection and go from there.
DO NOT access or start climbing on someone's property without clear Dialogue with the property owner prior to the Inspection/Estimate process./
Congratulations on getting your first seller. Wow! Great for you. You are in the right place.
You have been given some good advice above even if we were not all clear on your knowledge and experience with wholesaling.
Yes your idea of getting contractors in to give you an estimate on rehab is an accurate assumption. This will give you a better idea in formulating your numbers to help you to give the seller a price and increase your awareness of contractor pricing for all of your subsequent deals. If the numbers work, offer to pay the back taxes and that is it.
All this depends on the numbers of course..MAYO, motivation and competition. It seems he hasn't had the money to repair this property and he had to let it go.
He doesn't want to make the offer first because he is hoping your offer would be higher then what he is thinking. With a good rapport and if the seller appears to trust and like you this could be a really good deal for you to wholesale and for him to get rid of.
If you do get it under contract, you can promote what you were told about the incentives. It's best if you had some web information to reference prospective buyers to. An investor who is familiar with that area and that municipality would be aware of those incentives but someone who has not invested there may not be. Helping to sell the property from the city is a proactive city. Good for you for reaching out to the municipality. A new wholesaler/investor rarely reaches out to know what the municipalities offer. You are on the right track.
Let us know of your progress.
Good that you have begun to find ARV comps. BP has a few analysis tools that are good to use. So whether you wholesale or not you should work the numbers.
I respectfully disagree with the "get out now, this is too big" comments, but then I have a very low - nearly non-existant - aversion to risk ;)
You have your lead, you know what you need to do, go for it! You can do it :) If you need to accurately estimate repair costs then get permission from the seller, walk the property with 3 general contractors and get their ballpark. Decide from there based on what they say. Picking a "huge" number out of thin air is about accurate as throwing a dart at a board full of options while blindfolded.
Thanks for all the replies everyone. Here is an update to where I am now in the process.
I am working with 2 sellers right now on 2 different properties. The first, the one this post originated from, seller has given me permission to walk the property and the city has offered to meet me out there with a police officer to clear the property. (The property has had squatters and multiple break ins.. figure it is better to be safe than sorry). I presented the property to a few people at my local REIA and they are excited about it and want more information so I may have partners and or buyers already lined up... obviously they want a bit more information on the property. I have 2 general contractors that have worked with members from the REIA that can come out to give me a bid on the property for estimated repair costs.
At this point I am coordinating a time next week to actually get inside and get an idea of what all is damaged, the estimated costs, and the time it may take to repair.
This last week has definitely been a huge learning experience, everyone at my local REIA has been awesome and super helpful. Talking to sellers was a bit nerve racking at first but I am much more confident than I was the first few calls and it's actually starting to be fun.
I'll try to do an update next week when I have more information. Thanks again for all the suggestions and advice. BP IS AWESOME!
@Michael Hartman , I live and work in your area. If you're still wholesaling, I'm always looking to buy if the numbers work.
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