Starting out right, valuing rehabs and deals accurately

Wholesaling
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Starting out right, valuing rehabs and deals accurately

Alex Clark
Arlington , VA · Member since 2013 · 8 posts · 0 votes

Hi BP,

I am a new real estate investor and am interested in starting out with wholesaling.  I currently work a full time job and plan to learn and build my business at night and on weekends.  I have read many of the posts here on BP related to wholesaling and I feel that I have a fairly good grasp on the concepts.  

The aspect of wholesaling that I have recognized as being the most important (correct me if I am wrong) in order to become successful is being able to accurately peg deals.  The reason that I feel this is the most important part is because it allows you to, as a wholesaler, be honest to all parties involved.  The seller will be happy that you do not have to move the price around, the buyer will be happy that the rehab costs are not twice as high as they were told, and the wholesaler will still have their integrity allowing them to build relationships and keep deals rolling.

What I would like to understand better before actually getting sellers on the line (marketing) is how to price these deals.  More specifically how to put numbers on rehabs.  I am a recently college graduate who has hardly owned anything in my life, certainly not a house.  How can I learn what it looks like to need a new carpet and what it might cost to replace it? Rooftop, windows, cabinets, etc. 

Thanks for the help in advance and I apologize for the lengthy post!

-Alex

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  • Russell Ponce
    Investor · Santa Rosa, CA · Member since 2012 · 402 posts · 96 votes
    11y

    There's been a lot of discussion here on the forum about wholesaling being illegal in Ohio. There's a long thread on it if you want to search for it.

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  • Alex Clark
    OP
    Arlington , VA · Member since 2013 · 8 posts · 0 votes
    11y

    I forgot to update my profile. I am currently living in VA

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  • Daniel Seo
    Fontana, CA · Member since 2015 · 6 posts · 0 votes
    11y

    I work closely with contractors for rehab costs. I have actually partnered up with a good friend of mine who worked construction for 12 years so I'm just having him evaluate rehab cost.

    If you don't know any contractors what you can do is go to your local Home Depot and take notes on prices of raw materials. How much do carpets cost? Bottle of paint? Windows and cabinets? Determine the median price. Say your property needs X sqft of carpet replaced. Multiply X with your median carpet price. As for labor you gotta ask one of your local contractor how much they're charging to do carpeting for That X sqft.

    If you don't wanna do all that you can simply use $10/sqft for light rehab, $15/sqft for medium rehab and $20/sqft for major rehab and get your numbers that way.

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  • Hugh Ayles
    Cedar Park, TX · Member since 2015 · 377 posts · 200 votes
    11y

    Be very careful unit pricing.  For instance taking the square footage of a house times the Home Depot price for carpet does not take into account waste or incidental material costs.  What about sales tax?

    What about demolition or floor prep or haul off costs?

    And this is just for flooring.  We have not even discussed paint or cabinets.

    Sometimes you cannot shortcut "dirt on the boots".

    That is construction speak for experience.  Either you have it, you hire it, or you pay a steep tuition.  Please do not do the last one.  It can hurt badly.

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  • Hugh Ayles
    Cedar Park, TX · Member since 2015 · 377 posts · 200 votes
    11y

    Sorry to keep on about unit pricing.  It was mentioned above to use $20/sf for major rehab.  First off, what is major rehab?  And are you using living space to determine square footage or including the garage?

    I know my answer, but it may be different for the next guy.

    I just looked at a house with incorrect sizing to the tune of 600 sf.  Even though it was too high, if I used $20/sf to determine the rehab for this particular house, my budget would have been $15,000 too low. 

    Are you comfortable gambling and losing $15,000?

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  • Daniel Seo
    Fontana, CA · Member since 2015 · 6 posts · 0 votes
    11y

    My apologies, when I wrote the previous post I was in kind of a hurry and left out some major details. I'm sorry if my post gave any wrong ideas. What I have mentioned in my earlier post was just to come up with a rough guesstimate, and is not an actual number I use for my rehab cost. Great catch by Hugh with the sales tax bit, by the way. I'll work that in from now on. 

    What I do is after I get that rough guesstimate, I add about 5k ~ 10k to that number in order to overestimate the rehab cost (this is for a SFR of around 1000~1300 sqft at $100k~$200k ARV range, you obviously want these numbers to be higher for more expensive properties). Then, I go to the ARV and subtract that same number to come up with what I call the "safe ARV". So now we have a $10k - $20k safety net gap. It's always better to overestimate the rehab and underestimate the ARV, as apparently a lot of new wholesalers tend to do the opposite (and also exactly what I did in my earlier post). If the numbers work even with this gap, chances are it's going to be a good wholesale deal. Sure, it'll be a lot harder to find deals that work this way, but I'd rather go for deals that actually do work than try to make a deal out of a non-deal.

    I'll try to post an example deal from the one I did recently.

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  • William Manzie
    Fort Lauderdale, FL · Member since 2015 · 49 posts · 9 votes
    11y
    I am also starting out and will be starting at wholesale. Someone recommended the site to me so I thought I would paste it to see if it would help you. http://www.homewyse.com/
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