Assessing property rehab cost without inspection?

Question

When wholesaling a property to your prospective buyers, how are you able to estimate the rehab cost to them (and for yourself) so that they have the general idea of what it will cost and their ARV without having performed an inspection which your buyer does? Or do you do an inspection as well before you report your figures?

Peter Giardini · Answer

Instead of focusing on costs when speaking to the end-buyer investor, I recommend that a wholesaler talk to the things that need to be repaired/renovated and let the investor decide what the costs will be.

Best of luck!

Doug Haisten · Answer

LAst week an agent told me about a REO property that fit my property criteria to a "T". A drive by revealed it was a nice neighborhood and the house itself, from the street, seemed to be in great shape. I am told many people just do a drive by and assume a well kept exterior means the inside is equally well kept and use a standard $X/sq ft. I went inside and was shocked at the damage and the amount of repairs (not up-grades) this property needed. The property wasn't vandalized, I think the people just lived that way. Anyway, my buyer appreciates a lst of what needs to be done but also likes my pricing the work, kind of like a reality check for his estimate. i use the 65% ARV - repairs- assigment. My offer was 52% of list. The property was bought for 22% above list by someone that never went inside the property. Ouch. I told the agent to call me as soon as this falls out of escrow.

Brian Haskins · Answer

You can either hire a contractor or do it yourself. If you are doing a bunch of deals you really need to be able to determine repairs. You can hire a contractor to teach you and make you a cost repair sheet or you might be able to buy one online. It won't be perfect but it will help. I normally let the buyer figure the arv and repair costs because they will anyways, and if they come up with something different than me they might think I'm trying to pull the wool over their eyes.

Brian Haskins

J Scott · Answer

How do you know it's a good deal for your end-buyer if you haven't estimated the rehab costs and figured that into your determination of a purchase price?

If someone tries to wholesale a deal to me, and can't give me a ballpark estimate of the rehab costs, I don't assume the price they're asking is reasonable.

And no, I don't really care how close they are to the actual rehab costs (I'll probably spend 5x what they suggest), but I want to know if they consider it a paint-and-carpet rehab or a complete gut.  That tells me a lot about how accurate the price might be and whether I should bother looking at the property or not.

Kevin Kaczmarek · Answer

My best advice and the safest advice for you, don't estimate rehab costs for them. There are too many factors outside of your control that contribute to rehab costs. As the wholesaler, your job is to find a great property and leave a lot of profit on the table so that you can move onto your next deal and they can rehab and retail.

Now, if you have an inspection report you want to disclose that to the buyer and let them make the decision from there. Your job as the wholesaler is to buy at the right price and sell at the right price.

Robert Burns · Answer

I am confused with some of these replies in that a typical formula for MPP = ARV x .65 - rehab costs - assignment.  Therefore you need to establish at least a good estimate of repair costs to determine the MPP.  Is that correct?

J Scott · Answer

Agreed with Peter that having a list of issues is as good as having a rehab cost estimate (potentially better).  This list can be used to generate your own estimate, and thereby be used to determine a reasonable wholesale price, and then can be given to the end-buyer for their estimate.

Account Closed · Answer

Great idea Peter. That seems to make a whole lot of sense since most rehabbers already have specific contractors in place to do their repairs, or know material cost for doing it themselves.

Do most wholesalers have an eye for what needs to be repaired or do they rely on the motivated seller to disclose the majors and minors of what's wrong with the property?

Thank you.

Bill Gulley · Answer

Good answer Kevin! and to both of you, welcome to BP, I've missed posts lately. Bill

Account Closed · Answer

Thank you for your help Kevin. I appreciate it.

Assessing property rehab cost without inspection?

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