First Wholesale Deal Soon - Advice on Rehab Costs and Process

Wholesaling
6yFollow

First Wholesale Deal Soon - Advice on Rehab Costs and Process

Kyle Bambu
Investor · Phoenix, AZ · Member since 2019 · 31 posts · 16 votes

Merry Christmas everyone! I should probably be preparing for my family to show up for the Holidays, but instead here I am writing this forum post...

So I have been cold calling a lot lately and recently received two phone calls back from motivated sellers. I'll be visiting those houses on Saturday. I have no experience in determining rehab value or the ARV of a house. In fact, I've never really done any kind of construction work on houses at all. In addition to this, I am not even sure of the whole process. I'm seeing a lawyer tomorrow to try to iron out some contracts that I can use for this weekend. I'm sure that will be expensive, but I would rather cover myself than have some very expensive lesson later on.

My plan is to use 3 different contracts which I feel differs from most wholesalers. The first one is just an Option to Purchase contract because I want to make sure I don't sign any purchase agreement until I find a Buyer. Once I find a Buyer, I'll go back to the Seller and exercise my option so that we can then sign the Sales and Purchase Agreement. After that, I'll go to the Buyer and sign the Assignment Contract with them. Basically, I just want to cover myself with the Option to Purchase agreement so that I never have that risk of potentially owning the house. 

So assuming I get these contracts worked out, I'll be seeing these houses Saturday. Let's simplify a bit and assume that I can figure out the ARV on my own. How do I judge the rehab cost? One house is a 1000 sqft, two floor, 2 bed, 1 bath. The other house is 2,500 sqft 3 bed, 1 bath. Both owners said the houses are "gutted." Which I guess varies based on how that is defined. Both owners also said the siding and roofing was done recently. I looked up the houses from the Tax Assessor. The first house has a Grade of D+ "Below Average," and a CDU of FR- "Fair." The second house has a Grade of C "Average," and a CDU of UN - "Unsound." Obviously, no one is going to be able to tell me how much it might cost to rehab because you haven't seen it. However, any tips or potential opinions on a range that I might expect?

Lastly, assuming I figure out the ARV and rehab costs, I'll have my assignment fee to figure into the equation. Is this usually just 10% of the ARV. I was hoping to have a fee of $10k for each even though one has an ARV of about 70k and the other over 100k. I'm open to any tips or suggestions on any of this as these two deals are my first potential deals. Thank you!

0Reply
24 views

Most Popular Reply

Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
6y

Kyle, place yourself in the shoes of this potential seller. If you were the owner, would you be OK signing a contract for someone to have control over the sale or lease of your property with only $100 at risk? I don't know a single competent person who would which only leaves an incompetent person of some type of deceit on the wholesaler's part. In either case, the wholesaler is now opened themselves up for legal action against them if the seller so chooses down the road.

Getting a property under contract (which required negotiating price), marketing that property (or contract) to the public, finding and contracting a buyer for said property and getting paid for those efforts constitutes the requirement in AZ to hold a real estate license and penalty for violating this is a class 6 felony in AZ. Doing so without a license is considered brokering without a license and can have stiff penalties including fines, jail time, and restitution.

Wholesaling in of itself is NOT illegal just as driving a car is not illegal, however, many people operate a wholesale transaction illegally just as some operate a vehicle illegally (perhaps driving without a license or speeding). What you need to understand is how to properly, legally, and ethically perform a wholesale transaction in AZ and most other states which hold similar laws.

If you contract the deal, close on it and then market it for sale and close, you are fine. If you hold a license, you are fine. If you have your buyer already in hand and perform the transaction using a newly formed entity or trust you are also fine so long as you do not violate the brokering laws.

Podcast Guest on Show #130
2Reply
See this reply in the discussion

11 Replies

Jump to latestLatest
  • Corey Robinson
    Investor · Fort Myers, FL · Member since 2017 · 40 posts · 65 votes
    6y

    What's up broski! Merry Christmas! You're in a market with a lot of good guys that can help you get deals done if you can't find a buyer yourself.  Assuming you found these properties in hot zip codes finding buyers shouldn't be too hard to come by but in regards to estimating repair costs Brent Daniels (he's in your market) has a pretty good video that explains how you should be calculating these costs: (Don't know if BP will allow me to post the link but if you don't see it just youtube "Brent Daniels Easy Repair Cost Estimator")

    The easiest way to find out your wholesale fee would be to find out what the cash comps are for neighboring properties that are in a similar condition to the ones you'll have under contract and see what investors paid for those properties.  Once you find that number subtract 10K to fit in your fee and that will be your max allowable offer.  Ex: Investors bought a property in a similar condition to yours for 100K cash so you would get your property under contract for 90K and sell it to that investor for 100K or more to get your wholesale fee of 10K or more.

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Start at the beginning.  What do you intend to pay the sellers for signing the option agreement?  Unless they receive some consideration for signing, your agreement will not be binding on them.  

    0Reply
  • Kyle Bambu
    OP
    Investor · Phoenix, AZ · Member since 2019 · 31 posts · 16 votes
    6y
    Originally posted by @Corey Robinson:

    What's up broski! Merry Christmas! You're in a market with a lot of good guys that can help you get deals done if you can't find a buyer yourself.  Assuming you found these properties in hot zip codes finding buyers shouldn't be too hard to come by but in regards to estimating repair costs Brent Daniels (he's in your market) has a pretty good video that explains how you should be calculating these costs: (Don't know if BP will allow me to post the link but if you don't see it just youtube "Brent Daniels Easy Repair Cost Estimator")

    The easiest way to find out your wholesale fee would be to find out what the cash comps are for neighboring properties that are in a similar condition to the ones you'll have under contract and see what investors paid for those properties.  Once you find that number subtract 10K to fit in your fee and that will be your max allowable offer.  Ex: Investors bought a property in a similar condition to yours for 100K cash so you would get your property under contract for 90K and sell it to that investor for 100K or more to get your wholesale fee of 10K or more.


    You can always PM me if you need help along the way bro!

     Thanks Corey! I'm actually in the Lehigh Valley in PA currently, but I'll be moving out to Phoenix in a couple of months. I just figured I'd try to get some deals under my belt before moving to that hot market. I'll be sure to check out that video and keep searching through more comps. Do you suggest using Zillow as the best way to determine what other properties have been selling for?

    0Reply
  • Kyle Bambu
    OP
    Investor · Phoenix, AZ · Member since 2019 · 31 posts · 16 votes
    6y
    Originally posted by @Darius Ogloza:

    Start at the beginning.  What do you intend to pay the sellers for signing the option agreement?  Unless they receive some consideration for signing, your agreement will not be binding on them.  

    I was going to pay the seller a payment of $100 to sign the option agreement. I guess if I had the contract written correctly I could get that back if I never exercised the option? Also, would I write a check that day when signing or would I need to have that money sent over another way?

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    The time at which you actually make payment isn't really relevant.  A refundable option fee could conceptually pass muster as sufficient consideration but you would need a local attorney to confirm that.  Good luck.   

    0Reply
  • Corey Robinson
    Investor · Fort Myers, FL · Member since 2017 · 40 posts · 65 votes
    6y

    @Kyle Bambu No problem bro! The best way to find the most accurate cash comps would be getting access to the MLS by leveraging a realtor. If you can't leverage a realtor a paid option is Propstream which gives you nationwide access to the MLS. Zillow is an option but best used to find the ARV of your property and from there you can determine your max allowable offer.

    1Reply
  • Matt P.
    Investor · Columbus, OH · Member since 2015 · 625 posts · 601 votes
    6y

    @Kyle Bambu lol no resonbale person will sign a contract with you for $100 EM to let you try to sell their house. If they did you would need to take it to the title company to hold. The fact that you don't know this makes me think you need to do more research before involving yourself in a real estate transaction. Sorry if this sounds harsh but IMO you need to step back and learn more before you start inserting yourself into the middle of a real estate sale.

    1Reply
  • Nick Eldridge
    Rental Property Investor · Birmingham, AL · Member since 2019 · 24 posts · 18 votes
    6y

    @Corey Robinson @Kyle Bambu Be careful depending on Zillow to determine ARV for your potential wholesale deals, it usually doesn't accurately depict what is active on the MLS and the Zestimate provided can be off $10,000-30,000.

    1Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y

    Kyle, place yourself in the shoes of this potential seller. If you were the owner, would you be OK signing a contract for someone to have control over the sale or lease of your property with only $100 at risk? I don't know a single competent person who would which only leaves an incompetent person of some type of deceit on the wholesaler's part. In either case, the wholesaler is now opened themselves up for legal action against them if the seller so chooses down the road.

    Getting a property under contract (which required negotiating price), marketing that property (or contract) to the public, finding and contracting a buyer for said property and getting paid for those efforts constitutes the requirement in AZ to hold a real estate license and penalty for violating this is a class 6 felony in AZ. Doing so without a license is considered brokering without a license and can have stiff penalties including fines, jail time, and restitution.

    Wholesaling in of itself is NOT illegal just as driving a car is not illegal, however, many people operate a wholesale transaction illegally just as some operate a vehicle illegally (perhaps driving without a license or speeding). What you need to understand is how to properly, legally, and ethically perform a wholesale transaction in AZ and most other states which hold similar laws.

    If you contract the deal, close on it and then market it for sale and close, you are fine. If you hold a license, you are fine. If you have your buyer already in hand and perform the transaction using a newly formed entity or trust you are also fine so long as you do not violate the brokering laws.

    Podcast Guest on Show #130
    2Reply
  • Corey Robinson
    Investor · Fort Myers, FL · Member since 2017 · 40 posts · 65 votes
    6y

    @Nick Eldridge @Kyle Bambu I totally agree brother.  We don't look at Zestimates though.  If you have no choice but to use Zillow you would look at the comps for model matches that were sold as modern day rehabs within the past 6 months to a year.

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free