Realtor · Detroit, MI · Member since 2019 · 39 posts · 9 votes
Hey all,
I have yet to get my first deal under contract, but the course I'm learning from just estimates the rehab costs with $25 sq/ft. and calculates the ARV with the comps. Is it dangerous if I do not physically drive there and view the house? I do not know anything about rehab costs, but I'm reading J Scott's book about it now.
I just need to get in there and get some experience because that's how I learn the best.
Investor · Austin TX · Member since 2016 · 1k+ posts · 2k+ votes
6y
@Ronald P. never never never put a house under contract that you have not seen! Especially if you are brand new and have never done a deal. Also that $25/sqft for repair costs is trash. A house in a 400k neighborhood and a house in a 150k neighborhood are going to have very different repair costs. I dont know what course you are “learning” from but you might want to ask for your money back.
Investor · St Louis, MO · Member since 2017 · 250 posts · 181 votes
6y
@Ronald P. I wouldn't trust the sq footage estimate. At the VERY LEAST you should look at some pictures of the property and come up with an estimate from there. But even the, you are likely to miss quite a bit. Your best bet is to have someone take a look for you or to take a look yourself. Get a knowledge base of what rehab costs are for the respective repair item - the more experience you get, the better you'll be at it. At the end of the day if you do a sq footage estimate, just know that when the end buyer takes a look, he might completely disagree with your rehab budget. Hope this helps
Investor · Austin TX · Member since 2016 · 1k+ posts · 2k+ votes
6y
@Ronald P. never never never put a house under contract that you have not seen! Especially if you are brand new and have never done a deal. Also that $25/sqft for repair costs is trash. A house in a 400k neighborhood and a house in a 150k neighborhood are going to have very different repair costs. I dont know what course you are “learning” from but you might want to ask for your money back.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
6y
One thing for certain, the estimate will be wrong. If you are looking in older neighborhoods, it will probably under-estimate the amount of repairs needed and in newer neighborhoods it will probably over-estimate the amount of repairs.
Thus, your offers will not be competitive on nicer homes, and your offers might be too high on older properties or ones in bad condition.
Whether or not that is "dangerous" depends on what you do next.
Rental Property Investor · Edmond, OK · Member since 2017 · 1k+ posts · 1k+ votes
6y
Dangerous isn't the word that I would use, but I wouldn't advise getting houses under contract without seeing them.
$25/sq ft is a good ball-park estimate if you know you need a full rehab, but there are too many what-ifs to do a number like that. With a ball-park number like that, it's going to be hard to find many situations where it will make sense. On one side of the spectrum, if a house legitimately is in good shape and just needs paint and new carpet the seller is probably going to pay an extra $20/sq ft because they know that's only a $5/sq ft make-ready.
On the other side of the spectrum, what if the seller says the house is in "perfect shape" and is "rent ready" and then you go and it's actually a hoarder situation and needs a clean out of the house and yard on top of your rehab prices. Or the roof has major leaks which has caused significant damage to the decking and the ceiling is crumbling (So now you need to add new roof and decking to the budget). Or the "brand new siding" is all falling off. Or the "brand new tile" floor is peel and stick tile placed on top of the busted up old ceramic tiles. (I've walked quite a few of these houses if you can't tell.) ;)
Definitely walk the house and run the comps based on the current condition and full rehabbed condition. You don't have to give buyers an estimated rehab amount because any experienced investor will know their numbers better than you will. If I were a new wholesaler, I would just say what the house needs and let people run their numbers. "Home needs cosmetic make-ready, new roof and hot water tank. Comps can support kitchen & bathroom updates to get maximum ARV and market rents."
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
6y
How much construction knowledge do you have? Using a random $25/SF is a HORRIBLE idea and will quickly get you a bad reputation. Rehab estimates need to come from either trusted contractors or researching what the house needs and what the costs are.
Looking back. I don’t think I have ever rehabbed a housed for less than $25/SF. Even easier cosmetic flips where I do a lot of the work have been north of $25/SF.
Realtor · Detroit, MI · Member since 2019 · 39 posts · 9 votes
6y
@Greg Dickerson
I see, I understand the basics of wholesaling already and will be attending some events and I'm in the process of obtaining my license. Right now I'm just stuck in the details, of estimating the costs and all the contracts. I will try to find a mentor or maybe a group who will guide me along, I have a list source pulled, but it's currently sitting not doing anything.
I was at a local REI meeting recently. For their area, they analyzed a number of rehabs that a particular team had done, then estimated the cost of rehabs per square foot after they completed the projects. They ended up coming up with a formula that worked for them in their area. They categorized the jobs as cosmetic, light, medium, and full rehab jobs. They were able to assign a cost per square foot that worked for those categories - again, for their area. I went to another REI meeting where they had another rehabber. He showed before pictures, everyone got to come up with an estimate, then he told everyone what his cost was. This was in the same general area, so I tried the formulas, and they worked pretty well.
A wholesaler doesn't have to get an exact number. Consider the fact that two rehabbers are likely to make different decisions about what they want to do with the property. As a wholesaler, you want to come up with a reasonable number - preferably padded a bit, then let the rehabber make their own estimates. If they find you are coming up with reasonable numbers, they are more likely going to trust your deals in the future.
A blanket cost per square foot is not going to produce good results. Yes, you need to see the property. Pictures may be enough, though.
Investor · Los Angeles, CA · Member since 2017 · 110 posts · 52 votes
6y
I know plenty of people who have closed deals without actually seeing the property, myself included. If you're local, then yeah, go see the property. But if you're doing it virtually, do you really want to pay someone to go out and take photos of a house you don't even have under contract? That's a waste of money, in MY opinion. I know people will disagree, but that is my personal opinion.
Ask the right questions to gather the information needed to judge what the rough repairs of the property will be. Your contract should have an inspection period clause. If you get the house under contract, send someone to look at it, then realize the repairs are much more hefty than the seller claimed and you can't make a profit, you can go back and renegotiate the price within that inspection period. If they don't want to lower it, you can back out.
If you disagree, feel free to comment. I'm open to correction, but this is my personal understanding of how it can be done.
I have yet to get my first deal under contract, but the course I'm learning from just estimates the rehab costs with $25 sq/ft. and calculates the ARV with the comps. Is it dangerous if I do not physically drive there and view the house? I do not know anything about rehab costs, but I'm reading J Scott's book about it now.
I just need to get in there and get some experience because that's how I learn the best.
Thanks for the advice.
Hey I’m curious as to what those courses are going for nowadays ?
I’m local if you find a great potential deal run it by me and we could possibly do the deal together.
Realtor · Detroit, MI · Member since 2019 · 39 posts · 9 votes
6y
@Cassi Justiz
So you are saying that I find the ARV from the comps and let the investors find out the rehab. If I get it under contract I will need to have a purchase price to give to the seller.
Realtor · Detroit, MI · Member since 2019 · 39 posts · 9 votes
6y
@Siobhan Kelly-Roberts That way works too, but how do you trust that the owners even know the condition of their own house well? Getting it under contract requires a purchase price, right? So what if the repairs are more than you expected?
@Siobhan Kelly-Roberts That way works too, but how do you trust that the owners even know the condition of their own house well? Getting it under contract requires a purchase price, right? So what if the repairs are more than you expected?
If you're not a contractor, it's likely your repairs won't be spot on. But that's why we do ballpark estimates based on an in-depth series of questions we ask. If you factor in a 10k spread for yourself, and the repairs end up being more than you thought, maybe your spread will only end up being 3k-5k. That's not the worst thing in the world. If your estimates are WAY off and you can't make any money, simply explain that after inspecting the property, it needs more work than estimated and you're only able to pay such-and-such amount. If they accept, move forward. If not, wish them luck selling it and walk away from the deal. They might just call you back and decide to move forward with your price if they can't find anyone who will buy it for more.
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
6y
I've heard of people purchasing homes without seeing them. I personally think that's dumb but that's a personal opinion and can be contested. However you're essentially selling a home and I don't know how you can do that if you don't even know what it is. If you don't have a fair amount of experience in guestimating repairs, I'd pay a contractor to walk through a house with you a few times to point some things out. Not get an actual repair bid but they could give you an off the cuff approximation of what needs to be done and what the rough cost would be.