What to offer on a property that needs total remodel?
Newbie wholesaler here!
I want to make my first offer on a property I’m walking today. Property is an estate sale, it’s in a good location where comps are around $300k. Property has been on the market for months and they are asking $105. House is boarded up so all I can see is the outside, but it needs a complete remodel.
What kind of offer should I make?
Is there a specific formula you would use to calculate what the offer?
Would I need to get an contractor estimate before offering this to cash buyers?
Hey @Rebecca B.! A go to initial analysis for a lot of flippers is the 70% rule. This means they'll be looking to buy the property at 70% of the ARV, minus the rehab costs. So in your example, 70% would be 210k and then you'll need to subtract the rehab costs. If it's all boarded up, it sounds like it will be significant. A contractor estimate would give your buyers confidence in the work that needs to be done, so if you're able to get one that will boost your ability to assign it. You'll also want to take your assignment fee into consideration if there's a certain amount you're looking for. Best of luck!
@Luke Trovinger That makes so much sense, thank you. I'm hoping I can get a contractor to walk the property with me by this weekend, fingers crossed that this works out :)
@Rebecca B. Hard to say without knowing how much rehab is needed but as a general rule of thumb:
If ARV is lower than 250k: 55% ARV minus repairs
If ARV is higher than 250k: 70% ARV minus repairs
Of course this method may vary depending of the market but it’s a start ;)
Good luck !
@Yoann Dorat good info, I’ll keep that in mind!
@Rebecca B. Pay a contractor $300 and they will walk the property with you and write up an estimate for the property. Always compensate them for their time. Why would someone want to spend an afternoon away from their families or paying job to work for free? Especially where you don't own the property and never will (if you're just planning to wholesale it) and the contractor has absolutely no chance of getting the job?
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Contractor MA (#MR000910)
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Have they shopped the property to anyone else at this point? If so, and you are new, you have to ask yourself why the experienced investors have passed on it, there is probably a reason. If you are the only one on it, you need to know the rehab costs and your buyer pool to make sure you don't get stuck with a contract you can't assign.
