First deal on the rocks, would you back out?

Question

So I have been working on my first deal which was going to be a fix and flip. The property is unique, it was an older couple who had a contractor building them a custom home. The owner was an architect and his wife worked at Lily. Sometime after framing and mechanicals there was a falling out and the owner continued the project as his own GC. The home was started in 2002. It is 7000 sqft and has amazing oak timber framing through out. It also has Geo thermal heating that supplies radiant heating to all the floors in the home. Yes, 7000 sqft of radiant heating floors.

The home is on an auction website, I plan was to get it for around 200k-225k then put 200k into it and resell it for around 625-650. After fees and expenses I was looking at pocketing around 90-100K.

The auction started yesterday and I put in my first offer for 198,000.

The house is at the end of a long road that only has a few houses on it. I went by to look at it this morning and saw a small satellite dish that said Hughes net. I know this is internet service for people that live in rural areas. This isn’t a rural area just like a very long driveway. I did some research today and found out that high speed internet isn’t offered to this home. The fastest landline internet speeds available are 5mbps dsl service through ATT. ( not fast enough to stream Netflix, YouTube or play video games.)

In my mind this is a deal breaker. I don’t know a family with kids these days that would buy a 650k home that essential doesn’t get internet service. My children might make it until 12 noon on the first day with out internet.

It’s kind of a bummer because I’ve got a private money investor in place for this property. I know they will be down for the next property as well but I was really looking for a decent payday on the first deal. It would have made for a better story when I’m on the bigger pockets pod cast in a couple of years :)

OH well on to the next one.

Let me know if you think I”m making the right choice backing out of this one.

Jay Hinrichs · Answer

well not being very internet savvy myself and just figuring out how to turn Netflix on without help this last week because I had to ( my wife is on vacation in Norway and left me alone :) I would not have even thought of this I suspect the bigger issue is houses that large can be total money pitts not sure you can finish it off for 200k..there has to be another way to get internet in right ???

Mike Cumbie · Answer

My biggest concern would be with @Jay Hinrichs. 7,000 SQ feet is a lot of space. Of course we have no clue how much needs to be done from the post but think of something as cheap as carpet (about as cheap a sq foot as you can imagine and I know it has radiant floors) think of $5.00 a sq foot for Lowes cheap carpet, pad and install.... it's $35,000. How is the roof on a 2002 property? Kicking the 18 year mark, I shudder to think of the cost of a 7,000 sq foot house roof that has been ignored for that long (not maintained by a loving home owner and had leaves kicked off it). All of that being said, when people come look at a house to buy they never check the internet speed. Also it is not a place to disclose on our forms (yours may be different). While walking through nobody hooks up an XBox and it is something nobody would notice until after move in. So my thoughts are much bigger fears than a satellite internet connection for resale.Good Luck!

Theresa Harris · Answer

The current owners are getting internet through Hughes net, right? I wouldn't worry about it, if they can afford a $650K house, they can use the satellite dish for internet. I'd bet most people wouldn't even notice or think about it until they tried to move in and had problems.

Nik Moushon · Answer

I'll agree with the rest of everyone here. Internet is the least of your concerns. Satellite internet is way better that it use to be. Plus if there is cell phone reception it is even better as you can make a hot spot. As others have mentioned your biggest concern should be if you budgeted enough money to finish it and if you have the market sell it in your allotted time window. Luckily with it being own/designed by an architect (who later GC'd it) I would worry that much about the quality of the work that is done. They are notorious for being sticklers of perfection, especially when it comes to their own residence. I should know...I am one lol.

Bill Plymouth · Answer

@Chance Thurman I'm not sure about the internet situation, but you lost me at "Unique" and "Custom Home". I always suggest going for more mainstream designs when doing flips. You will have a much larger pool of buyers. Just my philosophy. I bet there are investors who make custom and luxury home flips work.

Jay Hinrichs · Answer

just for context I bought a 9k sq foot house that an NBA basket baller had 1/2 finished.. just needed interior cabnets flooring appliances landscaping etc.. we spend OVER 1 million dollar finishing that house.. now granted it sold for 5 million.. but you get the drift big high end houses can no way be put together for 200k.... at least not comeserate with the quality of the structure.. I cant imagine a 7k house ONLY selling for 625k.. that's insane..

Theresa Harris · Answer

@Chance Thurman They can get internet. Just give them a list of possible providers.

Chance Thurman · Answer

@Jay Hinrichs @Mike CumbieWell maybe things do happen for a reason. The last thing I want to do for my first project is get in over my head. @Theresa HarrisI wouldn’t want to deal with that backlash. I worked for a large production home builder and have seen customers throw absolutely fits because they can’t get their internet hooked up for 3 weeks. I’m also a strong believer in Karma and wouldn’t want to do that to someone.