I Am Going About This All Wrong!

[Stan Butler]

So I get a call from a wholesaler about a hot property he has just locked up in my target market. I get the address, a purchase price of $220k, a rehab estimate of $50k and an ARV of $345k. Those numbers work for my criteria, so I begin the DD process.

The property is listed on our local MLS and there are comparable sales in the neighborhood. One is especially good of a high-end renovation at $295k with similar square footage and floor plan. The highest sale is $330k for an updated home with 1,000 more square feet and a basement. Both of these sales occurred in the last 4 months.

I review the property and form my own list of rehab items and come up with $60k based on what I see.  It will, of course, be more than $60k since there are always items that you cannot see.

Doing some math I come up with a best case scenario of $285k Net Sales Price less the rehab and the purchase price and come up with basically ZERO profit.  So I call the guy back and review everything and he says its already under contract for $220k.

So I am seriously thinking that I need to revamp my current rehabbing business model.  Good deals are hard to find because there are so many people willing to do bad deals.  I think I will just start marketing crap deals and save myself a lot of time, because there appears to be plenty of buyers!!!

[Andrew Cordle]

@Stan Butler

Great point. I see investors put houses under contract at horrible prices. One thing that I did was move up in prices. 

Meaning, I started doing houses that were more all in for 400k to 600k. And what I found was there was not as much competition. 

Don't get me wrong there is still competition, but it seems like there is not as much dumb money. Meaning, maybe a newbie investor that will pay anything for the house just to get it under contract. At that price range the competition is fast to buy but you don't really see someone just bidding crazy money that doesn't match LTV and ARV.

Andrew