what to do if repair costs exceed ARV?

Question

Hey guys i am currently bidding on a deal i want to wholesale. I got my contractor out to the property to give me a repair estimate and  the amount of money to repair the property is $140,835 and the ARV is bewtween 125k-128k which means repair costs would be more than the ARV of the home. Is this a red flag??

J Scott · Answer

It could be a good deal, depending on how much money you're trying to lose...

Kuba F. · Answer

It's more of a white flag...

Mindy Jensen · Answer

Not every property is a deal. If you have to put more money into the property than it is worth, then it's not a deal.

Russell Brazil · Answer

Account Closed not every property can be flipped.....but I see this all the time. The contractor you are using is not one you should be using to do flips. A repair cost of $140k is what you spend on a full gut medium to high end rehab on a rowhouse in Petworth, Bloomingdale, Shaw.  You need to be realistic of costs, but also find contractors that get things done on your budget (If your budget is realistic).  I see people get quotes on work in the DC area at 2-3 times higher or more what I pay for the same service.  Even recently someone asked me how much I get a certain thing done for, and I get it done for $20-22k, and they were paying $60k for the same project.

Jeff Copeland · Answer

It's more than a red flag!

$140k for a rehab seems extremely high. But the rehab costs can't exceed what the property is worth!

In fact, you need to be able to:

1. Buy the property and pay closing costs

2. Rehab the property and pay holding costs such as utilities & insurance for a few months

3. Sell the property and pay commission and closing costs

4. Still have profit remaining.

If #4 is zero or a negative number, you're not doing it right.

Patrick L. · Answer

What's the land worth?  If it's truly that far gone then it's a tear down.  How much will it cost tear it down and how much can you sell the lot for?

Joe Splitrock · Answer

Account Closed what is your real question here? Logically speaking if it costs you more to renovate than you can sell for, of course that is a bad deal / red flag. I am sure you understand that, so are you trying to ask something different?

Doug W. · Answer

I am impressed that you got a contractor to come out to walk the house with you and to write up a bid.

Jim Adrian · Answer

Is the contractor using high end finishes where they are not warranted? Get another bid or change your scope of work.

what to do if repair costs exceed ARV?

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