Why do repair costs matter to the middleman?

Question

Why does the middle man have to have accurate repair estimates? I'm just curious as to why the person assigning the property to an end buyer have to have accurate repair estimates. I look at it like this. Repair costs on a home can be as expensive or less expensive as the buyer wants it to be. The buyer is the one who gets to decide whether or not they want to pay for expensive over the top flooring and counter tops in the home as opposed to something nice,simple, and cheaper. I may give estimates based on what I would spend to remodel a home which may be totally different from what the end buyer would spend on repairs. For example, my repair estimates may be $15k compared to the end buyer's repair estimates of $5k. To me it comes down to the type of materials the buyer wants to spend to fix up the house. I'm not talking the major repairs because that is something that have to be taken care of regardless how much it costs to repair. But with the other repairs the buyer gets to choose how they want to redesign the home and at what cost is up to them. Just my opinion how I see it.

Randy F. · Answer

Not only do you want to know what your investors want, you need to know your market. Its easy to complicate it when youre dealing with hypotheticals, but every house has a sweet spot. If the comps all have granite, estimate it with granite. You want to bring it up to, and a bit above, the comps.
If you have a 3/1, and 3/2s are where its at for end buyers, and the floor plan lends itself to adding a bath and the numbers work, estimate a bath. If you are selling to a rehabber/ flipper, think like one.
If youre selling to a landlord, think like one. Look at mechanical, roofs, appliances etc. to reduce potential for reoccuring repair & maintenance issues and making move-in ready.
If you provide a decent analysis of the property which peaks his interest, and he buys and finds you were spot on, whose properties is he gonna look at in the future?

J Scott · Answer

As I've said before, if a wholesaler brings me a deal, I will completely ignore his rehab estimate. But, if the wholesaler didn't have an idea of the estimate, there's no way he could have known if it was a reasonable deal or not, and if he wastes my time bringing me bad deals, I'm going to ask him to stop bothering me.

So, the purpose of the rehab estimate for the wholesaler is to ensure that the deal is a reasonable one, so that you're not wasting your customer's time...

Fran Flanagan · Answer

Your arguments are actually in favor of doing a more detailed analysis, and really earning your fee. You can present the deal as such, purchase price 60k.

Minimal repairs: 15k, ARV 100k Add a bathroom plus necessary repairs, min-avg quality 30k, ARV 130k Add bathroom, repairs, plus higher end stuff in bath and kitchen 45k, ARV 160k

If your numbers are reasonable, comps provided, one might expect buyers would enjoy working with someone who went through this effort... and look to do more business with you.

James Hiddle · Answer

It's nice to know what the estimates are so you can correctly evaluate a properties potential profit margin even before you speak to a buyer.

When you go out of the way for your end buyers you create rapport with them so they would want to purchase more property from you.

Antonio Bodley · Answer

Matt Devincenzo Ok how about this. Let's say the buyer is a rehabber that wants the finest touches to get the house sold or better yet hope to get the house sold for top dollar. As nice as the finishes may be on the home, the person the home is being sold to may not be as impressed by all the fancy fix ups done to the home. They may be just as impressed with simple basic repairs without all the glamour. And here it is the buyer spent all that money on top of the line repairs on a home that the other buyers don't even find impressive enough to buy the home from the buyer I assigned the property to. I see what you mean by me knowing what my end buyer likes, but in the end it is all about what my end buyer's buyer like and they may not like what the first end buyer done to the place no matter how nice the end buyer think it looks.

Matt Devincenzo · Answer

It matters to you because it matters to your end buyer. If your buyer is a rehabber that has to do the nicest finishes to get it sold later for top dollar you need to back that much out to make the numbers work for your buyer or they won't buy your deal. If on the other hand your buyer is a buy and hold guy that just wants it in rentable condition you might negotiate yourself out of a deal by deducting too much for repairs and the seller won't sign a contract with you in the first place.

So the answer is if you want to be able to sell your deal you need to know the numbers so you can make sure you will be able to get it sold.

Why do repair costs matter to the middleman?

Why do repair costs matter to the middleman?

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