First wholesale deal analysis. Is this a good deal? Houston, TX

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First wholesale deal analysis. Is this a good deal? Houston, TX

Luis Avila
Wholesaler · Houston, TX · Member since 2019 · 4 posts · 0 votes

Hello BP! My name is Luis and I recently began my venture into wholesaling here in Texas.

After doing all my due diligence about wholesaling in Texas (learning the rules of disclosure, assignment and using the correct contracts, along with the appropriate language) I began driving for dollars and making phone calls.

I came across a property that looks to be a killer deal after speaking with the owner, but I am not sure what the repair cost would be or if it would even be worth repairing. This is the main thing keeping me from getting the property under contract. I don't want to tie it up and then leave the seller hanging because I couldn't find a buyer.

Here are the details:

Main House 

- 2,500 sq ft 

- Flooded with about a foot of water about 6 years ago, seller was not clear exactly when.

- Home was damaged by a fire in the kitchen. 10x10 uncovered hole in the roof for about a year.

- Home is completely gutted down to the studs per seller.

I have not inspected the property on the inside. Waiting on seller's son to show me the property as seller does not live in the area. From what I gathered, the main house would probably be a demolition project. I have no idea how much that would cost in the Houston area (neighborhood has no restrictions), or if the home is repairable. Moisture and Texas heat more than likely has this home filled with mold, not to mention all the critters (termites and other bugs) that probably made this their home. 

Detached Garage with Apartment Above

- Approximately 1,000 sq ft apartment above four car garage. 

- Exterior looks to be in great shape

- Have not clarified with seller whether the apartment has a bathroom, kitchen or how many rooms.

Lot

- Lot is almost 1.5 acres

- Has an old septic system and 200 ft water well that have not been serviced for years.

- Very nice gate and fence around property.

- Small sized pool that has not been cared for.

- Has two gates and horseshoe driveway

- Beautiful landscaping

If the entire property were to be fixed up including the main house the property could be worth $350k+.

If the main house is considered a total loss, then the property could be worth $230k-$250k, just with the detached garage/apartment. Maybe more since it does have a pool and the lot is beautiful and very well positioned in a rapidly growing area.

ARV with Main Home: $350K

ARV without Main Home: $230k-$250k

Asking Price: $150K

Repair/Demolition Cost: $?

Without knowing the cost of repairs and demolition I can't come up with a good offer price. If the entire property is fixed the asking price is only 43% of ARV, which is a heck of great deal and leaves a ton of money to play with. But my gut tells me that the house is a total loss and the cost of demolition alone will kill the deal.

This is my first deal. There is still A LOT I have to learn. If anyone here is willing to help me, I will take any advice and thoughts. 

Again, what I don't want to do is leave the seller with a bad taste for wholesalers and giving our profession a bad name. Thanks for your time!

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John K.
Wholesaler/Investor · Dallas, TX · Member since 2018 · 260 posts · 222 votes
4y

@Luis Avila

There are buyers for every type of property, it just comes down to price. 

The problem you may run into with this one, is the lack of numbers. 

This not a routine fix/flip, there are questions to be answered that potentially have serious dollars attached to those answers. 

As a wholesaler, you should have those answers at the ready, because it will be asked. 

Does it need to be knocked down? If so, how much is that? 

If not, is there significant structural damage from the fire? If so, how much to fix?

How significant is the mold infestation? Entire house? How much to remediate the problem?

What tends to put wholesalers in a good light, is we always offer the numbers. We can't be exact on them, because there are 1000s of contractors, but we can't simply say, "I don't know". It's much easier to wholesale a home, when all the data is available. 

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  • John K.
    Wholesaler/Investor · Dallas, TX · Member since 2018 · 260 posts · 222 votes
    4y

    @Luis Avila


    Just because a home has taken on excessive water and now has mold, doesn't mean it needs to be torn down. In the Texas heat, or not. Mold can be safely cleaned and the home be deemed safe for occupancy. 
    The determination on whether it needs demolished, will come down to how much damage the fire actually did and does it make financial sense to repair any structural damage, if in fact it's not a total loss, done with the fire. 

    The confusion comes from your numbers. 

    With Home: 350K

    Without Home: 230-250K? How much land is this on, that makes a 2500 sq. foot home, worth only 100K.

    If the purchase price is 150K and this needs to be demolished, I think it's a bit of a stretch to think you could replace this home, for 200K. What size home can be built in Houston, for 200K?

    You really need to dig into the costs here. This is not a normal scenario, so you should look for the numbers so you can accurately determine if 150K is a good number, or not. Contractors to estimate the damage, engineers to determine if there are any structural concerns and mold cleanup/treatment. 

    I can tell you that if the mold has taken over the entire 2500 sq foot house, the cleanup costs will be significant. 

    Good Luck!

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  • Luis Avila
    OP
    Wholesaler · Houston, TX · Member since 2019 · 4 posts · 0 votes
    4y
    Originally posted by @John K.:

    @Luis Avila


    Just because a home has taken on excessive water and now has mold, doesn't mean it needs to be torn down. In the Texas heat, or not. Mold can be safely cleaned and the home be deemed safe for occupancy. 
    The determination on whether it needs demolished, will come down to how much damage the fire actually did and does it make financial sense to repair any structural damage, if in fact it's not a total loss, done with the fire. 

    The confusion comes from your numbers. 

    With Home: 350K

    Without Home: 230-250K? How much land is this on, that makes a 2500 sq. foot home, worth only 100K.

    If the purchase price is 150K and this needs to be demolished, I think it's a bit of a stretch to think you could replace this home, for 200K. What size home can be built in Houston, for 200K?

    You really need to dig into the costs here. This is not a normal scenario, so you should look for the numbers so you can accurately determine if 150K is a good number, or not. Contractors to estimate the damage, engineers to determine if there are any structural concerns and mold cleanup/treatment. 

    I can tell you that if the mold has taken over the entire 2500 sq foot house, the cleanup costs will be significant. 

    Good Luck!

    @John K.

    John, thank you for your insights!

    As I stated in my post, the home is on about 1.5 acres. 

    I based the $230k-$250k on comparable properties sold/for sale with the same square footage of only the apartment and lot size. Let me clarify that this is a separate two story structure with the four car garage on the first floor and the apartment on the second floor. 

    If the damaged home were salvageable and repaired, the property has a potential upwards of $350k as a conservative estimate. My question, as a wholesaler is, would an end-buyer investor consider this property if the main house needs to be a demo project?

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  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    4y

    @Luis Avila be careful with complicated deals if this is your first deal.

    Goodluck

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  • John K.
    Wholesaler/Investor · Dallas, TX · Member since 2018 · 260 posts · 222 votes
    4y

    @Luis Avila

    There are buyers for every type of property, it just comes down to price. 

    The problem you may run into with this one, is the lack of numbers. 

    This not a routine fix/flip, there are questions to be answered that potentially have serious dollars attached to those answers. 

    As a wholesaler, you should have those answers at the ready, because it will be asked. 

    Does it need to be knocked down? If so, how much is that? 

    If not, is there significant structural damage from the fire? If so, how much to fix?

    How significant is the mold infestation? Entire house? How much to remediate the problem?

    What tends to put wholesalers in a good light, is we always offer the numbers. We can't be exact on them, because there are 1000s of contractors, but we can't simply say, "I don't know". It's much easier to wholesale a home, when all the data is available. 

    1Reply
  • Gearold White
    Flipper/Rehabber · Houston, TX · Member since 2020 · 43 posts · 15 votes
    4y

    @Luis Avila give me a shout. I am in the Houston area. I am a local GC. My first flip was a house built in 41' and my second was a burn house. I say this not to brag but to say I am still in real estate investing. I don't mind helping you out. I have seen and CLEARLY understand what these types of houses can do to an experienced investor/flipper not to mention a beginner. Would love to help if it keeps you from making some of the mistakes I did.

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