When to walk away

Question

ARV = $165 to $175K range. Repair estimates = $52K; seller apparently refused a previous investor bid of $38K. As a wholesaler, at what seller price do you walk way?

Account Closed · Answer

The ARV did utilize recent sales comps in the area and is probably $30K less than what the appraisal might come in at. Rent in the area is in the $1200 per month range.

This is another way to look at it. Being a wholesaler, I'm thinking the rehabber is thinking 70% rule. Using the conservative ARV of $165K:  (($165K * .7) - $52K repairs) = $62,500. So a rehabber should be happy to get the property at $62,500. This seller is a little on the stubborn side though.

If I can get an appraiser and real estate agent to both confirm that the ARV can come in at the $190K that zillow is indicating, then: (($190K * .7) - $52K repairs) = $81,000 is a price that a rehabber might be happy with.

Account Closed · Answer

The actual ARV might be higher but will see what price seller is willing to sell at. There have been similar SFR within the area that did sell above $200K in the last 6 months and some with a smaller square footage.

I think the property would work well either for a buy and hold investor, rental or resale to a retail buyer. The area is also good but we never tell the seller this. I of course like to have bargain buyers who are interested in bargain deals with very good margins.

Account Closed · Answer

Christopher, there aren't any unpaid taxes or liens on the property. There isn't also a realtor involved. The $165K to $175K ARV is very very conservative; actual ARV might be a little higher. Zillow's for instance is at $190K.

I am not sure how you got your max offer number though. Seller's motivation to sell from what I heard is mostly the headache of managing a rental as he is elderly and an out of town owner.

Christopher Gibbins · Answer

Then really I would need to know where you got your ARV and repair costs? Is the ARV based on sold comps? Current listings? Zillow? Also what are the rents in that area? Its possible to pay a little more if you'll get good cash flow from it. For my MAO I used the very basic wholesale calc of 65% minus repairs and wholesale fee and some grace so the MAO could certainly be higher but more info would be needed.

Chris Simmons · Answer

Assuming those were accurate numbers, as a buy and hold investor, I would be prepared to pay $60,000 for that property.  Even if it is not a strong rental unit, I would be fine with a sub par rental for a year or two to qualify for long term capital gains and then sell it to pocket the equity.

Christopher Gibbins · Answer

Its hard to say with just looking at the numbers only. Are there any other expenses that we are not seeing? Are the taxes current? Is there a Realtor involved?

Just on a base calc I am coming in at $40k MAO and that's including a additional $10k grace for just in case and estimating $5k wholesale fee. Please correctly me if I am no where near close I would love to learn :)