Million dollar homes

[Michael Martin]

I have been putting out bandit signs and my phone has been ringing but the thing is I had a few calls about million dollar and up homes, where the sellers don't want anything to do with agents. So my question is can i help these sellers in anyway or just let them go?

[Brian Burke]

You can help them if you know buyers that operate in that space. You should seek out some reputable operators in the high-end home biz and see if your leads add value for them.  When you find someone that says yes, your next question is whether they would reward you for those leads if they result in a deal.  Deal flow is hard to come by these days, so I can't imagine any reason to turn down potential deal flow (speaking from the buyer's perspective).

[Chaz Reid]

A million dollar house looks the same as a 100k property to the right investor. Just because its high end doesn't mean get nervous. GET HAPPY!!! EXCITED!!! BEND OVER BACKWARDS!!! But only if they are motivated. This can be the potiental to adding an extra zero to your paycheck. Just food for thought...

[Will Barnard]

Now you are talking my language! This is my space and I operate almost exclusively now in the luxury market in So Cal. Do not toss those leads out! They may not be any good in which case they would get tossed, but you must ascertain that before you do so. If you do not understand the luxury market or the required spreads to make a real deal, then I suggest you either learn or get some assistance from someone who can. While it is not rocket science, it is much more difficult to calculate an accurate ARV and rehab number compared to a $300k home.

Motivation is key for a good spread, so the leads must come with motivated sellers.

[Dev Horn]

There is certainly a market for higher priced homes, but they do present some challenges to RE investors in that the capital required could be used to fund multiple smaller deals, so there is an opportunity cost, and as Will says, figuring out ARV & repairs on a million dollar place can be a challenge. If you're off by 10%, it could be a $100,000 error vs. a $10,000 error on a low-cost 3/2/2 rental unit.

[Jamie Parker]

Is there any rule that helps calculated this kind of deal @Brian Burke @Chaz Reid @Dev Horn? I have been asked by a buyer to find a house she can sell for 2M. So know I am combing thru the parts of town with the range of sell price. As a wholesaler my first thought is to talk them down, but I lost a deal on a rehab where I thought that the person that purchased over paid but the house that is going up is gonna be a valued around 1M-1.5M easy. 

[Dev Horn]

Most of the guys I know that do high-dollar homes make sure they are buying down around 50% of ARV based upon tax appraised value and actual sold comps. The reason they require a much larger discount is the increased financial risk involved with this much larger capital requirement.

There may be luxury home deals out there at 80% ARV and you think they are attractive but if anything goes south with your repairs etc. you don't have enough margin to absorb those unanticipated costs, and you can get into some serious financial trouble.

I'm in the school of thought that most RE investment opportunities are found at "below median value" in the market.  Here in Dallas/Ft. Worth, I can flip $130K 3/2/2's quickly.  But I just did a $200K 4/3.5/2 that took more than 2X the rehab budget of a typical 3/2/2, took longer to rehab, and took twice as long to sell on the retail market than a cheaper 3/2/2.  ($200K is around the MEDIAN value in this area)  That increased rehab cost to finish out a nicer house, and the increased days on market seriously ate into our profit margin.  If I had to do it again, I would have passed on that property which was at the median price point (far from a high-dollar luxury property) and continued my focus on houses well below median value.

Buy at the upper end of the market with a high degree of caution and demand a huge margin, or you're better off applying you capital to other opportunities with more predictable costs and outcomes.