How can a wholesaler afford inspections on multiple leads?

Question

Hi BP,I'm just getting into REI and of course, the subject of wholesaling is interesting, if not eventually a necessary thing if you are getting more leads than you can handle flipping or other ways. So I just bought the two books on flipping and estimating rehab costs, and after glancing at the rehab book I see that in order to very accurately estimate the costs, you need to either be extremely good at everything or hire multiple professionals to take a look at things like the foundation or septic.How can a new wholesaler afford inspections in order to get accurate numbers if they are looking at a lot of places? I also read the book on low and no money down deals and did not see any mention of this.Thanks,Ben

Jose Flores · Answer

@Benjamin Shaw First, remember the purpose of estimating repair costs is negotiate a great deal with the seller and to understand what the end buyer is going to put into the property. You are not doing the rehab so it doesn't have to be an exact science. The rule of thumb for me is that if the house has a foundation problem it’s a deal breaker. When it comes to foundation concerns repairs can be as little as a few hundred dollars up to tens of thousands of dollars. Also, a consultation with a structural engineer to determine the scope of the problem could be costly. Therefore I recommend beginning wholesalers to pass on these deals but more importantly learn how to identify if a house might have a foundation problem. This is the reason I include this component on the rehab check list. There are 5 look fors you should inspect has you are walking thru the house to determine if a foundation problem might exist.1. Are the floors leveled 2.The doors don’t close properly 3.Cracks in walls 4.Cracks over doorways/windows 5.Basement walls are bowing/cracks As you walk thru the house circle yes or no next to each of these look for. If the answer to these look fors are yes then you might have a foundation problem. In fact RUN!!!

Jose Flores · Answer

Hey @Benjamin Shaw How do you estimate repairs? First, you don't need to know everything. When you walk into a house you need to know what the major components to look for are. Second is as you are looking at those components you need to know what the materials would cost at Home Depot and if you were to call a contractor what would they charge for labor. I have generated a list of all the material cost that you would expect to pay at Home Depot. Now that you know what material cost is we can move on to labor. There are two things you need to understand about labor cost. One is that many contractors will include material and labor in their estimates. That is why the material list is important because it allows you to easily subtract the material cost from the estimate to calculate labor cost. Second, is that there are two types of labor prices; retail home owner and investor friendly. Know what to look for; know cost of materials; and know cost of labor. A rehab checklist helps you accomplish this. So find yourself one to use as a guide. Next, I want to tell you most wholesalers don't understand that estimating repair cost is one of the five skills to be a pro at wholesaling. Given that you are very smart to develop this skill. Before developing a rehab checklist highlighting my costs for materials and my costs for labor on the 20 major components of a rehab I would contact a contractor on Craigslist or when driving for dollars and tell them this- "Hi my name Jose and I wholesale distress property. I must give an accurate rehab cost to my end buyer who will rehab the house. If you would take a look at the house and write an estimate of repair costs I would share your estimates as a bid on the jobs to be done. Now I can't guarantee he will use you but it may be a way for you to generate business. Is this something you would be interested in working with me on?" It has worked for me several times. Hope this helps.

Benjamin Shaw · Answer

Thanks @Jose Flores !Got it.What do you do to evaluate the septic? Just base it on the time that has past since it was installed?

Jeff B. · Answer

As a wholesaler, you would never get an inspection with my REI, as that is provided only to offers submitted with POF and Load PreApproval letters PRECISELY to avoid every Tom, Dick and Harry from disturbing the tenants and wasting my time as well.Real data and inspections belong to real players, not speculators IMO.That's part of the game when you choose wholesaling.

Benjamin Shaw · Answer

Hi @Jose FloresThanks so much for the detailed response. The idea of sweetening the deal for the contractor is a great idea! So would this contractor also be checking the critical things like the foundation and septic? A missed diagnosis on either of these seems like they could spell disaster for a deal.How do you affordably check septic and foundation on each lead?