Is it dangerous not seeing the house when wholesaling?

Question

Hey all,I have yet to get my first deal under contract, but the course I'm learning from just estimates the rehab costs with $25 sq/ft. and calculates the ARV with the comps. Is it dangerous if I do not physically drive there and view the house? I do not know anything about rehab costs, but I'm reading J Scott's book about it now. I just need to get in there and get some experience because that's how I learn the best. Thanks for the advice.

Lydia R. · Answer

@Ronald P. never never never put a house under contract that you have not seen! Especially if you are brand new and have never done a deal. Also that $25/sqft for repair costs is trash. A house in a 400k neighborhood and a house in a 150k neighborhood are going to have very different repair costs. I dont know what course you are “learning” from but you might want to ask for your money back.

James G. · Answer

@Ronald Pricop I wouldn't trust the sq footage estimate. At the VERY LEAST you should look at some pictures of the property and come up with an estimate from there. But even the, you are likely to miss quite a bit. Your best bet is to have someone take a look for you or to take a look yourself. Get a knowledge base of what rehab costs are for the respective repair item - the more experience you get, the better you'll be at it. At the end of the day if you do a sq footage estimate, just know that when the end buyer takes a look, he might completely disagree with your rehab budget. Hope this helps

Greg Scott · Answer

One thing for certain, the estimate will be wrong. If you are looking in older neighborhoods, it will probably under-estimate the amount of repairs needed and in newer neighborhoods it will probably over-estimate the amount of repairs.Thus, your offers will not be competitive on nicer homes, and your offers might be too high on older properties or ones in bad condition.Whether or not that is "dangerous" depends on what you do next.

Brian Pulaski · Answer

How much construction knowledge do you have? Using a random $25/SF is a HORRIBLE idea and will quickly get you a bad reputation. Rehab estimates need to come from either trusted contractors or researching what the house needs and what the costs are. Looking back. I don’t think I have ever rehabbed a housed for less than $25/SF. Even easier cosmetic flips where I do a lot of the work have been north of $25/SF.

Barry Pekin · Answer

@Ronald PricopI was at a local REI meeting recently. For their area, they analyzed a number of rehabs that a particular team had done, then estimated the cost of rehabs per square foot after they completed the projects. They ended up coming up with a formula that worked for them in their area. They categorized the jobs as cosmetic, light, medium, and full rehab jobs. They were able to assign a cost per square foot that worked for those categories - again, for their area. I went to another REI meeting where they had another rehabber. He showed before pictures, everyone got to come up with an estimate, then he told everyone what his cost was. This was in the same general area, so I tried the formulas, and they worked pretty well.A wholesaler doesn't have to get an exact number. Consider the fact that two rehabbers are likely to make different decisions about what they want to do with the property. As a wholesaler, you want to come up with a reasonable number - preferably padded a bit, then let the rehabber make their own estimates. If they find you are coming up with reasonable numbers, they are more likely going to trust your deals in the future.A blanket cost per square foot is not going to produce good results. Yes, you need to see the property. Pictures may be enough, though.Good luck!

Ronald P. · Answer

@Siobhan Kelly-Roberts That way works too, but how do you trust that the owners even know the condition of their own house well? Getting it under contract requires a purchase price, right? So what if the repairs are more than you expected?

Ronald P. · Answer

@Alex K.Sounds good, I would love to have someone guide me along for the first times, I'd possibly even give the deal away just for the guidance.

Ronald P. · Answer

@Cassi JustizSo you are saying that I find the ARV from the comps and let the investors find out the rehab. If I get it under contract I will need to have a purchase price to give to the seller.

Ronald P. · Answer

@Greg DickersonI see, I understand the basics of wholesaling already and will be attending some events and I'm in the process of obtaining my license. Right now I'm just stuck in the details, of estimating the costs and all the contracts. I will try to find a mentor or maybe a group who will guide me along, I have a list source pulled, but it's currently sitting not doing anything.

John Teachout · Answer

I've heard of people purchasing homes without seeing them. I personally think that's dumb but that's a personal opinion and can be contested. However you're essentially selling a home and I don't know how you can do that if you don't even know what it is. If you don't have a fair amount of experience in guestimating repairs, I'd pay a contractor to walk through a house with you a few times to point some things out. Not get an actual repair bid but they could give you an off the cuff approximation of what needs to be done and what the rough cost would be.