Thought I'd share a lesson that was reinforced for me today that ended up saving me from doing a bad deal and losing a bunch of money.
tl/dr: make sure that you're getting your own estimate from YOUR general contractor instead of trusting one that a seller/wholesaler has and then verifying after you put under contract
I'm working with a wholesaler that I haven't worked with in the past and found a deal in Essex (outside Baltimore) that I liked.
Here are some of the pictures of the house:
Based on the pictures, we considered this a complete cosmetic rehab - the house was shown to be in pretty good shape but there was some work that needed to be done to modernize the house in order to bring current market prices in Essex.
Here was the info we had from the wholesaler:
Single family, 3/2 bath
1320 SF
Price: $90,000
Rehab: $35,000
ARV: $200,000
And the kicker: the seller had a one month old SOWk that had already been prepared by a local general contractor and laid out the $35k in rehab costs.
There was enough info at this point to deep dive into the analysis. I pulled comps and did my typical analysis for a fix and flip. At this point, it looked good and I was starting to get excited.
My analysis:
Two roads diverged in a yellow wood...
With the above analysis and the comps pulled that were close to the wholesaler estimate ($196k), these were numbers we would immediately put an offer on, and I have a tendency to want to move quickly. But I wasn't sure how reliable the SOW was given that I hadn't commissioned the SOW myself.
So I had two choices:
Choice 1 (the smart one): WAIT for a day to call MY general contractor and get him in to do his own estimate. Seems to be a duh, right!?
Choice 2 (the devil on my shoulder): "Brad, you've got an SOW already, you would estimate a cosmetic rehab to be between $30k and $40k, the wholesaler's estimates have been relatively accurate thus far, the pictures looks pretty damn good, you should get the property under contract now so that someone else doesn't scoop it up."
Now, I hate to be one to miss out on a deal, but I just couldn't trust pictures and my own estimates without my GC to back to reinforce it. So I called my GC, held my breath, crossed my fingers and prayed that someone else didn't find "my deal" in the day it would take to get my own SOW.
So glad I did.
My general contractor came back immediately with a $75k estimate, which blew up the deal. The seller's SOW didn't contemplate a new roof, an out-of-use pool in the backyard that neighbors had been using for burning trash and needed to be filled, exposed and out of code electrical, and a basement that had been dug up by the previous owner. I would've lost money on the overall deal had I put in the offer prematurely.
Bottom line, it was a great reminder to me that I need to make sure I complete all my steps when looking at deals and not contemplate the shortcut in order to secure a deal faster. Hopefully this helps any of you looking at deals as well and maybe prevents one of you from going down a road full of headaches (and sunk money) that I almost went down.
Happy to answer any other questions on the deal if there are any.
Brad
