Estimating Repairs as a WholesalerPosted on October 20, 2015 by
A common scenario…
You find a deal and the Seller is motivated to sell. You walk through the property and notate everything you think the property needs. You come up with some quick estimates, do some negotiating with the Seller and get the property under contract. Woohoo! Your blood is flowing. It’s time to sell it. You send it to your Buyers list and you have interest. Things are looking good. Buyers check out the house. The excitement then dwindles…
The reason? Repair estimate is too low. In some cases, very low. Before you know it, you are getting few offers and the few you get are simply too low…
Does this sound familiar?
This story plays out several times per week in our office from wholesalers that send us deals. The reality is, it is common for wholesaler repair estimates to be low. The majority of wholesalers I meet have never rehabbed a property. Selling to a rehabber is one of those things where it is best to walk in their shoes before trying to sell to them.
‘But wait, I don’t want to be a rehabber!’ you may be thinking. That’s ok, you don’t have to be. The solution is simple yet overlooked by the vast majority of wholesalers…
Get real repair estimates. Not the ones where you walk the house and make loose judgments. The ones where you get a licensed contractor to walk the property with you and tell you what they see. You also have to tell them what you envision and if that can work. As a result, they will usually point out a few, or in some cases a lot, of things you did not consider. You may find that your contract price is a little high. Or a lot high!
The number one complaint Buyers have of wholesalers is almost always way off repair estimates. I have seen them be as far off as 100k. You can avoid this position! If you get a good contractor, they will even have vision for the property in some cases so that you can ‘see the end product’ as they describe it to you.
By getting an accurate estimate, you can adapt your wholesale fee accordingly and make sure your contract price supports the deal. Leaving ‘meat on the bone’ is a common phrase I hear Buyers use to describe deals with margins that are simply way too thin. If there is no meat, the Buyer will not Buy. Simple as that.
Now you may have to pay the contractor to do this, especially if you are new. Many contractors will gladly give you an estimate for $100 give or take and may even give you the first couple for free. However, this is priceless information and if it allows you to get your contract price right, it more than pays for itself several times over. If you need to get three contractors out to have choices, that is ok. Learn from what each of them have to say. You’ll be amazed how quickly you can start to think how your Buyers are thinking.
The biggest benefit that isn’t usually mentioned is when you send out solid deals with repair estimates that make sense, your credibility will go up. People will understand you are submitting real world information and will respect that. Most Buyers can see bogus repair estimates a mile away. Give them something worth looking at and even if they don’t buy ‘this deal’, they will look at your other deals because of your credibility.
Lastly, keep in mind, you may indeed need to go renegotiate with the Seller. This is ok. Simply justify your position with real data from your contractor walkthrough and not just your opinions and you just may get the change you need. Buyers will appreciate this as well.
And if you really want to take it to the next level, have an architect and home designer walk the property with you and you may come away with more information than you ever wanted to know. However this is the kind of information that makes you better at your trade. These people come in for larger projects because they will also have a key position in creating the final product.
So whether you rehab or not, get to know contractors and their trade. Check out online sites like Houzz to learn about the potential of the deals you get. You will be a much more effective wholesaler as a result. Take the contractors out there, get the bids and give the Buyers what they want. It’s a win-win that never gets old.