Several times in the past few months, I’ve found myself explaining to students that the reason they couldn’t sell their wholesale deal was that they’d overpriced it, and the reason they’d overpriced was that they’d made a common logical error in figuring out the value.
See if you can tell what it is:
The subject property has an after-repaired value of $100,000, and the house has an outdated kitchen, bath, furnace, and flooring.
However, the house also has a section 8 tenant living there who’s been there for 5 years and doesn’t want to move. The house is rented for $1,000/month, and the annual section 8 inspection just came back requiring that the basement walls be painted and that one room of carpet be replaced--$1,500 in work, total.
You are offering this property to landlords for $68,500 because $100,000 x .7 - $1,500 in repairs = $68,500.
Why is it not selling?
The answer is that it’s not a good deal, and you’ve conflated two different ways of analyzing a property.
You based your “value” on an “after-repaired value” calculation, and then didn’t estimate enough for repair costs to put the property into after-repaired condition.
By saying “This house is worth $68,000 to an investor”, you’re basically saying that with $1,500 in repairs, it would sell for $100,000. In fact, $1,500 will only put it into RENTAL condition, not RESALE condition.
It might even be TRUE th ... Read More…