We just finished our first attempt at a wholesale deal – and it didn’t go very well, but it wasn’t terrible either. What we did was look for properties on the HUD website that we could buy far below ARV. I found one that had an as-is value of $79k and my best estimate at an ARV based on comps was $93k. It was listed for $57k and my bid was for $47k. That was not accepted. So I raised it to $49k, which also wasn’t accepted. My realtor found out somehow that $52,100 was the lowest number they’d accept so I bid that and they did accept it. That’s where the fun started.
I went to the property with my realtor the day the bid was accepted and did an inspection to check the condition of the property better (I had already driven by it and walked around it before bidding on it), take a bunch of pictures, and get a better feel for what I thought it was worth compared to the houses around it. I think I got the ARV pretty darn close (though I may have been a little high), and I estimated the repairs to be around $10k (most of which was appliances and windows).
Then I ran the numbers on it and developed a flyer showing the pertinent numbers with a wholesale price of $65k. I sent that flyer to two investors that I know buy in this area and waited for a response. I got it the next morning – both said “no thanks.” One in particular who I’ve talked to in the past and asked if he would be willing to let me bounce ideas off of him and give me advice had more to say. He said that he found that the property was listed on the MLS for $57k, and was “sale pending” which he assumed was because I had it under contract. So since he could see that it was listed for lower than I was trying to sell it for, he did not consider that to be a wholesale price and that’s why he wasn’t interested. He said that if I could have gotten it for less than list price and sold it for less than list price, then it would be a wholesale deal and he would be interested.
Well I did get it for lower than list price, but in order for me to sell it and just break even I had to sell it for at least $60k (to pay the realtor fees, transactional funding fees, and make $1k or less and/or break even on any other misc costs). After praying about it and thinking about it more, I didn’t feel like this was a sure enough deal to go ahead and send in the earnest deposit money for and try to find a different buyer for over $60k in the next 45 days. I still think it was a pretty good deal, just not good enough to ensure my first real estate deal would be successful.
So I called my realtor reluctantly and told him I needed to cancel the deal. Since I hadn’t signed the purchase agreement yet or sent in the security deposit, I didn’t lose any money which is great. But my realtor isn’t very happy with me. But at least I learned something and won’t make the mistake of trying to wholesale a property for higher than it was listed for again. In retrospect, that lesson should be pretty obvious. I figured it was a big enough spread between what I was selling it for and what the ARV was so that some other investor could rehab it and still make close to $10k after selling it retail, but I guess that’s not enough to make it a good deal to many investors.
So I’ll learn from my mistake, get back on my horse and try to find a better deal now.
P.S. Another good thing did come out of this. I got worried when both of the investors I know didn’t want to buy it or even counteroffer, so I created a website to help me build a buyer’s list. I just finished getting it up and running this weekend, so I can hopefully build up a pretty good buyer’s list before I find my next deal and I’ll have better luck in finding a buyer for my deal. =) If you want to check it out, click here: https://sites.google.com/site/c3erehabs/
