Posted by DSmith on March 27, 2006 at 14:34:11:
I?m mostly dealing with ARV?s of around 150K, so 70% still leaves a nice profit.
Buying from Wholesalers - Posted by DSmith
Posted by DSmith on March 27, 2006 at 08:31:32:
I was wondering if other rehabbers have had much success buying from wholesalers.
Since I started investing, I?ve bought rehabbed and sold two properties, one that I found and one that I bought from another investor. The other investor was not a wholesaler, just a first time rehabber that got in over his head.
The problem is that I?m not finding properties as quickly as I?d like. So, I thought it might be a good idea to buy properties from a wholesaler on months where I don?t find a property myself.
How many of you regularly buy from wholesalers? Are you getting big equity deals this way?
I?m skeptical when things seem too easy, so that?s probably why I?ve shied away from using wholesalers up to now.
Re: Buying from Wholesalers - Posted by Jack
Posted by Jack on March 27, 2006 at 14:02:57:
The problem with working with ‘wholesalers’ (I put that in quotes because any newbie can call themselves a wholesaler) is that you end up spending just as much time screening properties from wholesalers as you would screening properties from other sources, so you might as well skip the wholesaler and keep that extra $5,000 or so in profit.
Re: Buying from Wholesalers - Posted by John
Posted by John on March 27, 2006 at 13:24:38:
After reading your question and the post below, I am in the same shape. I have bought 2 properties last year from wholsalers after looking at around 30.
It seem everyone wants to start into REI by wholesaling. This is all fine and well. However the prices of ARV are inflated and repairs are under valued. By the time some of these so called deals are offered with assignment fees, repair costs, and selling fees you have no profit left. I wish the newbies wholesaling would have numbers that work out. I guess they have to start somewhere but I wish they would learn the numbers first.
Re: Buying from Wholesalers - Posted by dutch
Posted by dutch on March 27, 2006 at 10:04:55:
I have bought 3 properties from wholesalers in the last year. I probably talked about 50, and actually looked about about 15.
It is a very viable source for properties, but like everything else, do your due diligence.
Dutch
Oklahoma
Re: Buying from Wholesalers - Posted by Sean
Posted by Sean on March 27, 2006 at 09:08:15:
In over 3 years, I have only bought 1 deal from a wholesaler… I am more than willing to buy from them, but I haven’t had one bring me a deal remotely priced right to justify me buying it from them.
The general problem with wholesalers in my area is that they are most of the time newbies, don’t have a clue about repair costs, or ARV… or expect a way too high of a percentage of ARV in their formulas.
The Guru’s all say 70%ARV - REPAIRS = MOA… well, I tend to buy, unless its a very very light rehab, or an upscale type house at about 50%ishARV - REPAIRS = MOA… Others may pay more, but I don’t, and often the deals wholesalers bring me are deals I’ve already turned down from the orignal seller before the wholesaler gets em.
Here’s an example wholesaler “deal” house is a fire damaged property, brick building, but pretty significant fire… its a 2 bedroom house, maybe worth 50-60k in the neighborhood its in fixed up… Might be able to push sale into 70s if you give terms… The wholesaler claimed it was a 95k ARV (an absolute joke for a 2 bedroom in that neighborhood)… would be very lucky to get 60… at 95k folks buy in the next little borough over 4 bedrooms with a better school district and lower taxes.
Now this is a fire property, so repair costs are going to be significant, very likely the plumbing will all need repaired, as well as rewiring and possibly structural issues… let alone the general, paint, plaster, new bath, new kitchen, new roof and windows and landscaping that are just about an automatic on a rehab… Now he started out asking somewhere around 30k I believe(he had locked it up at 2k)… now he could have likely found a professional contractor who does rehabs on the side, who might have thought about it for 4 or 5k… needless to say, last I saw he was still looking for 10k for it…
I do have a friend who is a serious wholesaler he has over 600 names, but maybe 20 of those are real player rehabbers.
Re: Buying from Wholesalers - Posted by DSmith
Posted by DSmith on March 27, 2006 at 14:32:13:
If it?s only a $5,000 difference in ending profit that we?re talking about, I?d be more than happy to keep wholesalers busy. I think the trick is finding a real experienced wholesaler who you can trust and build a relationship with to the point where you can trust their numbers. From the responses so far, maybe those types are not very common.
Re: Buying from Wholesalers - Posted by Rich
Posted by Rich on March 28, 2006 at 12:25:06:
That’s just the “get rich quick” syndrome. Its too much work to learn what the numbers are and how to work them. Why, that’s like real work.
Wholesaler’s Names - Posted by RobertB(CO)
Posted by RobertB(CO) on March 27, 2006 at 11:19:31:
Where are you getting your wholesaler’s names? I have seen a few at REI Club meetings and a few on Loopnet. Even investorsloft says they have some but the few props they had in CO , they wanted 95% of FMV so not a true wholesaler or even a true motivated seller.
Re: Buying from Wholesalers - Posted by DSmith
Posted by DSmith on March 27, 2006 at 12:26:35:
This is what I?ve noticed with most homes that these wholesalers are advertising. They say comps are 150K, but really one house sold for $150K that had a basement and an extra bedroom, but the actual comps are 120-130K.
When I find a home myself I won?t pay more than 50-60% (my first 2 were both in that range), but if I?d be willing to pay a legitimate 70% less repairs to fill the no house void (like the last two months) when I?m not able to close a deal. Hopefully this won?t be an issue as I get better at finding deals myself, but until then I really hate the down time without a property (Gotta get out of the 9-5!).
You?d think there?s be some serious wholesalers who?d realize that being extra careful with their pricing will get them repeat business and earn them much more over time.
Re: Buying from Wholesalers - Posted by DaveD (WI)
Posted by DaveD (WI) on March 27, 2006 at 10:47:09:
By locking it up at 2K, he still might be in it for too much… near free isn’t good enough if the knockdown costs are more than the dirt value.
Re: Buying from Wholesalers - Posted by dominique
Posted by dominique on March 27, 2006 at 21:21:41:
I have been wholesaling as well as rehabbing for a few years and have a following of investors who purchase continuously. Its about knwoing what meets yyour investor’s needs. Every deal is not for everyone. Relationships are key.
Re: experienced wholesaler - Posted by Jack
Posted by Jack on March 27, 2006 at 21:10:25:
“experienced wholesaler” is something of an oxymoron. Most of the wholesalers you encounter are going to newbies. The few that succeed wholesaling soon realize that wholesalable deals don’t grow on trees, and that they can make more money by keeping the properties and fixing them up themselves. Of course there are always exceptions. I have even wholesaled a few properties myself when I had too much inventory.
Re: Wholesaler’s Names - Posted by dutch
Posted by dutch on March 27, 2006 at 12:08:06:
- call every one of the “We Buy Houses” ads in your paper
- Call or write everyone who buys property at the Sheriff’s (or Trustee’s) auction
- Run a “We Buy Houses” ad in your paper.
- Network at your local REI club.
They will find you.
Dutch
Re: Buying from Wholesalers - Posted by Sean
Posted by Sean on March 27, 2006 at 13:48:50:
Well The problem with the 70% ARV formula with wholesaling is that its completely unrealistic in the areas most deals are… There are plenty of areas here where a nice 3 or 4 bedroom home isn’t worth retail more than 50 or 60k (and some areas substantially less). When the house is only worth 60k… and you are in it for 42K when you are done fixing it up… you really don’t have much profit… with a 4% transfer tax, marketing costs, holding costs (its a buyers market here) etc etc… you’d be lucky to walk away with 8-10k… now why would anyone do 20k worth of rehab to a house to make 8-10k max, and that’s before Uncle Sam shows up and wants his Capital Gain Tax…
When you get to houses over 100k you have a little more wiggle room to go higher on the ARV… but when the typical price range is mostly 60-80s… you can’t pay someone 70%ARV-REPAIRS and make anything…
Newbies also get caught up on that, never wholesale for less than a 5k profit nonsense… when generally wholesaling is a 2k-3kish per property business in practice. That doesn’t mean you don’t sometimes get a homerun… but its very atypical.
Re: Buying from Wholesalers - Posted by Sean
Posted by Sean on March 27, 2006 at 11:01:28:
OH I didn’t mean a contractor who would build a new house on the lot… I meant a contractor who would fix it up as a side project… store equipment and materials there while its being repaired etc. Not uncommon here for that sort of thing.
Lot value in that neighborhood wouldn’t justify teardown and would never be able to sell the new house for what it would cost to build.
You have to understand, where I live, my “replacement cost insurance” is insanely higher than the value of most properties I own… You can’t build a house for the cost of buying an existing one here.