Another Wholesale Lead – Another PASS
Valerie got another lead from one of these wholesale e-mail distribution lists. We have not had any luck with these, but this property was in an area that we have been looking to make a purchase. The property looked good on paper. It was a one owner for at least the last 10 years with a bank owning it currently.
The home was in a great neighborhood – standard 3-2 with a detached garage. The home was a bit older (1960 build), but it was on a larger lot, good roof line, good curb appeal and in a desirable area. The home looked good on googlemaps, but when she went over to view the inside – things fell apart. The home was gutted. Vandals had got in there, perhaps a squatter. Kitchen was gone, baths were methed out, spray paint everywhere, flooring was gone, foundation issues, HVAC was shot, etc.
What looked good on paper turned out to be a “No Deal” once we get out there. This is what we see on every wholesale lead. These are NOT deals that will work as a rental. I don’t expect the home to be turnkey, but I don’t want to spend “flip-type” money just to make it rent ready. A flipper that really knows what they are doing might squeeze out a profit on this one, but there are too many properties out there to buy one that needs $20k+ in rehab.
These wholesale leads are the leftovers. All wholesalers must have at least 2-3 investors that they call first (their regular buyers) before they ever send out their email. And if the deal is really good, then I am sure the wholesaler would just keep it for himself. These leads look good in the e-mails and sound good on paper, but these are really just frustrating timewasters.
Here are some details on this wholesale lead. I did not even bother with pics:
Wholesalers price: $74.5k
Estimated Closing costs: $5k+ (buyers pay all closing costs with most wholesalers)
Market rent: $1,250
Estimated Repairs: $20-$30k
ARV: $120k
landlordinvestor 
It is hard finding deals.
What criteria are you looking for?
When I buy rentals I don’t want to spend (purchase, closing, and repairs) any more than 60 times rent.
I also make sure that the ARV is greater than the purchase price plus double the repair cost (ARV > purchase + (2 x repairs). This helps me get a better deal when more work is required.
For this house, I would not want to purchase for any more than $45k. I usually buy bank owned and several of these low offers have been accepted. I doubt a wholesaler would go for that.
I just bought a bank owned house for $32k and expect to spend $30k in the rehab. I am going to try to flip it for about $110k. This will be my first flip – all my others have been rentals. You can read all the details and see pics at my blog.
Don,
Your formulas are interesting. Never seen that before, but oddly enough it comes very close to my ‘cowboy math’. I use a basic rent ratio — Where I take the anticipated rent and divide by my purchase price + all closing cost + rehab and I expect this to be at 1.5% or higher. I would like to get to 2% or even higher, but I would be buying lower class properties.
For this wholesale deal, my expected rent would be $1,250. With my rent ratio at 1.5%, the value would be $83,333 ($1,250/.015). The $83k is my total all in after everything. If I estimated close at $5k and repairs at $30k, I would be at $48k. ($83k – 30k – 5k = $48k). Close to your $45k.
Unfortunately this wholesale property would need almost the same repairs as if it was flip. No way to make it work for me. I have not had any luck getting these wholesalers to move on their price. Every once in a while they will send out another e-mail that says the price has been reduced. But with all their bandit signs and other tactics, they usually get a sucker to bite.
Good luck on your flip – Looks like you will be making money on that one..
How did you go about being added to wholesellers’ email lists? It sounds like it’s not worth it but I’d appreciate knowing the steps.
Cesar,
I am not sure how I ended up on so many lists. I think I sent out a few letters to distressed property owners and one of them was probably a wholesalers place. They then probably added me to their distribution. If you really wanted to be added then respond to a bandit sign – i am sure that would put you a buyer list.
Good luck.
I am a wholesaler in Milwaukee WI where December 2015 gave me over 30 properties with 2 turning out to be deals. I have rental properties that I purchase from the city of Milwaukee. Purchase price + rehabe = ~30K, the city pays all closing cost + waive the upcoming year’s taxes (I purchased in April 2014 and will not pay property taxes until January 2017; 2014 paid by the city, 2015 waived by the city, 2016 I will pay). The property had a tenant paying $750 rent. Rent / purchase price + rehab is 3.3%.
I get 5 deals like this per month but I am out of cash to purchase more.