BiggerPockets

I am up late tonight because I have been extremely busy at one of my rehabs. I was posting to my blog and didn't really have much to say on it. So I decided to write a synopsis of my most current wholesale deal. I have never written about any specific deal, but I figured it may be able to help someone understand the process a bit more.

I figured I would share here.

I received a call from an estate lawyer last week. He is the executer on a house and they are wanting to sell it. These can be great deals. Usually if they are calling you, they basically just want to liquidate the house and get as much cash from it as they can, and quickly. This week I have been very busy with my rehab projects that I did not have a lot of time to handle this lead. So I called up one of my wholesaling buddies in Houston and asked if he would want to partner 50/50 on the deal with me if he could free up time to do the " dirty work" and check out the house. He was more than willing, which was a HUGE help to me.

Here is a description of the house.

- 3,1 - 986 sq ft - Built in 1940 - Rougher Side of Houston, but NOT a warzone, in fact this street is more of an elderly neighborhood, This house is close to MANY of Houston's attractions (downtown, reliant stadium, minute maid park, the Toyota center, Texas medical center, museum district, and about 4 Universities)

After my due diligence we came up with the following numbers.

- ARV = $82,500 (which was conservative, recent comps for smaller houses came back slightly higher)

- Repairs needed = Around $10,000 for rental - (Needs central air, some rotten board on the outside, some doors/sheetrock repair, and painting)

We wanted to try to start out with a $10,000 assignment fee to split between us and work our way down depending on what they would take as an offer. When figuring out what to offer I like to start at 60% of ARV, then minus repairs and our assignment fee. If you can offer a house for 60% of ARV including the repairs and your fee, you are more than likely to sell that house pretty fast, as long as your numbers are correct.

So 60% of the ARV ($82,500) is $49,500. Subtract the $10,000 in repairs, then another $10,000 for our assignment, and you get $29,500. This is our offer price.

The offer was accepted at $30,000 and we sent the contract via fax for them to review. We should be hearing back from them in the morning as to a final decision, and hopefully we will submit the contract to our title company tommorow to open title, and we can start to market it to an end buyer.

I will keep you all informed as to how it goes. This is the first time I have written about a specific wholesale deal, maybe someone can benefit from it or possibly just lead you to questions to ask yourself. So far this deal has gone very smooth, as smooth as you could ask for. Obviously there is a lot more to come as far as clearing title, and finding an end buyer.

Hope this helps someone.

Me too. Wholesales can seem like a lot of work. It is encouraging to see it broken down and seem so simple. Helps with motivation. Thanks.

Thanks for sharing the deal with everyone, Jason! I think this is a really helpful post for people.

Well done!

I'll update this deal after I answer your questions.

1. We do not have a contract between me and my freind in this deal. We both work on the honor system. I know this sounds risky, but in this business all you really have is your integrity, people will stop working with you if you cheat them, and this is beneficial for both of us to not cheat each other. However there are ways you can assure that you will not get cheated in a deal like this. The purchase contract was actually written in his name only, because he was the liaison in the deal, the contact person.

2. We wrote the contract with $0.00 as earnest money. If we had put down something else it could have come from us or the end buyer, really just depends on if you think you can get the end buyer's deposit money quickly enough to do so.

3. The contract between us and the end buyer is what is called our assignment contract. It basically assigns the contract we have with the seller to the new buyer for a certain fee, in this case, $10,000.

4. This is a good question. I was lucky, my dad has been in contracting and repairs for his entire life. I was born into knowing how to do this. My suggestion to you would be to get on as many wholesalers lists as you can, start having them send you deals so that you can analyze the deals yourself, and see what certain things will cost. As a wholesaler it is important to be as accurate as possible when it comes to estimating repairs to gain trust, but with that said, you never know what extra things a rehabber might do to the house, so only estimate generally. You will eventually just know what to do. I never pay for home inspections as a wholesaler, though I am sure some people do.

5. I really do not have a formula to come up with for my assignment fee's. To be honest, I really didn't think the offer would be accepted and our assignment fee would go down as we kept going up on the offer. $10,000 assignment fee on a $85,000 house is actually pretty high. I usually just see what is available after making sure the ARV and repair estimates are accurate. I tend to try to make $5,000 on an assignment fee, but I have gone as low as $1,500 too just to get the deal sold.

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Anyways, to update this deal, it's kind of fallen flat on its face. I knew it was going too smooth. We cannot get this guy on the phone to call us back or talk to us when we do call now. This leads me to believe that he received another offer he liked better than ours.

We'll see, sometimes they call you back a week later, sometimes two months later asking if your offer is still on the table. Here's to hoping he does.

Jason, I think it is great you shared the deal. I also think there is a good lesson that unfortunately a lot of deals fall through. This is the reason that most people quit this business before they make it big, because they can't handle the (often) disapointment.

Last night, I just had a wholesale deal tank on me, where I was going to make about $7,000.

That is why this is a numbers game. I think Brian Tracy said to " triple your rate of failure" if you want to be successful and he is right.

The successful investors put out the most offers, do the most marketing, get the most deals and also get rejected the most.

It makes a lot more sense now. I hope you get in touch with the seller.

Good luck with the deal.

Jason,

Any updates on this deal?

So 60% of the ARV ($82,500) is $49,500. Subtract the $10,000 in repairs, then another $10,000 for our assignment, and you get $29,500. This is our offer price.

Jason. Thanks for sharing your experience with that deal. I just came across it now. I have been working with a mentor who uses the formula 70% of the ARV, minus repairs, plus holding and closing costs to determine his offer. I'm not sure why he mentions holding costs, because you aren't holding anything in a wholesale deal. He also doesn't take into account the assignment fee in his offer price. Can you explain how you decided to use your formula, and why my mentor's formula may or may not work as well? Thanks.

So it's all about wiggle room. It sounds like your formula would definitely eliminate any or most risk from the equation. Do you have statistics or can you estimate what percent of your offers are accepted?