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Newbie Wholesalers: READ THIS!

J Scott
3 min read
Newbie Wholesalers:  READ THIS!

I get a lot of emails and phone calls from newbie wholesalers who are looking to do their first deal (and very few that are actually experienced). Most of the time, they want to run a deal past me that is too thin or for some other reason just doesn’t fit my style of investing.

But, every once in a while, I get a pitch from a wholesaler that just blows me away! Here is a recent example of that…

I received the following email from a wholesaler in my area (the “deal” was also posted on one of the BiggerPockets forums, btw):

I have a great investment home in [CITY REMOVED] that needs minor repairs..
Here are the details:

[ADDRESS REMOVED]
3/2
asking -51,000
est repairs- 5000
ARV-90000

Thanks and let me know if you’re interested
[SIGNATURE REMOVED]

As I normally do when I get an email like this, I jumped on the MLS to see if the property was listed. About 80% of the time, the wholesaler is trying to sell me a property right off the MLS which, if it’s in my area, I’ve likely already seen, and if I was interested, likely already put an offer on.

Generally, the wholesaler has the property under contract for about $5-10K under the list price on the MLS, and is trying to sell it to me for a couple thousand dollar profit to himself, still below the MLS list price. But this one was different…

Here is my email response which should provide some details:

Hi [NAME REMOVED],

Here is some feedback on this deal:

– First, I have access to the MLS and originally viewed this property back in November. I know that it’s listed for $28,600, so you probably have it under contract for about $23K (or maybe even less). At your sale price of $51K, you’d be making about $30K in profit. While I’m always happy for wholesalers to make a decent profit, this is a little ridiculous, and basically tells me that you’re not looking to build a relationship with buyers, but instead are just looking for one big payday.

– Second, even if your numbers were accurate ($51K purchase, $15K rehab, $90K ARV), it’s not a good deal. The typical investor would spend $10-12K in fixed costs (commissions, fees, concessions, holding costs, etc) on this deal, so the all-in cost would be about $78K. At $90K sale price, the profit would be about $12K. I don’t know many investors who would buy a deal where the maximum upside is $12K.

– I have no idea where you got your ARV. If you do a search for comps within 1 mile and going back 8 months, you find exactly one property that has sold for more than $90K, and that one isn’t a great comp. My guess is that even if a rehabber could get this particular property under contract for $90K or more, he couldn’t get it appraised for that much in that location.

– In terms of your rehab estimate, for a property to sell in that area in this market ([CITY REMOVED] is a REALLY tough market these days), you’d need to do a full remodel of the house. Given what I remember of it, my estimate was $45-50K in rehab work. With that level of rehab, you could probably get the property under contract for between $100-105K, but again, it would be hard to get an appraisal for that much.

Given all that, I’m obviously not interested in this deal, but hopefully my feedback was useful for when you deal with other investors who may approach you for more information…

Btw, if you want a chance to move this property to an investor, I would recommend trying to sell it for at-most $30K. But, keep in mind that it’s been listed on the MLS for 3 months, so any serious investor would likely have found it by now. Your very best bet to sell this house would be if you got it under contract well below the list price, and could offer it to an investor for *LESS* than what it’s listed on the MLS for. At least in this way, investors would see you adding some value…

Thanks,
J

Photo: Gene Hunt

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.