I'm always searching for what's WRONG with the deal!

4 Replies

Can you guys help me out?  Every time I analyze my deal, I try to find what's WRONG with it, and use it as my excuse to NOT pull the trigger.

For example, yesterday I saw a 12-unit apartment deal come to me. I first looked at the area, the financials, everything. Not a home run, but certainly not a bad deal (9% COC with conservative estimates for expenses). Then I assumed there's something else I'm missing if the broker didn't give it to his preferred list. It was a mass email I could tell so I was his "leftover" recipients when he couldn't sell. So I passed.

I have wholesaler's showing me regular houses.  The killer deals are the ones that need work.  But why aren't they doing the work themselves and flipping it?  PM Companies show me houses they have in inventory to sell.  But if the returns are as good as they show, then why aren't they holding it and managing it themselves?

What I don't understand are people's motivations to leave money on the table.  Sure regular home owners looking to leave I think are good deals, but that takes a ton of work to find.  Realtors come through here in a big way, but the rates are less than 10% in terms of showing me a good deal.

What are your thoughts?  Can anyone explain to me about the wholesalers not doing the rehab work themselves on some houses but not others, or PM companies dumping their houses instead of holding them and continuing to manage for better returns?  I feel like everytime I can't find the snake in the grass, I'm asking to get bit.

@Barry Je I don’t know if this will answer your questions but here are some overly general posits:

1.) Wholesaling is a 180 degree different strategy and business than rehabbing. Being great at one doesn’t mean you’ll be great at the other. And if a wholesaler cherry picked the best deals for themselves, why would you ever buy from them? Remaining focused on your business isn’t a “bad” thing.

2.) If you’re in a market around Seattle and you have 100 SFRs that have appreciated extremely well, why not take a little money off the table? Why not sell 10 of them that are decent performers? Or the ones where you have the most equity to extract? That doesn’t mean you’re going to get the best-of-the-best but odds are you never will. A PM has an obvious incentive to move the property to another owner in their stable and will also likely function as the realtor on the transaction.

3.) I have no guesses on why a great apartment complex wouldn’t sell. I’ve seen people made bad assumptions about debt service, what utilities will cost, underestimating vacancy, etc. But let’s assume that’s not the case. Simply put, you have a small investor pool. I invest in the unit size you’re talking about and the reality (my perceived reality) is that these buildings are too small for institutional money and too expensive for the newer investor that can afford an SFR or duplex. Not to mention, you can’t househack it and you need a certain net worth (for many banks) which can knock out certain newer investors even if they *poof* has 25% for the downpayment.

Again, I don’t know squat about leaving/eating/breathing your market so just take these generalities...as...generalities.

Originally posted by @Barry Je :

Can you guys help me out?  Every time I analyze my deal, I try to find what's WRONG with it, and use it as my excuse to NOT pull the trigger.

For example, yesterday I saw a 12-unit apartment deal come to me. I first looked at the area, the financials, everything. Not a home run, but certainly not a bad deal (9% COC with conservative estimates for expenses). Then I assumed there's something else I'm missing if the broker didn't give it to his preferred list. It was a mass email I could tell so I was his "leftover" recipients when he couldn't sell. So I passed.

I have wholesaler's showing me regular houses.  The killer deals are the ones that need work.  But why aren't they doing the work themselves and flipping it?  PM Companies show me houses they have in inventory to sell.  But if the returns are as good as they show, then why aren't they holding it and managing it themselves?

What I don't understand are people's motivations to leave money on the table.  Sure regular home owners looking to leave I think are good deals, but that takes a ton of work to find.  Realtors come through here in a big way, but the rates are less than 10% in terms of showing me a good deal.

What are your thoughts?  Can anyone explain to me about the wholesalers not doing the rehab work themselves on some houses but not others, or PM companies dumping their houses instead of holding them and continuing to manage for better returns?  I feel like everytime I can't find the snake in the grass, I'm asking to get bit.

 Analysis paralysis - don't doubt the numbers, have a strategy if the numbers fit the box pull the trigger - they either do or do not fit your strategy - don't over analyze, if you need to massage something its not your deal it doesn't work - 

Steven Gesis, Developer
440-374-8403

@Barry Je

There are two main types of wholesalers I see in our market, and probably a lot of other markets too.  The first is the one that also flips.  These usually keep the best deals for themselves and wholesale the rest.  Probably shouldn't buy these deals.

The second wants to flip, but can't afford to.  This area is extremely expensive, and it takes a minimum of $50k to flip a house, perhaps in Pierce County.  $100k+ in King County.  A lot of them tend to be new investors too, otherwise, they would have wholesaled enough to have the capital to flip.  So most of the deals they present aren't that great either.

Good deals here are extremely competitive.  Perhaps one of the best ways to get into a deal is to offer the wholesaler a partnership.  

At the same time, not all wholesalers want to flip.  Some just want to wholesale and avoid the risk of flipping.  Others just want to gain enough capital so that they can jump into other investment strategies.

Feel free to post your potential deals on BP for analysis.  We are our own worst enemies sometimes, so it's nice to get a second opinion.

Hi Barry!

A good post and some great responses! I can speak directly as someone who is wholesaling in King and Pierce county.

I think the Nhgi has pointed out two very typical type of wholesalers that are in the area, but I’d also like to point out that as Andrew mentioned, there are a lot of different skills, relationships, and resources needed to rehab instead of wholesale. I personally love chasing after sellers and negotiating with them and then being able to bring great deals to my rehabbers and get paid quickly.

A good deal obviously has far more profit potential to rehab it yourself, but for me, often considering the time, money, and risk of a full rehab, often leaves me opting to focus my attention on my wholesale business to try and continue to push for good deals using the skills that I have sharpened and help build trust for my buyers. There is no doubt that that, especially in King county, good deals aren’t easy to come by, but we’ll continue to only offer properties we believe everyone can make a profit on! Please free to pm me if you would like to be added to our buyers list!

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