Turnkey Rentals and Wholesaling

5 Replies

I've jumped right into wholesaling with some success, but now I find myself in a situation that I don't know how to handle: I have the opportunity to wholesale some SFR and some duplexes. They are turnkey and tenant occupied. I can use the comps, of course, to figure ARV, but does that really help me? What formula (if there is one) do investors use for this type of property? Not MAO, I would think, but what?

I want to be able to offer a fair price to the seller and a good deal to the buyer while making some money myself, but I'm not sure how to proceed. I know the rent amounts and property tax, but not sure how those numbers figure in.

Any help is appreciated. BTW, if the math gets too complicated, my brain freezes, so please let this be something simple to comprehend and figure.

Thanks!

It all depends on your market and who your buyers are. I know some investors are looking almost entirely at monthly cash flow, while others will have an ARV or cap rate formula.

Generally speaking, most experienced investors will want to be all in (repairs, closing costs, etc) at no more than 75-80% of ARV. (Again, that is market dependent and may vary by individual investor. It may be lower in your area.)

Originally posted by @Marilyn H. :

I've jumped right into wholesaling with some success, but now I find myself in a situation that I don't know how to handle: I have the opportunity to wholesale some SFR and some duplexes. They are turnkey and tenant occupied. I can use the comps, of course, to figure ARV, but does that really help me? What formula (if there is one) do investors use for this type of property? Not MAO, I would think, but what?

I want to be able to offer a fair price to the seller and a good deal to the buyer while making some money myself, but I'm not sure how to proceed. I know the rent amounts and property tax, but not sure how those numbers figure in.

Any help is appreciated. BTW, if the math gets too complicated, my brain freezes, so please let this be something simple to comprehend and figure.

Thanks!

While I do not support wholesaling as this exact situation right here is a great example as to why we have real estate license laws that make this activity illegal in most, if not all 50 states. That said what you are doing has nothing to do with an ARV. Wholesaling is simply getting the seller to agree to a price that is lower than what the buyer will agree to. If you know what the comps are there should be no confusion as to what you'd need to do to earn yourself a fee, albeit probably an illegal one. You should definitely check with an attorney in your state to see if what you are doing is legal or not. If it is illegal you should look into becoming a licensed agent if you want to earn a fee by connecting a buyer and a seller. Only a matter of time before someone turns you into your state's division of real estate in an attempt to shut you down.

@Marilyn H. sounds like this opportunity may have come a bit early for you. And if math makes your brain freeze then that's a concern for you wholesaling as it is 90% math.

If you don't know what values are where you are investing then I almost think you need to decline the offer to market them. All you are likely to do is appear incompetent and not serve the interests of the seller.

So if you want to do it you need to find out quickly what they are worth and agree on a price with the seller then start looking for buyers. I mean that is the normal process.  So find a way to establish their real value and negotiate with seller from there.

Thanks to both of you for your perspectives and advice. Basically I just wondered if there is a standard formula — something similar to the MAO formula that rehabbers use. I didn't want to be reinventing the wheel.

Before posting I had been reading about how to figure ROI, rent ratios, cap rates, and cash on cash. So I was hopeful that the formula, if there is one, would be simple. I was on math overload.

I know about comps and ARVs. I also know about negotiation and horse sense. My dad was a broker and flipper before it was a thing. He taught me well.

So I was just wondering if there was something else I needed to know that I hadn’t come across yet that would give me some additional confidence. But I’m doing okay. The investor community here is large and supportive.

And James wholesaling is not illegal here. I always represent myself as an investor. It is also legal in your state of Ohio. The workshop I attended that got me started was presented by an investor from Cincinnati. I’ve also been to events by an investor from Florida. I guess I’ve just had better experiences regarding wholesaling than you. That’s too bad. I often work with an agent here who helps find me buyers. It’s a good deal for both of us.

Regards 

Marilyn 

To answer your question, YES. Turn key rentals is my main niche where i live. The reason for this is because in my market most homes ARV dont go above 85k... This being perfect for landlords and not so great for flips. In my market, most of my consistent buyers like to get there money back in 3-5 years for buy and holds. Generally where i am properties rent as follows. 1-2 bedrooms $500-650 a month, 3 bedrooms $750 a month, 4+ bedrooms $1000+ a month.

So i have to wholesale properties that are turn key and need nothing more than maybe a good clean out or paint job for between 20-30k. I get properties all the time in the 10-15k range turn key so i do OK here lol. You need to shop around for your local landlords. try your cities HUD office. they usually have a nice long free list of landlords with their names and phone numbers to call. See what they are currently paying for turnkey rentals. if they need repairs, see what their tolerances are. This will better help you understand what is a good DEAL in your market for a landlord. Obviously NOI plays a big part in bigger markets as well as the tried and true "70%" rule for flips. Best of luck to you. i see this post is almost a year old lol. maybe this will help someone new, reading in. Cheers