Why don't wholesalers do simple rehabs for bigger profits?

39 Replies

I found a company somewhat local to me that has a property listed for $175k, they are estimating $30k in rehab for a total project cost of $211k including closing. The only comp was sold a few weeks ago for $410k. It sounds too good to be true and I can't wrap my head around some one not doing those repairs for that potential profit. My wife and I are looking for our first investment, and this SEEMS perfect... Any thoughts?

Is it a large wholesaling company or a single person? I ask because a good amount of wholesalers near me don’t have any funds to actually buy and rehab. I’ve met “wholesalers” who have never actually bought or sold a house. 

Some companies have too much inventory and they pass on deals they can’t do. Others their 100% business model is wholesale and they don’t have contractors in place to do any work. There are a bunch of reasons. If the spread is actually that big (triple check their numbers) make an offer and make that money yourself.

From what I can tell, based on their social pages, they seem small. I am in the process of doing my own research now, because it could be a good starting point for us. It just seems crazy to me to have a spread like that and not take advantage yourself, but if your model works I guess there is no reason to change or separate from that. 

@Chad Griffin Renovations are just not in everyone's ball park and the turn around time is a lot longer than a quick sale. I would be very careful though. I find that a lot of wholesalers do not know how to accurately run comps and determine rehab costs thus making everything look like an awesome deal. I hope this ones really a great deal for you guys though...but also question why there is only 1 comp.

@Chad Griffin

The majority of wholesalers never buy the property they are just assigning the contract.  The only money they have in is earnest money and sometimes not even.  If you watch the Gurus that is the first strategy taught because it requires very little money if any.

I receive wholesale offers all of the time. Usually the ARV is 10K to high and the rehab is 10K to low. Analyze these deals with your own numbers and if it works buy it. Remember there is a wholesale fee to add to your numbers if it's not already included.

@Chad Griffin

I can give you some insight as to why this wholesaler does not flip. The reason is simple, ROI.

Wholesaling is about volume, so you can't compare on a 1:1 ratio. 

Currently my H.A.C is approx. $275, give or take. If we run the numbers side by side, to your project, this is how it would look.

1. FLIP - 211K invested to net 200K.  Great return, no doubt. 

2. Wholesale - Given my current HAC, that same 211K invested would get me 767 Houses. Let's say I average 7K on each assignment, that is 5.369mm. Granted this would take a few years to hit, currently.

Let's break this down, even further.

If all is above board with that offer, let's say it takes you 90 days to complete, 60 for rehab and 30 to sell it. 

Let's say that a wholesaler is doing 15 deals per month, at 7K each, that would be 105K per month, or 315K for 90 days. That flip would end up costing the wholesaler, about 100K. A wholesaler that is motivated and has their systems in place, this is not hard to hit in 99% of markets. 

that would be a unicorn deal if those numbers were real.. I suspect when you dive into it.. one of two things will be evident rehab way understated and resale way over stated.  wholesaling is just brokering real estate.. and for those same reason you have most realtors don't rehab .. rehab is a business that demands a lot of capital and risk.. 

I'm not going to lie volume sounds good. If I can flip one home in the same time I can wholesale 6 deals and yield the same profit....wholesaling wins. I actually enjoy the rehabbing part and seeing the finished product. That's why I flip instead of wholesaling, also because i have a lot of tax advantages as well well writing off.  

This was my thought as well. The problem currently is finding comps due to the huge gap in home prices in the area, but hopefully talking with some of the local agents will help. 

Originally posted by @Chad Griffin :

I found a company somewhat local to me that has a property listed for $175k, they are estimating $30k in rehab for a total project cost of $211k including closing. The only comp was sold a few weeks ago for $410k. It sounds too good to be true and I can't wrap my head around some one not doing those repairs for that potential profit. My wife and I are looking for our first investment, and this SEEMS perfect... Any thoughts?

 In the Alaska Gold Rush people made more money selling the tools and supplies to the Gold Rushers than the Gold Rushers made looking for Gold. Sometimes supplying the market is simply far more profitable.

@John K.  Thanks for giving clarity about how and why you do wholesale versus flipping.  "That flip would end up costing the wholesaler, about 100K. A wholesaler that is motivated and has their systems in place, this is not hard to hit in 99% of markets."  

Most do rehab themselves when find real home run deals and then send out the "deals" with bs rehab estimate costs and an inflated arv as good deals.

Wholesalers lie to the homeowner bulk of the time so obviously they will lie to you as the buyer also. Double and triple check your numbers.

Originally posted by @Account Closed :
Originally posted by @Chad Griffin:

I found a company somewhat local to me that has a property listed for $175k, they are estimating $30k in rehab for a total project cost of $211k including closing. The only comp was sold a few weeks ago for $410k. It sounds too good to be true and I can't wrap my head around some one not doing those repairs for that potential profit. My wife and I are looking for our first investment, and this SEEMS perfect... Any thoughts?

 In the Alaska Gold Rush people made more money selling the tools and supplies to the Gold Rushers than the Gold Rushers made looking for Gold. Sometimes supplying the market is simply far more profitable.

Mike you stole that from me LOL.. same in California.. think of a little company called Levi's 

 

If they are a successful wholesaler it means they've found a steady stream of sellers and buyers that they are able to profit off of. 

Why bother with the extra hassle of rehabbing, especially if the wholesaler is inflating the reality of the numbers to the buyer anyway. 


@Chad Griffin they're just flipping. More often than not rehab costs are higher than projected, and all closing costs aren't factored in. Run your own numbers based on real pricing.

Originally posted by @Chad Griffin :

@Karen Margrave @David Abbate @Jay Hinrichs

Is the best way to find the true ARV contacting a local agent? I pulled up the area on Zillow and other houses on the same street/neighborhood range from $60k to $410k, so it seems impossible to find a real value.


Maybe...

If you aren't familiar with how to determine ARV then a realtor can help. However keep in mind that realtor won't want to just run ARV numbers without getting anything in return from you.

I have found that getting ballpark ARVs is doable for someone who knows about real estate. If your local assessor has an online database or your local Zillow shows sale prices, start there. Find reasonable similar sized houses, that have sold recently in a close proximity. The low sales you noted are probably bank owned and need Reno and are not comps. You need houses that have updates and are similar size with similar features. Once you find a few (3-5) you can adjust your homes ARV like an appraiser does. If your house is bigger you can adjust some. If the other house has more garages, adjust yours down, etc, etc.

@Chad Griffin and @Henry Lazerow I am a full time wholesaler in Birmingham Al and I admit that a majority of wholesalers in my market do things the wrong way and lie to people and give wrong numbers. I don't think they are necessarily trying to lie all the time about ARV or repair cost but I do think they don't put enough time into research. They might have comps for crazy high prices but they are marketing a 3/1 and the other comps might be 4/3 and that obviously matters a lot. I will meet buyers at properties so I can walk around with them and learn how much each type of property will require and the difference in fixing up a buy and hold vs fully renovating a flip. I will also have an ARV in my head and I always ask buyers what they came up with for ARV and how they got that number. I have talked to some of the top flippers in my market and they all suggest the same thing when a wholesaler sends out a property to their buyers and this is the model I follow. The top buyers in my market don't want ARV or repair cost given to them. They just want to know the address, the price, how to access the property, and any other information you can can give them that might not be public knowledge. They probably already know their market and ARV and they will know the repair cost as soon as they go and look at the property. With all of that being said, there are some us who wholesale full time that are doing things the right way or at least trying to. I personally don't flip properties yet and not sure if I want to or not. My reason is just focusing on one thing at a time. Once the wholesale business is automated then maybe I will consider it but for now I am working on strictly wholesale. Good luck to you!

Originally posted by @Brian Pulaski :
Originally posted by @Chad Griffin:

@Karen Margrave @David Abbate @Jay Hinrichs

Is the best way to find the true ARV contacting a local agent? I pulled up the area on Zillow and other houses on the same street/neighborhood range from $60k to $410k, so it seems impossible to find a real value.

Maybe...

If you aren't familiar with how to determine ARV then a realtor can help. However keep in mind that realtor won't want to just run ARV numbers without getting anything in return from you.

I have found that getting ballpark ARVs is doable for someone who knows about real estate. If your local assessor has an online database or your local Zillow shows sale prices, start there. Find reasonable similar sized houses, that have sold recently in a close proximity. The low sales you noted are probably bank owned and need Reno and are not comps. You need houses that have updates and are similar size with similar features. Once you find a few (3-5) you can adjust your homes ARV like an appraiser does. If your house is bigger you can adjust some. If the other house has more garages, adjust yours down, etc, etc.

there Is your red flag.. most expensive home on the block or area.. caution.

 

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