Anatomy of a recent MF wholesale deal

5 Replies

Hello my BP friends,

While building our portfolio, we constantly find properties that are really good deals, but for a variety of reasons, don't fit our long term criteria.  Instead of passing on them, we flip them to a group of investors that follow us.  Here are the highlights on the most recent deal we wholesaled in Phoenix:

The building was a 6 unit apartment in Phoenix with all but one unit leased.  The property came to us through a broker relationship.  (hence the value of broker relationships) 

We presented an offer that was significantly below what the seller had expressed, and then negotiated back and forth over a period of several weeks.  One thing to note here is that part of our success in getting the property at a lower price was due to our ability to substantiate support for the low offer.  Many times, a seller will have an inflated opinion of the value of their property and it is up to you as the buyer to help them see a different view.   

Once we opened escrow, we compiled a full DD package on the property and shared the deal with our network of investors that follow us.  It is important to have everything available so an investor can evaluate the property in an efficient manner.  It is also important to share candidly, so the investor can see true numbers.  

The buyer came to us through a property manager who had a client that was looking for more units.  Once the buyer opened escrow, we assisted with coordinating the walk thru of the units, as not to disrupt the tenants more than once - that should always be the goal with multifamily BTW.  You want to avoid showing the property to tire kickers and upsetting the lives of tenants. 

We closed via double escrow in 10 days and picked up a check at the title company.

To those of you working on these kind of deals, please add your additional insight on deals like this, and if you are stuck on one, post a question and we can all offer some advice.

Shine on,

Jack 

I think you hit the nail on the head with respect to many things, especially justification of a "low" offer.  You're totally correct in that people have an inflated value of their property - whatever that property is: vehicle, house, boat, shoes, CD collection, etc. 

question though, why did you double escrow the deal instead of assigning the contract, selling the contract, ownership of the LLC, etc.?

@Patrick Britton   Interesting how helping a seller see the correct value of their property has both parties leaving the table as a winner.  

The choice to double escrow leaves us in a stronger position of control in the event of a buyer not performing on the second escrow. We can still close on the first escrow and not lose the deal. If we assigned, sold LLC or contract, we are no longer the controlling party anymore.

We make offers in the name of a longstanding LLC (we wouldn't sell that) and have a great name in the business, so there is a degree of weight behind an offer from us. People know we close.

Shine on,

Jack

@Jack Martin  When you say "we compiled a full DD package on the property" did that include just the financial due diligence (and not the results of a physical inspection and environmental)? Trying to understand the mechanics of wholesaling a MF.

@Michael Yin The more you can provide, the more likely a buyer can come to a decision quickly. We provide everything we can on the property to include a basic deal abstract, the financials, comprehensive photos, recent work done, HOA detail if applicable, and any other supporting info that could assist the buyer.

Really, what we attempt to do is drill the deal as tight as we can so the buyer doesn't have to do all that legwork.  My advice it to be as transparent as you can with your DD and expose everything you find.  Your reputation as an honest wholesaler will be there long after one deal is done.  

Shine on,

Jack

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