Hello all: I'm relatively new to real estate and am currently doing wholesaling.
I already have a potential seller and I'm already confused about what to do next:
1. What is the best way to figure the ARV? Or is this extremely necessary during initial negotiation? If not, when would this become of importance?
2. How would I negotiate a deal that "makes sense"? What does it mean for it to "make sense"? Is it that a mixture of making sure it's selling at a reasonable price to get a lot of interest as well as being profitable for me doable for the buyer?
3. If I talk to a realtor, would I have to pay them too?
4. I was told not to worry too much about the repair fees when deciding the price initially, as that would be better accessed by the buyer. I'm wondering if then a good strategy would be to have a serious buyer put a down payment, come see the house and get it appraised or do their own assessment and then adjust the selling price afterwards.
I just need some clarity before I start attempting to build my on this deal and future ones.
Any and all responses are welcomed.
Also, I am interested in a mentorship so please feel free to contact me if interested.
Thanks in advance.
The first thing I would do is listen to the podcasts covering wholesaling.
Knowing some of the basics about your market is important, in my opinion. Find your ARV from SOLD comps (not Zestimates) and search to see what the potential sellers motivation is.
Finding out what there motivation is (their problem) and ARV is the first next step. After that, you can worry about estimating the rehab. There are lots of worksheets and basics to go off of for that step.
1. ARV is determined by a study of very similar homes that were sold in the immediate area. I shoot for sold within 1/4 mile and in the last 6 months.
2. Almost exclusively, a deal that makes sense for the seller is to get the most money in the shortest amount of time with the least possible friction.
This normally means listing it on the MLS where exposing the property to the widest possible audience (in the millions of people), which naturally leads to the highest possible price.
In general, what "makes sense" for the wholesaler is to find desperate or uninformed people or properties in distress and to take advantage of them.
3. Talking to a Realtor is free. Having them work for you (determining ARV, marketing the property, etc) isn't, but if you find a strong, full-time agent
4. This is absolutely horrible advice. The repair budget is a major factor in determining the property value. Does your advisor think that 2 identical properties, one in pristine condition and the other needing a gut rehab are equal in value?
This sounds like advice from a wholesaler who gets a property under contract and tries to flip the contract to make a markup - without regard to the actual market value or whether the supposed acquisition price is even in the ballpark. Then, when unable to assign a bad deal, backs out of the contract, leaving the seller high and dry.
This is exactly the kind of thing that gives wholesalers such a bad name. You have no idea of the damage this kind of thing does to sellers who took you at your word that you were going to buy their property.
No offense intended, but at this point, you are an unguided missile. You're going to get yourself or a homeowner hurt.
Step back from this deal and study up on real estate sales and especially your local laws as wholesaling (without double-closing) is illegal in many, if not most states.
@Carla M Richardson Legality of wholesaling varies by state and the first step in managing your deals is to make sure you're operating within the law.
I can tell you with absolute certainty that it is illegal here in MA. Marketing any property that you don't own in MA requires that you have a valid real estate license and are working under a managing broker - and there are a slew of other laws that apply, all focused on protection of the consumer.
@John Thedford can quote chapter and verse of FL laws on the topic along with a list of people who have been prosecuted. I believe he's said that selling real estate without a license in FL is a 3rd degree felony.
I don't know the specific details of the laws in PA, but you would be well advised to study and understand them before diving in. Search on the term:
"Section 2205(b)(2) Aiding and abetting cemetery or real estate sales activities by unlicensed individuals". That took all of 5 minutes to dig up. The rest is up to you.
If the same people who told you "not to worry about repair fees" are the same ones telling you that wholesaling is legal in PA, you might want to double check everything else they say.
That said, if the deal you have is actually a good one (home needs repair, motivated seller), consider finding a financing partner to buy it, fix it up and then sell it.
That's not only legal, but helps to improve the neighborhood, gets the seller paid and can make you a decent profit.
As an attorney in PA, I have not seen anything in the law that would make me comfortable saying that "wholesaling is legal in PA". It's at best a gray area.
In any event, to answer your other questions:
- ARV: for single-family homes, you'll need to rely on comps. For two to four units, you are technically "suppose to" rely on GRM, but in my experience it's more of a mix between comps and income/cap-rate valuation. How to do it is a complicated question that's hard to answer just on BP. But there are a lot of articles about it. You can even take courses if you wish.
- Deals that make sense: from whose perspective? From the wholesaler's perspective, you are basically trying to find a deal that is beneficial for you, the seller, and the buyer. That's the goal but those deals are very hard to come by. As such, I often see at least one out of the three getting screwed over in most wholesale transactions.
- Realtor: depends on what you mean. If they are the seller's agent, it will come out of the closing cost.
- Repair Costs: one of the "value" you can provide to the buyer is having access to good contractors and material vendors in the area. So if you want to make a living doing wholesales, I wouldn't ignore it.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
You have a lot of wrong information about the fundamentals of wholesaling (and real estate). If that's going to be your vehicle, you need to learn how to do it the right way. Go to youtube and look up Max Maxwell and Sean Terry. They have good information you can learn a lot from.
BP hasn't been very wholesaler supportive lately. Find people who are killing it (7 figures annually) and learn from them. Work for them if you have to.