Wholesaling To Flipper: How To Make An Offer

44 Replies

Hi BP,

I am scrambling right now to make the right offer in the right way by tomorrow noon. I am in the nor cal market and the house has ARV 360 so I figure my max offer allowable is 360-(55k repairs)-(my 10k wholesale fee)-(60k for holding costs and flipper profit) = MOA of 235k

I figure my intitial offer should be around 215k. 

What do you guys think? Even if you dont know the market some advice would be better than none and guesstimates are better than nothing. Is this too low for a seller to accept or too high for a flipper to think it is a good deal?

My negotiation strategy is give them my 215k lowball offer and then if they object ask how close they can come to that number? Then to whatever they say I will reply with "is that the best you can do?". then to whatever they say I reply "So if I pay you all cash and can close quickly how much lower can you go?" 

Then I figure if they arent anywhere near 235 by that point I say "I want to put this money in your pocket but it has to work for both of us. How much lower can you go? I'll have to get on the phone with my partner because we set a certain number I could not go higher than."  

If you can help with any aspect of this problem please feel free.

CAN YOU CLOSE? If not, that is the wrong approach. I recall seeing that you intend to get licensed. Do that, and open a lot more doors. 

Does the seller know you are not buying it?

Also one thing to takeaway. You list $60k for the flippers holding costs and profit. A $360k house will probably have $30k in closing costs, and a flipper taking a loan will probably have $10k in holding costs. You now have to sell to a flipper where he might make $20k on a $300k outlay. I would pass on this deal all day long.

Also what SOW did you run to get $55k rehab? Did you have a contractor provid it, or did you run your own numbers? Biggest issue I see with wholesale rehab estimates, they forget the HVAC work, demo costs, landscaping, etc...

Originally posted by @Brian Pulaski :

Does the seller know you are not buying it?

Also one thing to takeaway. You list $60k for the flippers holding costs and profit. A $360k house will probably have $30k in closing costs, and a flipper taking a loan will probably have $10k in holding costs. You now have to sell to a flipper where he might make $20k on a $300k outlay. I would pass on this deal all day long.

Also what SOW did you run to get $55k rehab? Did you have a contractor provid it, or did you run your own numbers? Biggest issue I see with wholesale rehab estimates, they forget the HVAC work, demo costs, landscaping, etc...

@John Thedford

Yes. I am getting my license; definitely seems much easier to get deals/profit that way rather than only targeting extremely motivated sellers.

@Brian Pulaski  

I put all those repairs into there except i meant 65* repair costs and not 55. I'm using price/sqt along with using the 48 point DIY checklist Mindy made(its a bigger pockets blog). 

It is good to know that you would pass on this. I figure I am just going to be totally conservative with it now. What would you need to profit to make this a deal for you? I figure my new MOA should be roughly 220 and a first offer of 160. Does this make any sense to you or is this a bad first and MOA? 160 just sounds ridiculously low; they owe 85k on the mortgage so they would walk away with enough money for a down payment.

Some additional info is that the seller wouldnt let me test the electrical so I am factoring in a full electrical repair into this as well for more of a cushion because of how sketchy it is. What does this make you think? I also was unable to see 2 bedrooms because one was occupied by a killer dog and the other the guy's wife(getting divorced) was shouting not to go in her room. I just put those rooms in as a complete entire remodel but what do you make of this situation?

cody lets just do simple math.  of how a flipper would look at this deal.

ARV 350k Minus 10% for selling costs which includes the realtor fee tax's insurance utls etc while holding it.

now most flippers ( myself included) are going to borrow money some where so lets be generous and say 2 points and 10%  plus closing costs.. so lets say they borrow 200k for a round number  that 4k in points 10k in interest so that's 14k for financing lets just say 15k.

Now lets say your SOW is 55 in your mind lets say in reality its probably 65k. 

So we have 65k rehab  your fee of 10k  35k resale cost and 15k holding costs.  about 125k to get it done.

350 - 125 = 225k  and most folks are going to want to make 15% on gross  so right at 55k HOPEFULLY although now a days you might find someone that would take a swing at this for 25 to 30k but most won't.  225k - 55k  and the flipper will want to pay 170k ish for it...

@Cody Evans along the lines of @Jay Hinrichs numbers is more on track. You really should double check your numbers, because I found you bought at your initial $235k I don't see anyone touching it.

Without seeing a breakout of your $55 or $65k rehab, it's hard to say. I assume you are factoring the flipper to pay for a GC as well, seems most do.

I would also be very upfront with the sellers about exactly what you are doing. I had a seller (I was going to be the buyer, no play any wholesaler games, and he had it listed on his own) flip a lid on me over the phone. He went off screaming and yelling when I told him I couldn't even make an offer, as I didn't want to inherit him living there until spring time. 

@Jay Hinrichs

So if I am willing to pay 170k then what would you think a good first offer is? I am searching for rule of thumbs on this but the best I have gotten off of forums is .65 *MOA which in this case is  110k. This leaves him with about 20k down payment for a new place. 

Thanks for that breakdown makes it much more clear. That is a lot different than what a flipper in my area was talking to me about what he was willing to pay for a similar ARV property but your breakdown was much more in depth than what he was talking about. How long/how many deals does it take to be able to understand how to break down a potential deal like that on your own?

Cody,, no two are the same that's why there are no rules... you have to look at each one and do the simple math..

you can napkin math it using the 70% ARV minus rehab that usually works OK.

but what I laid out took me 3 minutes..

just put your formula together and use it each time.

So ARV =

10% sales costs =  (  )

SOW  =  (   )

Carry costs = (   )

your fee  =    (  )

15% profit on gross sale for end user  = (   )   now this is a rule of thumb others could do it for less others could come on BP and say they won't do it for less than 20% but I know west coast is very competitive and 15% on gross is what we try to make on new construction.. and we usually hit it OK.. but sometimes its 10 to 12%  but then we might be selling 20 plus homes in 10 months so its still a big number in total.

But run it by your buyers and see what their profit margins need to be.. However I think if you use that formula and deduct those few items from your ARV you will be in the ball park.

Although  Make sure you don't run afoul of the licensing laws .. you may want to look at The BRE website right on the front page has a item about unlicensed activities.. so make sure you know what your doing here..

yup. Like@Jay Hinrichs said.  You are looking at 170k -180k purchase price from the seller. 

I am looking at least 50k net profit to flip at this 350k price range.   

If not. I would rather get 30k with a quick flip in 200k range.   

You are forgetting the 10% resell cost. That's the big number.  

As far as negotiation goes. Seller who contact whosaler to sell the propert is not expecting to get retail price anyway.  And also they are expecting for cash and close quick. 

So negotiation with the cash offer and quick closing to lower down the price doesn't really sounds effective to me.   I would rather throw them the price you want. And tell them you are assigning them to solve their problem. And also mention cash offer and quick closing.   Tell them straight up you are making a profit here and that's what u do.  Being honest is often gonna work out for u in the long run. 

Well,  the least thing they wanna do is negating the price with u when they try to get rip of propert I guess. 

If they don't take it.  Move on.

Cody  @Kevin Dong   I should also put a Caveat in this.. when I say 15% on gross I am talking 250 to 300k and UP   and then getting about about 600k that number can come down as the prices go up.

its common for someone to do a 1.5 mil home and make 200k for instance..

but I like that 15% for napkin math.

then you have high volume flippers that may cut it closer just depends on their operation.. if they are doing 30 or 40 a year they may cut margins down to get volume.. that makes sense as well.

Just like builders in low end new construction in Texas and other markets will take all the risk and make 10 to 15k on new construction but they build 100 a year..

Or a few of the flippers I know in the Beverly HIlls area that pay 15 million for a tear down.. put 15 million building a new home and sell it for 50 million those kind of numbers.. just depends on where your at your capacity to transact and threshold of risk.

@Cody Evans I think @Jay Hinrichs covered numbers pretty well with you, and that’s the easy part. Talking with these sellers and figuring out what they really want out of the deal and try to provide that for them. We provide a service for the motivated seller. They don’t want to deal with the headaches of repairs, agents, time, tenants etc etc. they know they can make more money by putting some of there time and maybe some of there money into the property and list with an agent. Very easy for sellers to find out what there property is or could be worth now days. I went on an appointment today and it went very well, they knew, and I even told them they could make more money with an agent, but still considering selling to me. I showed them a major roof issue that might cause them problems when selling when the home inspector sees it which helps my cause in them selling to me. I gave them a copy of proof of funds, purchase agreement, business card etc etc. we talked about our lives and jobs and we had a lot in common. Maybe I get the deal after all the other investors go through and I guarantee it will be because I built trust with the seller. Of course it might be because I got outbid but pretty sure my price is competitive because most investors numbers are usually pretty close to each other. Numbers are easy, learning to read and deal with sellers is the hard part. Schedule as many face to face appointments as you can to learn this.

@Mike Flora POF is important. way back when ,,, when I actually met with sellers I always had my POF showing I could pay cash.. and I made a big production of how they did not want to deal with anyone who did not show up with a POF or gave them some lame excuse why they did not have one or could not get one.. I further went on to tell them the game.. and how if we made an offer we would close.. I would show them my list of properties right off of the county records... I had a pitch book.. people are visual.. my dad taught me the pitch in the early 70s with all my color coded maps and pictures etc. you lead them through the presentation.. so you present qualify then CLOSE... most can't close don't know how to close and simply can't ask for the order.. that is the key. but knocking your competition to the curb is part of the job IF you want to be successful.. And believe me if I took the time to go out to someone's home and many times they were fairly raunchy to full on hoarder I wanted the order.

the other thing I did is I always took 100.00 dollar bill. Many times folks are really struggling.. I laid it on the table and said this is yours.. just for speaking with me.. that's how we started..

You see a master salesmen is what you want to be.. just think about the top dogs on any car lot they are not top dogs because they can't close.

I like @Jay Hinrichs saying to bring POF and $100. Proves you are legit, however I'm not sure it works for the wholesaler who has no money and plans to assign the deal.

I think @Cody Evans has a lot of solid response here, and hopefully it either lands you a good deal, or helps you avoid overpaying and ended up either stuck or backing out last minute.

@Brian Pulaski   well that's the point.. we are all in it to win it.... not to just go out and have a nice chit chat with someone.. so you want to go in Guns' blazing.. its rare that these folks talk to only one person.

and for sure there was no way I was going to put all the time and effort into this business then beat out of the deal by someone who had Zero money or capacity to transact and in our state was doing it illegally to boot.. LOL  but I know I can be over the top competitive..

this is how I built my timber business as well.. the Gypo loggers had no money and the land owners had to be paid by the mill from delivered logs.. so the land owner never knew what they were going to get.

I walked into those appointments and wrote CASH contracts for their timber before we set foot on their property the money was in the bank and these were 50k deals 200k deals to multi million dollar deals.

Sometimes the Gypo would win.. but most of the time we got the deal.. then I HIRED the gypo to log for me.. LOL  people like certainty and they want to do business with folks they can count on..

So many in the assignment game cant close and they really foul up sellers.. It got me way pissed off .. I walked up to many a home that people were going to lose in 24 to 48 hours.. and I would say what are you doing.. they wip out some flimsy wholesaler contract and say.. we had this sold but we have not heard from him. .can you help me.. LOL.. YUP can do..

@Kevin Dong   in many cases that hundo  just bought them some food and gas... talk about reprote' building.. if you can't afford to throw hundo's around each week to your appointments.. then your in the wrong business. and need to go get your capital together so you can be a for real player.. LOL.. that's my opininion and probably a minority one.. but hey I am not of the you can get rich with no money in real estate camp .. never have been never will be.. it takes some money to do this right and be successful.

@Kevin Dong @Brian Pulaski   I get anymore fired up on the subject I am going to have to start charging for these pearls of wisdom  LOL.. enjoy your X mas Eve I am going shopping now before the crowds or at least I am deluding myself to think I am early.. LOL

@Jay Hinrichs you probably have more deals on this board than most, so your chunks of wisdom are much appreciated.

I imagine there are a lot of wholesalers who have no intent or ability to buy the house. Just look at the amount of first timers asking wholesale questions on this board!

@Jay Hinrichs yup. I am on your side. I am throwing money quit a bit each week to getting leads or even just conversation going.  Putting no money down doesn't seems logical to me.  As a person who grew up in China for 20 years. I was told to buy everything in cash if not just don't touch it. 

I am still conservative about mortgage and stuff. And really conservative about getting into the deal. I need more room on the flip to overcome some surprise expenses and I need to make number work on return without leverage the deal , so I can get more cash flow when I do leverage them .  

Still trying to overcome my fear of borrowing from hard money lender and putting the mortgage lien on my properties until I run out of funds.  So I started to read and learn.  Well, I believe I will double or triple my profolio by leverage them all.  Still learning. 

Starting investing mid 2017, got 8 door free and clear by the end of 2017  6 doors for income genrate and two doors are ready to sell.  looking at around net $4500 cash flow per month. Looking  at leverage in 2018. My goal is triple my profolio and $10000 a month in net cash flow by the end of 2018 

Still pushing!!

@Kevin Dong @Brian Pulaski   One last thing because I still have half a cup of coffee finish and I can't help myself.

here is how I did it

I would simply put my pitch book out.. I would be trail closing all the time  ..

start with the big production of laying the hundo on the table..

then I would say I know you are smart people ( they agree with me everyone agree's they are smart)

so  I am going to be as straight forward as I can.

And I am sure you appreciate that as well.. and I KNOW your the type of people that would just come out with it that you either trust someone or you show them the door.. you never hold that in right ????

Then I would go on to say that real estate is a financial business it takes a lot of money to do this.

And you want to work with someone successful right ???  Well let me show you public records just so you know .. we can all trust but we do being smart sellers and buyers we have to verify.. please look at this print out from the county website.. see all those properties.. see what company they name they are in see my card and my address they all match up.. that is me.. we are successful and we do not leave sellers hanging.

Next as you know the condition of this home will preclude most folks from getting a loan ( for hoarders they know there home is a wreck..) or you come in on the hassle factor that you alleviate ie not working with MLS.. So let me show you my bank balance ( I would have both.. I would have a current bank balance I printed off the computer that day that showed my cash and I would have my bank statement showing my avalaible credit on my credit line.. and when they saw high credit of 5,000,000.00 I made a production about that.. I would say to them do you know what high credit is.. I would say that is how much the bank will give me on this credit line and see that I only have 2.5 million out.. so I can easily put this together.

Now as we know there has to be a profit in this for us to do this.. as a real estate broker which I am the highest price you will get is to list it.. and if that is what you want to do I can refer you to someone in my office who can do that for you.. or you can find another agent.. ( but a lot of times they just say nomost of the time they say No.

So that all established.. I recap I am here I am trust worthy I am buying for profit or loss always say loss. I proved to you that WHEN we going into contract we will CLOSE.. I never said IF.. I always lead them to the forgone conclusion that led to the deal..

then I wiped out a contract and went for the close I asked for the order.. I would say OK we have established that you need or want to sell. you can see I can buy.. and if you can give me 10 minutes to walk through we can talk about a number.. come back write the contract out.. on the spot.. and get them to sign it.. right on the contract I give them 48 hours to change their mind.. I tell them that I don't want to do business with anyone who would think I am trying to do something to them and or if they for some reason had something better then I want them to take that deal.. as it would be best for them.. and in all reality if someone wanted out and I had not put any money into it I let them out.. never want pissed off sellers I want them as referrals.

there you go ASK for the order you be shocked.. the other thing I did to close is I would do is say.. Hey I have to make a call I know this is important.. I am going in the other room to make the call please talk this over with your spouse when I am done.. then let me know Yes or no... and NO is OK it is OK to say No but if you know this is best thing then I expect to sign the contracts now and get this ball rolling.

@Jay Hinrichs sounds like you kinda miss being out there talking to motivated sellers lol. I like the $100 bill move. I think I’ll start doing that. And yes, always POF attached to my purchase agreement with brochure and business card. So many little things that help build that trust and show you know what’s going on in the real estate game. Mine is just the SFR game right now but hope to grow that in the future.

@Jay Hinrichs  I really do appreciate your order of getting the deal done. However, there are some part that I can't copy over since I don't have that huge of line of creadit.   All I could show is the enough money to cover the whole transaction in bank statement. But I do like other orders. Always being honest with seller about you are doing business here, you are helping them and trying to make a profit yourself as well. Everyone is appreciate the honesty. There is no doubt about that.  

@Mike Flora   I grew up in the land business  and my dad and other agents who sold land knew how to sell.. its an art form.. and those that perfect it will kick butt on those who have Zero sales skills.. its all choreographed.. from ringing the door bell not at 2 minutes to the top of the hour but within 2 seconds of the top of the hour.

you wait if your appointment is 5pm you have a very accurate watch you wait in the car you knock on the door EXACTLY at 5pm... you try it and you would be surprised how many people will say.. BOY your punctual.. and your retorte' is  ( always closing )  Yes you want to do business with someone who respects your time and is punctual ???  and then you launch into your presentation..

there are come backs for virtually every scenario someone can say.. its your job as a sales men to learn them..

the best training I ever got was sitting around the table weekly at sales meetings listening to the old timers talk about hey close this  sit or that sit or how they did it... you then take these pearls and adjust them a little to your personality.. and its like a pro athlete you get very good at your craft.. I would be quite rusty today not having dealt with the public in 15 years.. but I still get charged up talking about it..

@Mike Flora   also this is one reason I think getting a RE license and working for a top producing agent so you can learn these techniques is the fast track to success and builds a lasting career I know it did for me.