I'm a new investor who is looking to wholesale and beginning to receive a decent response from my first mailing of yellow letters to absentee owners. Not surprisingly these leads have been from landlords looking to be free of their rentals. Here is a recent lead that has come in. It's a 3/1.5 that is currently rented for $735. There are 4 properties in the subdivision that have sold since September. All cash transactions from 49k to 72k(2 around 50k in similar condition to the owner's property)
I don't foresee this being a standard wholesale deal that I would offer to a rehabber, so I'm wondering how it typically happens with a wholesaler working with a buy/hold investor. Is it unusual for landlords to buy with cash? I've punched in some numbers for if the property was bought for $52000 with a conventional loan and an investor decided to renovate lightly:
Purchase Price - $52000
20% down payment - $10400
closing cost - $3000
Renovations - $3500
Annual Rent - $8820
Debt Service - $2470.44
Tax - $920
Insurance - $400
vacancy - $441
repairs - $441
property management - $882
According to those numbers I am calculating 1.41% rent per purchase price, $272.13 cash flow, NOI of $3,265.56, cash-on-cash return of 19.32%, cap rate of 9.81%. The tenant is renting on a month-to-month agreement so rent could be raised to 800(common in the area) to improve those numbers.
Do these look like decent numbers that a buy/hold investor would look for? I have been trying to figure out how to work as the middle man between the seller and other investor in a situation like this. Would I offer 48-50k to the seller and try to assign the contract for $2000? Please excuse my inexperience.
Understand that you can not assign a contract to your end buyer if they are doing conventional bank financing. The bank will look to see who the current owner is and it wont be you. You cant even double close so most likely you will need an all cash buyer or if you trust the seller to pay you a " marketing fee " when the deal closes.
I understand that I want a cash buyer to assign to. I put the conventional loan part in because I've read that it's common to refinance a hard money loan into a conventional loan. I'm not sure exactly how that process works, or if buy/hold investors do that, but I wanted to see what the numbers would look like. If you have any tips to wholesale these kinds of leads I'd love to hear them. Thanks
Those numbers seem workable. I am a rehabber and wholesaler in Charleston. I don't buy/hold, but I am familiar with the numbers and I wholesale to landlords.
l would recommend you offer$35k - $40k to the seller in the first conversation. If he/she does not bite, I would go back 1 week later with "if I could pay $45K would you accept my offer" If you still get a "No" I would go back 1 week later with "if I could pay $48k, would you accept my offer" It is a numbers game. I find that it takes 40 offers to get 1 deal at the right price. We rehabbed 10 houses in 2014 and wholesaled 4, working part-time. This year my wife and I are both full full time investors and plan to do 18 rehabs and 12 wholesales. To do these 30 deals, we expect to make 30 x 40 = 1200 offers, or 100 a month, or 20 a day (5 days a week) Remember that some of these offers are follow-ups on previous offers, they are not 1200 separate properties. A fellow investor in San Francisco recommended the book "Go for NO" to us. It made a HUGE difference in my mindset. Every NO gets me closer to YES! I recommend this book to every investor.
I would love to buy some wholesales from you. We prefer West Ashley or James Island, but we are rehabbing 3 houses in North Charleston and 1 in Ladson right now. We buy anywhere in the tri-county area. We pay wholesale fees with a smile!!
Let me know if I can help you in any way.
Cut is correct your best bet is to find a cash buyer. We wholesale about 8 rentals every month. We have hard money lenders that we work with that do buy and hold loans. The process is really easy. They only lend 80% of ARV so if the home is a rental at almost retail then the buyer has to put the difference to make the loan 80%. Their fees are higher but as I tell all my buyers, in 30 days go to the bank and refinance the loan. Once they are approved they will have a low interest loan. Most hard money lenders have no pre-payment penalty.
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