Potential First Deal- Wholesale- Please review my approach

9 Replies

Hello All-

Long time lurker here; I've been reading and soaking up as much as possible the past 2 years, and have recently come across my first potential deal.

Background-  I have been discussing strategies and seeking mentorship from an Agent friend who is also a RE investor. After multiple discussions over coffee, he presented me with an opportunity to partner on a wholesale.. my feeling is that he really doesn't need my $, but rather is presenting this as an opportunity for my to learn and get involved in a deal with him. (He does many flips and wholesale deals).

I would appreciate any feedback or advice on this potential deal:

The subject property is a 1,084 Sq Ft, 3Br, 1.1Ba HUD property listed for $127K.

My friend has an interested buyer at $127K, but requires financing. We would put a cash offer into HUD for $120K. I would be providing $20K to fund the cash offer, he would be covering the rest. After closing costs (est $2k high side), I would yield less than $1K. Not much, but I figure it's a good learning experience and it could be easy money.

I've been thinking through exit strategies in case this buyer falls through and for some reason we can't find a backup:

Potential Plan B: Minor Flip / Make improvements to improve it's appeal. It has good bones, including 'newish' baths and kitchen, but needs paint, carpet/flooring, new furnace, and some yard cleanup. Comparable sales (total of 7) came in at $132K. $5K in updates would wash profit to be equivalent to this potential wholesale profit.

Potential Plan C: Rent it.. Comparable rents came in at $1,222 (or 1% of purchase price) in this immediate area. Assuming my contribution is used as down payment, I would cash flow $100/Mo with doing my own PM. Not desirable at all, for my area (as there's better SFH rental potential at lesser prices), but plan C.

I'm trying to put in practice analytics of exit strategies and think through multiple risk scenarios, but think this is a good first step/learning opportunity in REI.

Thoughts?

Also, any advice on how to protect myself with this wholesale partnership? Effectively, I will be separately writing a check to the Title Company, with a proportionate % ownership on the title (NOT writing my realtor friend a check..). Thanks in advance!

Erik

I don't have a lot of experience but I don't think there's enough meat on the bones of that deal. Wholesaling, in my experience, is only appealing to most buyers when the buying price is 70% of the ARV (minimum). It doesn't look like you're anywhere near that.

It would suck if you got stuck with it, couldn't rent it or flip it, and lost your tail because your exit strategies fell through.  That would leave a horrible taste in your mouth regarding real estate and nobody at BP wants to see that!

My advice:  Generate a ton of leads and go after the sure things with ferocity.  You'll find tons of deals with a lot of room to spare.

@Erik Romzek

No experienced flipper/wholesaler would touch that deal so someone without experience needs to run from it.  Something always comes up in the transaction and you will lose money

I would walk away from my $1000 EArnest money before I would put up $127000 cash to make $1000

Let the guy getting financing buy it and then buy you dinner, then you would at least guy a meal out of the deal

No way.  Buy for $120k, resell for $127k, with closing costs in Both transactions.  Way too little money for everything that could go wrong....holding costs, insurance, buyer can't get financed, etc, etc.

Originally posted by @Greg H.:

@Erik Romzek

No experienced flipper/wholesaler would touch that deal so someone without experience needs to run from it.  Something always comes up in the transaction and you will lose money

I would walk away from my $1000 EArnest money before I would put up $127000 cash to make $1000

Let the guy getting financing buy it and then buy you dinner, then you would at least guy a meal out of the deal

Appreciate the advice. My appetite to get involved in deals has impaired my better judgement I think... I don't know much about wholesaling and the evaluation of a wholesale deal, especially with a partnership; I'm happy I asked for input!!

Double post......Lebron's fault

You have MULTIPLE things going on here..

First off, this DOES NOT sound like a wholesale deal. 

Second, partnering up on a wholesale deal isn't too common from what I know. (Other than the investor putting up cash, and the deal finder). 

Third, why would the buyer need financing? The buyer who you'll be wholesaling it to should have the cash up front for it, because eventually he'll do a fix and flip, or a buy and hold..  Remember, you're wholesaling it to a MOTIVATED SELLER, you are solving his problems by assigning his property to a cash buyer. You shouldn't be putting up ANY MONEY at all if you're wholesaling (except for earnest cash which only has to be $10, reference your state minimum).

Fourth This is sounding more and more like an investment purchase. Yes, you'll be making $100 positive cash flow, but what if you find pipe issues, roof issues, or problems with furnaces? That +100 cash flow can go negative real quick and you'll end up having to wait months to bounce back. 

I agree with Ryan. You're not buying it 70 cents on the dollar or even less. You're buying retail to make a profit, which is a bad idea. Sounds like your partner is using you for down payment. A no money down deal. 

My suggestion is don't do it. Learn exactly what a wholesale is, generate some leads, find a cash buyer, find your title company that would let you use an investor, put the contracts together make $5,000 a deal. Good luck.

Correct...this isn't a Wholesale deal.  This is a VERY VERY VERY thin something...pre-hab, whotail...something, but it isn't a Wholesale deal.

I have lots of questions...like, 

  • What price is HUD listing the property at?
  • Have you lost your mind?  (LOL...just kidding!)
  • Has your "mentor" lost his mind?  (not kidding so much on this one)
  • What kind of buyer do you have at $127k that will need financing?  That's odd.

This isn't a deal, and a bad deal is NOT better than no deal.  

Originally posted by @Hattie Dizmond :

Correct...this isn't a Wholesale deal. This is a VERY VERY VERY thin something...pre-hab, whotail...something, but it isn't a Wholesale deal.

I have lots of questions...like,

  • What price is HUD listing the property at? $127K
  • Have you lost your mind? (LOL...just kidding!) I don't think so?
  • Has your "mentor" lost his mind? (not kidding so much on this one) Sounds like it
  • What kind of buyer do you have at $127k that will need financing? That's odd. First time homeowner.

Seemed like a wholesale to me, but sounds like it's more of a retail investment (or something totally different?). My realtor friend has a buyer who wants this house for $127K financed. HUD has it listed for $127K. He's looking to sweep in, get HUD to sell him the property at $120k cash, then resell it to this buyer at $127K. He's moving forward whether I'm interested in participating for a small share or not.. I respect everyone's point of view; to be honest I'm surprised this guy continues executing this strategy (and putting so much of his personal cash at risk) based on the above feedback.

Look- I appreciate the advise greatly, and based on more experienced views I won't be moving forward on this.. I need to obviously learn a bunch more.. I wouldn't have asked for input/advice if I were to blindly push through this deal, esp. considering it would be my 1st.

@Erik Romzek

Hi Erik, Glad that you are getting your feet wet and wanting to jump in. From my experience, I would agree with many of the other posts, and say to buy this property at 120K wouldn't really be that great of a deal. And my question would be, if this is a HUD and listed, and your end buyer knows about it, then he should offer 127K (list price) directly to HUD through an agent, on his own if he can get the financing.


I buy a lot of HUD properties, and HUD has some sort of formula they use. I would research and see how long the property has been on the market (If it getting closer to 90 days), then HUD gets antsy and takes lower offers. A lot of times, HUD will take 80% of what they are asking. If that is the case, they might take around 100K which could give you some more wiggle room if it doesn't need much work. HUD usually counters most of the offers that I submit, so you might just submit low offer and see what HUD counters at to see where they need to be? Many times, I will just offer 50% of what HUD is asking to see what they counter and where they need to be, and then I research the comps, ETC after I see what they counter. Good luck & have a blessed day.

Brett

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