Wholesaling in expensive cities?

22 Replies

Hello all wholesalers,

I'm want to dive into wholesaling to get familiar with finding deals on my own. Then progressively move into flipping homes and buy and holds. But I live in Vancouver, British Columbia, which is an expensive city.

So my question is wholesaling more difficult in a city where real estate prices are higher cause deals are harder to find? or doesn't matter and motivated sellers will sell at a discount??

Thanks to all contributers!

Doesn't matter the price range. 2 of my friends just did a $59M wholesale deal in NYC. They put a building and surrounding air rights under contract for $49M and wholesaled it to a developer for $59M. Don't let price scare you.

Account Closed that was motivation for me. I guess it depends on your comfort level and confidence. If you know your stuff... Nothing is off limit.

thanks! @Aaron Mazzrillo @Denisha M.

I'm originally from NYC. so interesting that wholesaling on that scale is still possible and not unfathomable.

I wholesale in Washington DC, nothing like Aaron's friends' deal but still pretty high-priced residential real estate. Lots of folks on this site wholesale in expensive cities, it all works the same!

Account Closed So, would either one of you care to share any creative ways to counter the POF Letter factor & the EMD usually required on transactions of this size for someone trying to wholesale in that type of market? Would finding a partner be my option in your view?

A relationship with a private lender/money partner always helps.

Account Closed Are there lenders like transactional funders that would loan only EMD Funds for deals they've can analyzed? Or is that unlikely?

Every lender has their own model and criteria. My private lender doesn't look at anything I do. I call him up, tell him how much money I need and he wires it into escrow that day. No appraisal, no drive-by, no pictures, no comps. Sometimes he might ask what I plan on doing with the property, but mostly he isn't interested. He knows his money is safe in my deals. I just don't do risky deals. If I can't get the property at my price, I walk. There are so many properties out there that I don't need any which don't fit into my model. I'm a 'don't wanter.' It's my game and my rules. If the seller wants to play with me, we do it my way. It doesn't work for every seller and I tell many right up front that I'm not the buyer for their property. I walk away from a lot of potential deals other investors would probably do, but my risk tolerance desire to work hard is much lower. I'd rather work smart and less and be paid well for what I do, than work hard and a lot only to be paid a little. Because of this, my private lender knows if he funds a deal for me, he's going to make money AND get paid back.

And this builds the most important part of any business and that is the professional relationship. In my world, I know that when I touch someone's money, I'm playing with a part of their life. I take it that seriously. I pay my bills and I keep my word. You create a relationship like that with your private lender and there's no telling what you can accomplish.

Thank you for that Account Closed

So, I guess I just have to first develop a winning track record so they'll have more to go on than just my burning desire to do deals.

J., I see you're in Brooklyn. Even in the big metropolis of NYC there must be real estate investor groups, meetings, etc where you can network and meet hard money lenders who will help you build a track record. There may even be some here on BP. A POF letter can make it much easier to get deals under contract, assuming it is valid and current.

As for EMD, most investors I know only put a small amount of money down on a property. The rationale is that if you're making many offers each week you can't afford to be making big EMDs. For wholesale deals I don't even make a deposit until I have a ratified contract, and no one has ever commented on it.

David Dam,

First we must define expensive cities and their median price.

With that said, let's move onto the next point. Wholesaling expensive or luxury homes/properties well above the median is possible but may not be a good route to travel in the beginning of your career.

First of all, let's take Austin, Texas as an example. In 2013, the median home price was just over $219K. As of March 2014, it is just over $230K.

If I were to (hypothetically) try to acquire and wholesale a home for let's say in the $700K range, it may be very difficult for me to find a cash buyer per-se. Not to mention, your target group, be it retail customer or investor will be from a very limited pool. Now of course, for the Austin area, it's market is very aggressive and truly a "Seller's" dream.

But because it is in the range well above the median price, it may be much more of a risk, even for most investors, much less wholesalers. It truly would be contingent on the numbers completely and how you structure the deal. Now I am not saying if there is an opportunity to pass up on it... If it works it works.

I, personally, would stick to homes below the median price as more than likely 80%-90% of your target buyers will be able to take down that type of home. In other words, an investor may want to cater to the larger pool (below median pricing) than sit and hope he can resale a higher-end home/property (above median pricing) in quick enough time to turn a profit.

Now onto your last questions: "is wholesaling more difficult in a city where real estate prices are higher cause deals are harder to find? or doesn't matter and motivated sellers will sell at a discount??"

The answer: Yes & No...

Yes, motivated sellers usually will discount a property primarily because they're up against the clock. However (no), in a market like Austin, Texas, you will not find many motivated sellers as the market is so aggressive with the average days on market being under 60 and in hotter areas even below 30 days. Austin, Texas has an average 15 homes in foreclosure per month as opposed to let's say, San Antonio, Texas with an average 550 forecloses per month.

So you need to learn what your market, whether it is local or at a distance. Wherever you decide to wholesale, you really need to conduct thorough due diligence. Also find out where most cash sales are taking place. Then target those, but in my opinion, I would focus on properties below the median. This way it provides several more options in the way of exit strategies and buyers.

I hope this kind of helps. I was not sure if you meant expensive in general (as in median) aka cost of living or higher-end homes.

Bottom-line, you have a lot of work, studying, and research to do before you can even begin to move in the direction of wholesaling. There are just so many components to try and master as a newbie to begin in an expensive environment or aggressive market.

BUT IF OPPORTUNITY KNOCKS, ANSWER IT

Just my two pesos.

Big Henry

Regardless of what the property is, if you buy it at the right price, you can sell it. I know several people who wholesale high end homes. I also know one guy who wholesaled an entire mobile home park. The key is to buy it right. You talk like there's nobody looking for a deal on a $700k house. Buy it at $450 and see how fast you sell it. There are rehabbers working in all price ranges and there's always a few looking to up their game. I personally know 4 investors playing in the $2M price range and I have a house I'm working on right now that will retail for $750k and another in escrow I plan on selling for $550k.

Thanks @Alison M. Yes, I've just arrived back in NY so I don't really have an extensive RE Network here yet but believe I am working on it. So, in essence, barring any miracles I'll most likely have develop the relationships first. Ok I get it.

Account Closed

What your describing IE your relationship with your money partner is one based on I would suspect many years and many many successful deals.

And in my bizz of short term lending that is the only way I do it. Once I fully vette an operator then we are good to go... TITLE Insurance Hazard insurance and a very savvy operator are what I look for then do deals with them for years to come... and as hundreds move into this field you will have a few that will climb the mountain and get those kind of relationships with their money partners. And on the flip side I do bizz exactly like you describing for a few of them. and others I get a little more detail and are more formal..

So for me here is how it goes.. I wake up in the morning 5:30AM and I work my East Coast partners Open e mail set of docs.. I print sign scan run to the bank wire... deal is done in matter of hours.. I might on occasion google the street and see what they are doing.. Everyone is to busy to talk on the phone so the best is maybe I get a text or a one line e mail. So my Fla partner I did 37 transactions for them in 2013 and never looked at a one..

But this is a vendor that I have known for oh 14 years and I have done well over 250 deals with them.. We did not win on them all but 97% were perfect.

Also there is a flip side to this type of arrangement they do not try to grind me like I am a lender they see me more as a financial partner so for this service and NO red tape and the formalities of normal HML I make a pretty nice return. Better than your average HML for sure.

Now I say all that and I just did a deal in Vegas for a BPer.. I have family there and happened to be there and I took a liking to them so I did a drive by looked at the property, that one did not go but he had another one so I funded it.. he did send pics and some comps.. And once we get rolling and have success he will eventually get to top tier status and just send deals that I will fund.. This new client also put up cash on the buy and can handle the rehab out of personal funds..

Caveat to all of this is very conservative LTV's and my guys by and large have cash and substantial cash at that of their own they are not running on 100% leverage.. And again extremely experienced in the space.. they are like Aaron they are not going to buy anything they can't make money on.. Like a newbie that may or may not know what they are doing.

Originally posted by Account Closed:
You talk like there's nobody looking for a deal on a $700k house. Buy it at $450 and see how fast you sell it. There are rehabbers working in all price ranges and there's always a few looking to up their game.

Aaron,

I suggest you read my post again. I never "talked" about never doing a deal with higher-end homes. I am only suggesting our friend here or whoever reading, if an inexperienced wholesaler, starting out with higher-end homes/properties may not be the ideal route to go.

He should learn his craft first before taking on such a process... HOWEVER, if the numbers and opportunity presents itself by all means go for it.

Wholesaling high-end homes/properties is nothing new and many do it... Even I've done it. I just wanted to caution Mr. Dam to keep an open mind and should focus most of his efforts on a larger pool generally speaking, until an opportunity arises or he learns all the intricacies of wholesaling.

I don't believe there are very many wholesalers pumping out five to ten deals a month much less a year on very expensive wholesale homes consistently.

Now as for lower-end (median and under) homes, possible and more likely.

Also I would never buy a high-end home/property in wholesaling. The art of wholesaling is to control a property with little to no money out of pocket and flip/assign/wholesale (whatever term you choose) to a cash buyer (preferably).

Aaron, you may be an exception to the rule with your private lender, so generally speaking, not every investor or wholesaler has those types of relationships yet or ever.

So strategies have to be approached differently.

Just my two pesos.

Big Henry

@Henry M.

Henry its all relative... when your talking about 450 to 700k homes in Vancouver BC that is the median so those are not high end. Same with Seattle SF PENNISULA Better parts of LA and Socal.

I get your point though and agree... your market in Austin is akin to what we have here in Portland with a median at 260k or so. And high end would be considered anything above 500 to 600k...

At the end of the day if you have the financial backing or personal Cash you can start at whatever level your finance's dictate.. Nothing different in wholesaling properties, its still the same principal of buying low and selling for more.. Just in certain parts of he country you need to add a zero or two to the end of your numbers. For me personally I work all price ranges.. Right now I have a realtor in a small mid west town buying every wholesale deal that comes on the market we are paying 7 to 15k per home... then in FLA my deals are 50 to 60k wholesale I just did a few in the Carolinas were they were 200k ish... And then in Oregon I am not wholesaling but building in price range from 200k up to 700k... So its all fun.. But the bottom line the transaction to close the 7k wholesale deal in small town mid west is the exact same paper work time and effort as selling a home for 500k or 5 million. And I think That is Account Closed point he only wants to work on price point that is his median and or higher as the pay days are greater and the effort is the same. Or basically the same. When rehabbing higher end your going to take more time bigger homes are longer rehabs and your going to put obviously more expensive stuff in them etc etc.

Originally posted by @Jay Hinrichs :
@Henry M.

Henry its all relative... when your talking about 450 to 700k homes in Vancouver BC that is the median so those are not high end. Same with Seattle SF PENNISULA Better parts of LA and Socal.

I get your point though and agree... your market in Austin is akin to what we have here in Portland with a median at 260k or so. And high end would be considered anything above 500 to 600k...

At the end of the day if you have the financial backing or personal Cash you can start at whatever level your finance's dictate.. Nothing different in wholesaling properties, its still the same principal of buying low and selling for more.. Just in certain parts of he country you need to add a zero or two to the end of your numbers. For me personally I work all price ranges.. Right now I have a realtor in a small mid west town buying every wholesale deal that comes on the market we are paying 7 to 15k per home... then in FLA my deals are 50 to 60k wholesale I just did a few in the Carolinas were they were 200k ish... And then in Oregon I am not wholesaling but building in price range from 200k up to 700k... So its all fun.. But the bottom line the transaction to close the 7k wholesale deal in small town mid west is the exact same paper work time and effort as selling a home for 500k or 5 million. And I think That is Account Closed point he only wants to work on price point that is his median and or higher as the pay days are greater and the effort is the same. Or basically the same. When rehabbing higher end your going to take more time bigger homes are longer rehabs and your going to put obviously more expensive stuff in them etc etc.

Jay,

Appreciate the response, and to reiterate the point, when one has the financial backing or buyer(s) everything opens up.

Ca$h is KING!

That IS the ideal relationship every wholesaler or Investor seeks.

So out of curiosity, you mentioned you have done 250 + deals... Which by the way is very impressive.

Are all these wholesale deals?

What is your average spread (profit) on your lower-end vs. higher-end deals?

By the way, I agree with the same paper work and effort in either end.

But how many deals (percentage wise) do you find closing in either end category?

Just like to pick the brains of the greats ;)

We appreciate the education.

Respectfully,

Big Henry

@Henry M.

I have been doing this for 40 years.. ON the HML side of things well over 2000 transactions. ON the wholesaling side 250 is a conservative number.

spreads depending on deals can be as low as 1k for transactional one day to one week deals.. To much bigger numbers.. But as a general rule out here in the Oregon market 15 to 25k on a flip is a good HONEST number.. And of course I have done far better on some deals.

the Carolina deals are going to be pretty good I am thinking 50k ish in 6 months.

New construction we shoot for 10 to 15% of gross and we hit it most of the times and sometimes 20% if we do better means we got a super buy on the dirt.

At the end of the day I shoot for all my activity to return about 30% apr cash on cash that's the goal. Its all about having a nice amount of cash to work with as you state cash is KING always has been always will be.

Originally posted by @Jay Hinrichs :
@Henry M.
I have been doing this for 40 years.. ON the HML side of things well over 2000 transactions. ON the wholesaling side 250 is a conservative number.

spreads depending on deals can be as low as 1k for transactional one day to one week deals.. To much bigger numbers.. But as a general rule out here in the Oregon market 15 to 25k on a flip is a good HONEST number.. And of course I have done far better on some deals.

the Carolina deals are going to be pretty good I am thinking 50k ish in 6 months.

New construction we shoot for 10 to 15% of gross and we hit it most of the times and sometimes 20% if we do better means we got a super buy on the dirt.

At the end of the day I shoot for all my activity to return about 30% apr cash on cash that's the goal. Its all about having a nice amount of cash to work with as you state cash is KING always has been always will be.

Haha. Agreed.

I appreciate your response and openness. It sounds like you would be an ideal person to move one's deal or project if the numbers fit your criteria.

I may have to college you.

Wholesale specifically:

Btw, what percentage of your profit comes from low end vs. high end? Is it 80% median and under - 20% median and over?

How much (%) of that is residential vs. commercial?

I appreciate the knowledge.

Big Henry

@Henry M.

I don't do commercial.. I have owned MHP parks and mini storage and some office , mainly offices that I located my company at.

pretty much just land Timber and subdividing, single family and lending money... My favorite of all though TIMBER by far.. Love the industry Love the ethics that loggers and Mills have... And love the smell of woods and fresh cut sits... But as housing crashed Timber crashed with it.. Although I just sold my last timber holding to Stimson lumber last June.. We had 750 acres I subdivided the front 120 acres into 14 parcels. and those sales almost paid for the land.. So we did pretty darn nice on this one. And in the day on our timber deals profits were 40 to 200k or more per job... One year we did 82 jobs.. That was a good year.

I had a partner that was the logging end and forester and office staff I handled the LOC's and the data base's.. Kind of like the YELLOW LETTER before the YELLOW Letter was invented.

Best

JLH

@Henry M.

And as a follow up to the TIMBER days.. you will love this.. WE would get 100% advances from the Mills many times this paid for the timber and land at the buy. So we not only profited on the Timber but owned the land free and clear... And guess what the TERMS were... No points and NO interest just had to deliver the logs within 12 months. And they scaled them and if you were short we had to pay back if we went long we got more money.

My main mill was Menasha the company out of WI.. they had a large export bizz on the Pacfic NW our logs went to Japan, China , Korea then what was left over went domestic.. In the day talking the 90's when the Japanese were rich they out bid everyone for the premium logs.. but that's a whole nother story but a very fond one.

thanks to everyone for participating! all

very encouraging opinions for me to just study my market and build strong relationships!

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