Anatomy of my First Wholesale Deal
I wanted to post some details of my first (and only) wholesale deal in hopes that it will help other newbies that are trying like crazy to get that first deal.
It took me almost 2 years from the time I decided that I would find some way to be successful in RE till I closed my first deal. I had no capital, bad credit, and live in a terrible market to wholesale; but I had a new family, a rough job, and tons of motivation. A phrase I think I got from one of Danny Johnson's posts "Patience plus Persistence equals Profits" was the key to keeping my nose on the grindstone.
I can't tell you how many hundreds and thousands of hours I spent studying and networking before I took action so I'm going to fast forward to the time when I had some letters and signs out. I received a message early one morning, a lead from a bandit sign, and I texted back if I could call back at noon. I personally like to build a text friendly relationship with leads because it builds comfort and allows me to crystallize my thoughts if we get into negotiations.
So I called her back and when I call leads I focus on my mindset. I try to be friendly, transparent and a good listener. I always offer other possible solutions and eventually drop into the conversation kind of what "we" do and the reasons people might choose to sell to us. I definitely don't want to talk them into anything because that would just lead to them changing their minds later on.
This particular lead had the family home burn down a few years ago and it was fairly traumatic to say the least. I wanted her to know that I was sensitive to her particular circumstances but the only way my potential partners and I could get involved was if there was a profit in the project. I let her know early on that I'm a deal finder and I partner with builders and contractors so the assignment wouldn't come as a surprise later on (Double closes have been rendered virtually illegal around here).
I asked for a few days to try and get a ballpark number on the property and to see if anyone might be interested even though I didn't have much hope. None of the flippers I knew had any remote interest, it was way off the beaten path in a little river town smack dab in the middle of a flood zone. I always had the idea in my back pocket that hard money lenders would know a bunch of investors so I emailed one (his wife already turned the deal down). Turns out he knew an agent who had a builder.
A few points here that the so called gurus would disagree with: I deal with one buyer at a time, I don't feel comfortable pitting people against one another. I don't feel the need to have a million buyers at the ready and since I don't know my numbers as well as the seasoned rehabbers I go to them for a soft number. Like "here's what I know about this property, what's a ballpark number that might get you interested?" If they say 215 I say to the seller, "If you're comfortable with a number around 200, maybe a little more, we can take a closer look and firm up an offer." And finally if I can negotiate a better deal with a seller I'm going to split the extra profit with the end buyer because as we all eventually learn, life is a people business and these guys are potential advisers on my first rehab when I can get some capital.
So I was surprised to actually have a deal on my hands and went out to take photos of the property only to meet a neighbor who said the county had placed a moratorium on new construction in the area. Since the fire was over 2 years ago it was considered a rebuild and not a rehab. That turned out not to be true but there was a lot of yo-yo'ing between having and not having a deal and there was more of that to come.
After learning as much as I could down at the county PRMD about septics, flood zones etc, and all the while prepping the sellers for a low offer I was ready to negotiate. I told them I could go above 30 but not by much. I asked if they were comfortable with something around 33. They asked for some time and called me back in the morning saying they needed 40.
I told buyer's agent if they could go 45, share closing and pay $1800 code violation we had a deal. He says 'what about my commission? Usually the seller pays that.' That didn't sound right to me but I said if buyer could go 46 I would take care of the $2000 and then I got the seller down to 39 (I really wanted $5k).
So I got the paperwork all ready and brought my wife and son to meet sellers down at a Starbucks. The lady was crying, my wife was crying, it really was a sad story, but they were happy with the deal and the way everything was handled.
Unfortunately there were still some variables. The septic needed to be rebuilt from scratch because the fire had occurred over 2 years ago and there was a wide range of costs depending on certain factors. The buyer himself was in Hawaii for a couple weeks so I was working off the agent's word.
I'll try to be brief but there were still quite a few twists and turns to come. My wife brought the contracts and $25 EMD to title first thing Monday morning, I texted my guy over there to give him heads up. Turns out he had transferred out of the county and the guy my wife spoke to didn't seem too helpful. I made some calls and got a line on a couple of title agents and we emailed Numnutz and told him not to worry about it.
The gal at this new title was super hip and everything seemed good to go, but a week later she emailed me that unfortunately corporate was going to pass on the deal because they couldn't get it insured. This didn't make sense so I told her we have sellers who want to sell and a buyer who wants to buy, something has to be possible here. She called back and said if its a cash deal it's a go, congratulations.
Meanwhile, it took forever to get the septic report and when it finally came back it was bad news, it was going to cost $20k more than estimated. The buyer/builder didn't want to be more than 35 all in. Negotiations got real tough from there and when I felt they were stalling I started marketing the property again. The contract expired during all this so it was none too comforting. I finally got them up to 42 all in plus pay closing. The sellers went from 39 to 37 but now had to pay the $1800 code violation fee but no more shared closing. I reduced my fee from $5k to $3k, gave the buyers right of first refusal on leads until I brought them another deal and finally we had an agreement.
So this was my experience with my first wholesale deal. I wanted to share it with the BP community because you guys have been there to answer questions, solve problems, and formulate strategies and goals. I have since determined that a "wholesale only" business model didn't make sense in my market because I was getting great responses with Jerry Pucket's letters, people wanted to sell but their properties were in retail condition. So I've halted my marketing until I get my license.