Can I still do this deal? Newbie Wholesaler

Question

Hey guys, So I found a great deal on Craigslist. A fire damaged home selling for $12K. The comps around the home are $50-65K. Im thinking I can wholesale the house for $25K figuring in ARV. Not a bad deal right? I'm hoping the seller will just talk to me on the phone, let me know any more info I need, and then let me email him a contract to sign. Well I call him this morning and he's asks if I've worked on rehab homes before and am I a cash buyer? I tell him I've worked on a rehab team and I am a cash buyer. He then let's me know that when ever I am ready to look at the house he will show me property and have HIS contract ready for me to sign. What in the world? As a newbie wholesaler I'm at a lose for words. I just tell him okay and I'll be in touch. Guys, am I able to proceed with this wholesale deal if I don't bring a contract? Can I assign HIS contract between us to a investor I know? I'm just the wholesaler not the end buyer. Should I have been up front with him that I'm a wholesaler? Lately when I try to explain this to sellers they don't want to deal with me. What am I to do? I have to money to send out mailers, bandit signs, etc. Free sites like Craigslist are my only options right now.

Jose Flores · Answer

Hey @Danielle Spears you got this.  I explain my business like this to potential sellers.

"Mr. Seller I am a professional real estate investor and I will be working with some money partners to complete an extensive renovation on this property.  Given that I sometimes take title to the property and other times one of my partners will.  I'm telling you this because the contract will read "Danielle Spears and/or assignee".  Also, I will need to place a lockbox on the property to confirm my numbers with contractors and show my money partners."

This allows me to knockout two birds with one stone.  I make his contract assignable and get a lockbox on the house to show all my cash buyers.  Hope this helps.  Good luck!!

Danielle Spears · Answer

@Dean H. Precisely. Lesson learned.

Dean H. · Answer

A burned out house is a scary way to go if your new to the game. Accurate repair costs are nearly impossible to estimate until partial demolition is done to really see damage that needs corrected. I recently purchased a repo that a rehabber got 95% done after a fire, his estimates were so far off he lost the entire project and we bought for 28% of ARV and just had to trim out kitchen and put on light fixtures. The rehabber literally spent more on the rehab than the ARV of the property.

Did the seller collect on an insurance policy and won't reinvest back into the property so he will let you sell it instead of boarding up and walking away? Fun game in the hood

Danielle Spears · Answer

Investor didn't go through with the property. I totally understand. On to the next :) Thanks guys.

Danielle Spears · Answer

@Mindy Jensen yes that was a huge drop. All I can do now is wait and see what happens with this deal.

Mindy Jensen · Answer

@Danielle Spears , you said you ran the numbers at $65k ARV. What do they look like with the $50k ARV? At this price point, $15k is a HUGE percentage.

Wayne Brooks · Answer

Well, the "70% rule" on a $60 ARV really doesn't work.....who is going to take the time and effort to buy, rehab, hold, market and sell a property with only $18,000 as a Gross margin, less buying costs, holding costs, financing closets,  selling cost, fees and commissions, etc., etc and end up with less than $10k?  Besides, trying to ball park rehab cost on a fire damaged property one hasn't even seen.

Danielle Spears · Answer

Update:

I spoke with the seller and he is very familiar with wholesaling and able to work with me. Also, one of my investors did his numbers with his team and would still like to schedule a inspection  of the property :) Excited about that. This will be the first deal I've done in Huntsville and I am excited to see how this goes.

Thanks everyone for your help.

Danielle Spears · Answer

@Jose Flores that was so helpful. I don't want to be misleading when speaking with the seller and with the example I have a better picture of how the lingo goes between the wholesaler and the seller. Thanks.

@Tom S. thanks for that. I went back did more research and found that the repairs were more along the lines of $30-40K. I have an investor going by to get an accurate estimate though. I was still using the #50-60K range but $50 seems more along the lines. May even sell for $58K

Tom S. · Answer

@Danielle Spears  I would work on tightening up the numbers.  If you haven't seen the place, it's hard to say "fire damage" is $20k in repairs  Was there just smoke or fire/water too?  If water, there could be extensive damage.  Also if you're estimating comps at $50-$65k for the area, be conservative and use $50k.

Most contracts can be assigned unless they state otherwise.

Good luck and let us know!

- Tom

Can I still do this deal? Newbie Wholesaler

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