The $57,000 Rehab vs The $28,000 wholesale
A few months back I made a decision to take $25,000 profit on a wholesale as opposed to rehabbing it and making over $50,000. This use to be a very difficult decision for me to make and I often times see investors making the same mistakes I use to.
Why Settle For Less Money?
Don't let a $50,000 profit over a $25,000 profit trick you into thinking you are making more money. In this case wholesaling this property will actually make me way more money in the long run.
This property was in need of a very extensive rehab which would have probably taken a minimum of 2 months to rehab. If you have ever taken on an extensive rehab project then you know how time consuming they can be. Not only are they time consuming but lets not forget the headaches that can be involved especially if unexpected problems occur.
The Decision
I had 2 choices. I could either bring my crew in and renovate the property or I could wholesale the property for quick cash and be done with it. By the time the property would be renovated, to getting an accepted offer, to picking up the check at the closing table I would be looking at a minimum of 4-5 months.
I had the cash in my bank account in less than 4 weeks by wholesaling it. Not only did I get paid quicker but the hours involved by wholesaling it was incredible. I may have put 3 hours into the entire wholesale process versus well over 100 hours of managing the renovation. Lets look at the numbers of this property and the hourly rate I would have made rehabbing vs wholesaling.
Rehabbing
$215,000 - Sales price
-$12,900 - broker fee
-$4,000 - closing costs
-$65,000 - renovation costs
-$65,000 - purchase price
-$10,400 - interest on private loan
$57,700 - estimated profit
$57,700 profit divided by 100 hours managing = $577/hour
Wholesaling
$95,000 - Sales price
-$65,000 - purchase price
-$1,950 - interest on private loan
$28,000 - profit
$28,000 profit divided by 3 hours managing = $9,333.34/hour
Conclusion
As you can see the hourly rate and the best use of your time is to wholesale every property you can. I am not discouraging rehabbing. I have made a ton of money rehabbing properties. I always list my properties on the open market for 30 days. If I don't get any descent offers from an investor after 30 days then I will make the decision to renovate the property. It's very simple. The more properties you wholesale the more deals you can purchase. Even though I made $29,000 less on this property I will easily make twice that amount in those next 3-4 months that I would have spent managing the rehab.
Matt Middden
St Louis Homebuyers, LLC
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