How to analyze a package deal to wholesale

Question

Hello Bigger Pocket members. I am seeking your advice on whether the below is a good wholesale deal to pursue. There are 5 properties located in Memphis TN. The owner will only sell them as a package.

Asking Price: $215, 000 for all 5 properties; avg price is $43,000Properties are mostly 3 bedrm 1 ba; rents avg. $550/mo.

100% leased (with cap rate between 9-11% on this package.

Nice properties for cash flow. I need help on analyzing package deals. Any suggestions? Thanks.

Dean Letfus · Answer

550 rents will be a C- to D area. Sounds like a terrible deal at that money.

James Wachob · Answer

The key is to find a great team! Ideally you would find a company that has everything under one roof. Acquisitions team, renovation crews (fully licensed and insured), Property Mgmt., and a Real Estate Investment Brokerage in case you ever decide to sell.

By teaming up with a solid firm you can mitigate your risk and have some "boots on the ground" that have your best interest in mind.

The best advice I have received from my mentors pertaining to my Class C investments is:

1. there is strength in numbers.

Some of my clients have 100+  C Class properties in Memphis. These investors do very well! However, I've spoken to several investors who have 5-10 properties in town and when they have a couple of vacancies... they are miserable.

The moral to this is to have a strategy to eventually "Go big or go home!" and until you get to 12+ properties... expect it to be tough.

2. do a A Class renovations on your C Class properties.

One of the most successful TurnKey companies in town only renovates Class C properties. However, he installs new 30 year architectural shingles, Stainless appliances, hardwood and tile floors, newly painted interior and exteriors, and more.

If you are going to own a property on a street of mostly rental homes, I'd suggest that you stand out from the crowd. By having the nicest home on the block you can be pickier about Who rents your home, and in most cases your renter will stay longer!

Jay Hinrichs · Answer

@James Wachob  how was Vegas I saw you in some pictures there .... can't hide in America these days.

Jay Hinrichs · Answer

@James Wachob  I like your land analogy..  I suspect in many areas of the country with homes prices where they are at... most everything would be classified as C class... at least half of most cities.

what I am thinking about is areas of Milwuakee and Detroit  were maybe not deemed C class but no way you could rebuild those beautiful early century craftsman in todays dollars for what you can buy them for today and tomorrow and probably forever more.

Jay Hinrichs · Answer

are rents 550 or 750  huge difference.. but as others stated 40k in Memphis = Hood generally speaking .. and I have been there done that.. but it looks like you live there and if you can self manage and stay right on top of the tenants maybe it would work.. out of state folks would get cremated

Alex Craig · Answer

Dean is being optimistic.  Sounds like D or F properties.  Remember, what most people call B properties are really C (which is not all together bad).  But the C properties are really D.  The money that can be made on D properties far outweighs how much can be lost. I suggest buying $100 worth of lottery tickets.

Elizabeth Wilson · Answer

@Lauren Brown - what are repair costs? Is there deferred maintenance? What are ARV? How are the neighbors/neighborhoods?

Analyze each one separately first and then see if it works for you and your buyers.

Let me know how it goes!

Shawn Ackerman · Answer

@Lauren Brown seems like the package is overpriced considering the rents are so low.  With that said, you must know the value of the properties individually and determine the collective value.  The same action applies when looking at the taxes, insurance, PM cost, Vacancy rate, Cap ex, Maintenance, lawn care, routine maintenance etc.... expenses.  Do the numbers individually then collectively.  Put all of the information on a nice clean spreadsheet then shop the deal.  Investors whill expect to pay 75-85% below market price.  So you have to get to the discount number for the package then further lower your purchase price by your fee.

Lauren Brown · Answer

Thanks again, all! The information and insights you shared are invaluable. I do agree that there is strength in numbers and one of the keys is to have a great team.

Lauren Brown

How to analyze a package deal to wholesale

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