All Forum Posts by: Will Barnard

There is no such thing as a "wholesale contract". What you need is a purchase and sales agreement and I strongly suggest you use your states realtor approved contract which can be acquired from any real estate agent in your state. These contracts have inspection clauses, disclosures, and all the things you should need in a contract. The specific language you need to perform your wholesale transaction should be acquired by your attorney and you should consult said attorney on your state's laws regarding how to legally wholesale as many do it illegally - brokering without a license.

If you plan to have an assignment clause to assign the contract to another and market that property/contract to others for a fee, you are brokering. If you close on the transaction and then resell, you are fine. There are a number of other ways to do it legally as well assuming you do not hold a RE license.

There are some good points throughout this thread and a lot of opinions stated as facts making them bad advice.

The real truth is, there are a number of ways to successfully invest and stating that you MUST buy with cash flow to be successful is just false. People have often stated that you can't "eat appreciation" meaning you cant count on it or get income from it, both of which are not true if your time horizon and place of investment are well thought out and applied. I personally know many investors who have invested for zero to negative cash flow in year 1,2 and even 3, but then turn that into positive cash flow by forcing it (via improvements, better management, etc.). Taking the simple comparison of a CA investor A who invests out of state for a $300 monthly net cash flow with absent or little appreciation and investor B who buys in CA with negative $300 cash flow but after 5 years, has a appreciation gain of $200k that they bring into their own account via cash out refi (or sale). The net result is that investor B made a ton more money in this example.

This is NOT to say that this is the right way, only way or best way to invest. This is NOT to say that investor A out of state is wrong or foolish either. To each his own and one must determine what the end goal is and which strategy best gets them to that goal. Perhaps investor A method works better for some and not for others.

This is not about being right or wrong, more over, which is BEST for YOU. The only way you can determine that is educating yourself (which does include reading others opinions here) and making the best educated decision you can on each transaction moving forward towards your end goals.

Betting on appreciation is different then knowing it is coming from research. Appreciation is NOT ALWAYS gambling, and often times it is. It is up to YOU to make the right decision and education is paramount!

There are some good points throughout this thread and a lot of opinions stated as facts making them bad advice.

The real truth is, there are a number of ways to successfully invest and stating that you MUST buy with cash flow to be successful is just false. People have often stated that you can't "eat appreciation" meaning you cant count on it or get income from it, both of which are not true if your time horizon and place of investment are well thought out and applied. I personally know many investors who have invested for zero to negative cash flow in year 1,2 and even 3, but then turn that into positive cash flow by forcing it (via improvements, better management, etc.). Taking the simple comparison of a CA investor A who invests out of state for a $300 monthly net cash flow with absent or little appreciation and investor B who buys in CA with negative $300 cash flow but after 5 years, has a appreciation gain of $200k that they bring into their own account via cash out refi (or sale). The net result is that investor B made a ton more money in this example.

This is NOT to say that this is the right way, only way or best way to invest. This is NOT to say that investor A out of state is wrong or foolish either. To each his own and one must determine what the end goal is and which strategy best gets them to that goal. Perhaps investor A method works better for some and not for others.

This is not about being right or wrong, more over, which is BEST for YOU. The only way you can determine that is educating yourself (which does include reading others opinions here) and making the best educated decision you can on each transaction moving forward towards your end goals.

Betting on appreciation is different then knowing it is coming from research. Appreciation is NOT ALWAYS gambling, and often times it is. It is up to YOU to make the right decision and education is paramount!

I don't know the OKC market, but here in SO Cal, generally speaking, wood floors will bring higher values than tile or anything less. Tile is cold and slippery, hard and can echo in rooms more. Not a fan other than in bathrooms and laundry rooms. On lower valued homes here, I will use Laminate Wood flooring which looks like wood, is softer on the feet and wears well.

Checking out what most home sin your area use at your price level should give you the real story. Investigate!

Your 1-9 list is missing many items before you even get to line 1.

Step 1 is getting to know your local market conditions, which streets/neighborhoods are good and bad, which have the lowest crime, best schools, best walking scores, most jobs, population growth, etc. Knowing inventory levels of now and past is also crucial to identifying where your market is headed.

Step 2 is learning how to properly and accurately estimate rehab costs - this takes time, a spreadsheet and lots of practice. Look through some of my previous posts on estimating rehab costs, I have gone into great detail on how to in the past here on BP.

Step 3 is building your contractor team. You will need to decide if this is going to be a full time business (if so, then acting as your own GC and getting subs for each trade is crucial). Once you have your team, you then can move to the money phase.

Step 4 is your step 1-6.

Great follow up comments by @JD Martin and @Caroline Gerardo

 I guess you are entitled to your opinion but your examples are so far off, they hold no water. If Realtors are convincing sellers as you state to set a price much higher than the retail value "just so they can pocket the extra cash", this would never work as the buyer's pool is what sets the actual price, not the agent or the seller. An asking price has less to do with the actual value than most know. Picking a higher than market value list price almost always gets you little activity which then results in the need for a price reduction.

Your last paragraph is simply wrong all together. Most states DO have laws that stipulate brokering without a license is illegal, not the other way around, it is just that most wholesalers ignore the laws and do so anyways. That says a whole lot about their industry.

Generally speaking, bed/bath/SF increases add the most value. Things to look out for on value reductions for appraisals are noise/busy streets, condition, amenities like pools and views, and age can all factor in on appraisals.

This is difficult to say across the board but if the house is a full tear down and no way to save any of it (not even the foundation), then the value with it is less than without it since you have costs to demo and haul away. That said, you would likely not have a spread between the work of removing the house and then reselling as you did not add that much value, it is more of a zero sum game on that.

Finding the value differential is really just taking the cost of demo and adding that to the land value. Of course this is generally speaking and each lot and its value in each area of every state could vary dramatically.

 Material costs are a simple research at box stores and other suppliers, as to labor costs, some of the box stores have labor costs per item (which are typically higher than what you should pay a GC or sub). As to getting accurate labor costs, if you can form a relationship with a contractor, you can certainly pay him for his time to do one sample bid for labor on all the items you should need (window install labor, trims per LF cost, hang/install interior/exterior door, demo a bathroom, demo a kitchen, demo flooring, tile install floors and walls per SF, etc.) Once you know a specific contractors pricing, you can then plug in those numbers to your spreadsheet and then calculate on your own for each prospective purchase instead of asking a contractor for a bid on each property before you have it locked up.

Once you have a locked contract, then a contractor is more likely to offer a free bid on that project knowing there is a higher chance of getting it.