All Forum Posts by: David Schach

Ive always seen CAP Rates calculated by Gross Rents, not on NOI. I am mis-reading Cap Rates as published on listings?

Good points, well noted. Its not my main concern what the wholesaler makes as an absolute figure. I was just wondering what people are looking at in terms of a worthwhile person to partner with. A deal is a deal, regardless. Out here I would suspect that its a little harder to find deals with that much profit whereby a wholesaler is able to pocket equal to or greater than the rehabber. But I am just getting back into it after a few years off.

And, yeah, thank you, for confirming my thoughts, I need to get back to networking at meet ups etc.

I posted yesterday about a bad wholesaler that I came across on BP a few years back, sorta turned me off to the basic concept. But now I have some cash sitting on the sidelines and am actively looking at deals now. Where are the great wholesalers at? not just the newbies that have NO clue what they are doing but seasoned vets who know the game and understand how costs break down. 

As a side note, what do flippers usually like to make over the wholesalers? The wholesalers did the leg work, etc. But the flippers take 100% of the risk. In my opinion I would like to be making close to 10 times what the wholesaler made on the deal. Does that seem too rich?

I was looking over some notes on a property that I missed on back in 2010 in a decent area of Oakland, CA. It was a a lead from a BP member that i wont name. He was trying to wholesale the deal to me and had a contract on the property (and as my notes state someone else was also trying to flip this contract as well, be careful of that. Person A was in contract at 290K and was selling it to me at 315K, Person B was also trying to pitch it to me at 339K!!!) At the end of the day I went around all of them and direct to the real estate agent that was listing the house. Also not a good idea to wholesale a property at 25K over the listing price when an agent just put it on the MLS. Anyway....

here are the notes from the wholesaler:

ARV - 525k

Purchase price- 315k, Rehab - 67k, Commission -26k, Escrow - 3k
Net Profit - 114k

Notice he has no carrying costs, but we can over look that for this post.

My notes had an ARV of $449K on the high side and with a worst case exit of $399K

We had a rehab of 50K, other figures not changed much.

Just out of curiosity I did a property search on this, I always wondered what happened to it. Well, it closed escrow at $290K, asking price. It has been rehabbed and was re-listed in Jan 2011, not sure list price. The price was lowered in March and closed escrow in June at $415K!!! YES... $415K nearly $110K less than the wholesaler estimated. He was off 20% and he didnt account for 1 year of carrying costs and whatever cost overruns there had to have been.

Moral of the story, dont get greedy wholesalers and never over estimate your ARVs to your buyers. Nobody likes to lose money. Just as an aside, we did make a written offer of $250K, that was our MAX we felt was possible given the costs and the highest potential upside we saw on the ARV.

here is where money is made or lost in real estate. either have intimate knowledge of a particular location or area -OR- higher/partner with someone who DOES!!!! 

thank you for the follow up responses, cleared up a little of my thinking. But there is still something out there that i cant quite get my head around. apart from certain carrying costs, vacancies and management. most other expenses are fixed vs variable. so when trying to calc overhead based on rent revenue, seems like you can miss wildly. and i guess thats where having your own model for your own area, asset classes etc will solve this.

but say for example you've got 2 structurally similar buildings within 25 mins of each other. say they are 4 unit buildings, one is in a high rent area the other in a "war zone" and both need a new roof. well that roof is going to cost you the same regardless of how much rent you are collecting as would any non-cosmetic repair, along with any another non-variable costs.  I would tend to think that there is some inverse relationship between overhead and rents as a % of cost. IE- as rents go up the 50% goes down and as rents go down the 50% goes up. But on aggregate these curves can be smoothed out.

I am very familiar with this rule of thumb, however it seems so misguided and arbitrary and takes into account almost nothing other than a base rental assumption.

Say you've got a 10 unit building and most tenants are drug addicts and are paying below market rents and the property is old and serious repairs are most likely imminent, you are probably looking at 90% of your rent for expenses. Or the reverse could be true, you've got a really nice new 3 unit building with stable well employed tenants all paying at market rents. Your 50% goes down to maybe 20%, maybe even less.

I personally find this rule of thumb so random when trying analyze cash flow on potential rentals. The simple fact that the 50% can move from 100% to 10% depending on a host of variables unique to each particular property makes using this rule kind of pointless in my mind. 

please correct me if i am wrong here.

thats a great idea. you should try to get it off the ground. not sure how cheap containers are in Chicago. on the west coast we have a huge glut of containers because of the one-way shipping from China.

I received a call from my marketing efforts and wanted to get some feedback. This person is almost 50% upside down. house is worth about 250K total mortgages 1st and 2nd is around 525K. Obviously the only way this would be a deal would be a short sale, but the gap seems just too large to bridge. Should I just recommend to this person to send a jingle letter and walk, find a local real estate agent and try a short sale to market price??? what would you guys do?
thanks.

A quick question for the wholesalers out there. In general what value are you bringing to a deal thats already on the MLS or advertised publicly? I found a property in my area that fits the 70% ARV less expenses if the bank accepts my offer. BIG IF! I know. But why would an investor give me any money on this deal if he knows thats its already publicly for sale and that he could just wait out my contract and make another offer himself? Do you guys have any success wholesaling publicly available properties? OR are you dealing almost exclusively with non-listed and pre-foreclosure deals? any comments would be great.