Do you know your local market? And if so, do you know your sub-market? If not, you’re missing out on BIG money. It’s one thing to know your local market, but how about those pockets where one side of the street sells for $350k, then the other side of the street sells for $125k tops? I would be lying if I said I knew all of the sub-markets here in Charlotte, NC. I do know the sub-markets I heavily do deals in. I am in a major city, so it hard for me to know every sub-market here. However, I’m familiar with most of the city’s zip codes. I know what you are thinking: “Well, I can just use my comp system to give me values.”
Well, that’s not always true. The paid comp system I use sometimes gives me surrounding subdivisions that do not represent the value of the subdivision I’m looking in. I will use multiple examples throughout this post.
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3 Examples That Prove Why Wholesalers Should ALWAYS Know Their Sub-Markets
Recently, another wholesaler contacted me with a deal in an area I own a rental in. He wanted some help wholesaling this deal. He told me he had it under contract for $50k. I looked at the numbers on my comp system. And the deal made no sense, so I advised that this might be a little high. He then went on to explain to me all the renovations going on in the neighborhood. I told him I heard something about that, but those were new builds and we couldn’t use new builds to comp to older houses.
He replied that not all of them were new builds. He said things were selling for $120k, $140k and $155k. He then went on to say that the house, which was a 4 bedroom/2 bath, was renting at $1k a month. I slapped myself because my house around the corner was renting for $795 a month and was built in 2006. I told him I would come by right then and there.
He gave me a tour around the neighborhood that I intentionally stay away from and where I regret buying a rental. And he was right; it was changing for the better. I still regret buying that rental there, though. Its one of those neighborhoods where you’ve got to dress up like a cop in the daytime so no one bothers you. I calculated the numbers in my head. I said I would shoot this out to my list for $60k and suggested they could put $40k in it to get them a $140k sale price. Surprisingly to me, we got a full price offer and made a $10k spread.
On another deal, a wholesaler was not familiar with the sub-market. The area of the deal was in a pocket that is very desirable; however, it was on the worst street in the pocket so he did not know what he had. He was selling the house for $65k, and he had MLS access. He used a comp that was $127k for top sale. I bought that house from him at $65k. They made $10k on the assignment. My partner and I resold that house for $95k. We made $30k quickly and easily, all because this person with MLS access was not familiar with sub-markets.
In another example, I recently sent a deal out to my list at $110k that needed $75k with a projected ARV of $250k. A buyer who was not familiar with the area called me and said he could not find any $250k sales on Zillow. I laughed because I was telling him that he would not. This pocket rises in price every month. I told him about a few sales in the neighborhood. I told him to talk to a real estate agent who specializes in that pocket to learn more about the area. He called back two days later and offered full price.
In conclusion, wholesalers, knowing your sub-markets can throw thousands more in your pocket. The ways to get to know your sub-markets is to start rehabbing yourself, hanging out with rehabbers, going to your local real estate meetings and taking experienced investors to lunch. They can explain aspects about the area that you would never know otherwise.
Wholesalers: How well do YOU know your sub-markets? Has studying your area been helpful in buying and selling the best deals?
Let me know with a comment!