Am I missing something?

[John Vo]

I've been analyzing deals from both wholesalers and the MLS in this Houston market,and I'm stumped. So I have to ask the BP community to chime in with their opinions. I've looked at a property on the MLS yesterday that I'm considering to buy and rent out, as well as a property from a wholesaler. Here's a general description of both property. I'll list it as property A and property B.

Property A: MLS listing. Build in 2004, 3 bed/ 2 bath, 2 car garage, approximately 1200 sqft. Needs new carpet, some paint and possibly a new AC. I estimate repair to be about $7000. Property is locate in a B/C neighborhood and good school district. List price of $125,000. Potential rental price of $1300/ month.

Property B: Wholesale deal. Build in late 1970s, 3 bed/2 bath, 2 car garage, approximately 1600 sqft, need new carpet, possibly new roof, has some foundation issue, and require general update through the property as stated on the flyer. My repair estimate by looking through pictures and the description is about $20,000. Property is locate in a C neighborhood and a good school district. List price of $90,000. My comps place the property value of around $120,000 after repair. Wholesaler has the ARV of the property at $130K. Potential rental price of $1300/ month.

If I buy property A using conventional loan with 20% down payment, 5% of purchase price as closing cost estimate and $7K in repair, I'm looking at out of pocket cash of approximately $30K. Estimate time to close and repair is 2 months, conservatively.  

If I buy property B using a HML, it looks like I have to put out approximately $24K if the HML will finance 75% of ARV. The $24K includes closing cost, holding cost of 3 months at 8% interest rate, origination fee, appraisals, etc... Cost to refinance the short term bridge loan into a long term mortgage was not calculated. Estimate of 2-3 month to complete repair after closing, conservatively.

Here's where I'm stumped and scratching my head...why would anyone go through the trouble of purchasing a deal like this from the wholesaler and go through the long repairs, headaches of refinancing, etc... in this market when you could easily put out a little bit more and buy it straight off the MLS. I see deals like these for quite some times now in the Houston market from a lot of wholesalers.

Am I calculating something wrong?

Is this just the way the current market is? 

What would you do?