What's your average cost of acquisition for SFHs in Houston?

Question

Hi all,

I'm wondering for those of you in Houston who do your own marketing, what is your average cost of marketing to acquire each off-market SFH deal, and what's the average spread you've been capturing vs retail (after rehab costs)?

The backstory for my question is this:

I've been looking in the Houston suburban market to acquire a few long term holds for close to a year now, mostly through wholesalers, and haven't really seen any deals that I'm excited by.  By my numbers, what I've seen has been at best low single digit cash returns (i.e. an eviction away from losing money), with not much if any built-in equity.

Further, the investor competition is crazy despite the thin returns.  These contracts are usually assigned within a day or two after being emailed out at pretty high risk to the investor IMO (e.g. several $k EM paid directly to the wholesaler (not third party escrow), no option period, very difficult to get an inspection due to the tight timeline.  I guess folks are seeing something I don't, or are happy counting on rental inflation and appreciation.

So the short of it is that I'm considering doing my own marketing campaign to where there is hopefully less competition, but I'd like to get a sense of how much I can expect to pay per deal and how competitive it is.  I'd hate to spend $10k over 4-6 months just to get a few angry calls and no deals.

Thanks in advance!

P.S. If there's any wholesalers in the Houston area that I haven't spoken to, please add me to your buyers lists!  Interested primarily in N/NW suburbs.

Andrew Taylor · Answer

I'm by no means an expert, but I'm also searching for deals in Houston and have a few observations. I think there's a sort of feeding-frenzy mentality when it comes to a lot of these wholesale "deals." Every book I've read that talks about wholesaling says a reasonable fee for that service is $2-5k. A $10k assignment fee is cause for a good laugh and an immediate unsubscribe. But they only need one sucker to pull the trigger to both make risk-free money and prove to themselves that that's what the market will bear.

I think the 70% rule is a good starting point, but I suspect it's not realistic to use it for 100% of your deals and expect to stay busy enough to make a living. That being said, until my partners and I have a few deals under our belts, we are passing on every deal that doesn't meet the 70% rule. It means we pass up a lot of deals, and every day we have to fight the urge to join the feeding frenzy and jump on a deal that's less than stellar just so we can "get in the game."

But it also means we are a little less likely to lose money on a given deal, a little more likely to pocket a little profit. Until we're old pros, I'm comfortable knowing I'm doing every little bit to increase my chances of success on every deal - even if means they're fewer and father between.

As for the non-refundable deposits, that seems to just be the law of the land.  We much prefer deals where that deposit goes to a title company, but barring that, developing a relationship with the wholesaler is crucial.

Nikolas Ferreira · Answer

Hello Account Closed have great points. and ill pick some to go into a bit more

(ps. i know both of them, and met personally with Tristan just not Andrew although we keep trying to plan to meet at one of my rehabs)

Anyways as Tristan said there are WAY TOO MANY post cards flying around specially if you plan on buying where everyone is buying. that being said if you look outwards further out from town you odds get better - we pulled about 1 property per 500 letters.

and now onto Mr. Taylors portion - Personally i dont have a problem on how much the wholesaler makes as long as there is enough left in the bones for me as a flipper last deal we bought the assignment fee they made was for $20k, and on the wholesale side i've made as little as $4k and as much as $30k assignment on single properties however on all of them the investor purchased the property at 70% all in from me.

now the 70% rule is almost nonexistent unless you have a very good relationship with the wholesaler and that is because they know they can push out deals at 80-85% sometimes even 90% ARV and it will still sell so why wouldn't they do that and make more money???

hope this helps bring more light into your investing strategy here in houston. if i can help in anyway let me know.

Regards,Nick

Cody L. · Answer

If he's being greedy, the market will let him know.  He'll get no buyers and lower his fee.  Problem solved.  It's only stupidity if he asks for $10k, rejects $5k, and walks with $0 because of it.

Andrew Taylor · Answer

@Cody L. if he gets a $180k house under contract for $130k then he's already at 78% BEFORE any rehab, and I won't be giving him anything.

That's my fundamental concern here. I don't care if the wholesaler makes fifty grand, as long as the deal still makes sense for me. But to tack a $10k fee onto a deal that's already thin (using the 70% guideline) just smacks of greed (or stupidity, or a fundamental misunderstanding of what an investor buyer is looking for).

Pigs get fat; hogs get slaughtered.

Cody L. · Answer

Odd you say that.  Be concerned with what you can make, not what someone else makes.   I bought a property that the guy that flipped it to me made almost $100k.  I sold it a few years later and made a tremendous profit.   If you're doing SFH, and someone gets a $180k home under contract for $130k, give him his $10k and be happy.

What's your average cost of acquisition for SFHs in Houston?

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