I'm always searching for what's WRONG with the deal!

[Barry Je]

Can you guys help me out?  Every time I analyze my deal, I try to find what's WRONG with it, and use it as my excuse to NOT pull the trigger.

For example, yesterday I saw a 12-unit apartment deal come to me. I first looked at the area, the financials, everything. Not a home run, but certainly not a bad deal (9% COC with conservative estimates for expenses). Then I assumed there's something else I'm missing if the broker didn't give it to his preferred list. It was a mass email I could tell so I was his "leftover" recipients when he couldn't sell. So I passed.

I have wholesaler's showing me regular houses.  The killer deals are the ones that need work.  But why aren't they doing the work themselves and flipping it?  PM Companies show me houses they have in inventory to sell.  But if the returns are as good as they show, then why aren't they holding it and managing it themselves?

What I don't understand are people's motivations to leave money on the table.  Sure regular home owners looking to leave I think are good deals, but that takes a ton of work to find.  Realtors come through here in a big way, but the rates are less than 10% in terms of showing me a good deal.

What are your thoughts?  Can anyone explain to me about the wholesalers not doing the rehab work themselves on some houses but not others, or PM companies dumping their houses instead of holding them and continuing to manage for better returns?  I feel like everytime I can't find the snake in the grass, I'm asking to get bit.

[Andrew Johnson]

Barry Je I don’t know if this will answer your questions but here are some overly general posits:

1.) Wholesaling is a 180 degree different strategy and business than rehabbing. Being great at one doesn’t mean you’ll be great at the other. And if a wholesaler cherry picked the best deals for themselves, why would you ever buy from them? Remaining focused on your business isn’t a “bad” thing.

2.) If you’re in a market around Seattle and you have 100 SFRs that have appreciated extremely well, why not take a little money off the table? Why not sell 10 of them that are decent performers? Or the ones where you have the most equity to extract? That doesn’t mean you’re going to get the best-of-the-best but odds are you never will. A PM has an obvious incentive to move the property to another owner in their stable and will also likely function as the realtor on the transaction.

3.) I have no guesses on why a great apartment complex wouldn’t sell. I’ve seen people made bad assumptions about debt service, what utilities will cost, underestimating vacancy, etc. But let’s assume that’s not the case. Simply put, you have a small investor pool. I invest in the unit size you’re talking about and the reality (my perceived reality) is that these buildings are too small for institutional money and too expensive for the newer investor that can afford an SFR or duplex. Not to mention, you can’t househack it and you need a certain net worth (for many banks) which can knock out certain newer investors even if they *poof* has 25% for the downpayment.

Again, I don’t know squat about leaving/eating/breathing your market so just take these generalities...as...generalities.