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Updated over 5 years ago on . Most recent reply
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How are people making money paying these prices?
I've been ramping up marketing significantly over the past few months and now I'm starting to directly compete with some of the major wholesalers and flippers in the Central PA market.
I keep getting feedback from sellers that I'm just way off from the offers made by some of these other investors. By so much, that I feel like I must be missing something.
A few examples:
1. Pre-foreclosure property, judgement balance of $155K, ARV was $220k (best case). The place needed at least $60k in rehab. Seller said he had an offer from another investor at $160K.
2. Probate property on about 2 acres of land. Nice 2200 sq. ft. home, but needed completely updated, including a brand new forced air HVAC system. My rehab estimate was $120K, ARV was $300K best case. My offer would have been in the $75K-$80K range. I walked through at the same time as a local wholesale/flipper, and his offer was $170K.
So, how are investors making money paying these kind of prices? Are they wholetailing? Maybe for example #2, they planned to subdivide the land? Once I figure in rehab AND holding/closing costs (including interest/points), I just can't understand how people are making any kind of money while paying this much for property. These aren't newbie investors, these are major outfits. Are they wholesaling to newbie investors (making it an even worse deal for them)?
What am I missing here?
Most Popular Reply
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First, I wouldn't get too frustrated because it sounds like you've done a good job sticking to financial principles and not chasing "deals".
I think any of the scenarios are going one of only a few ways:
- Your estimates are off and those a little more fine-tuned to the market are picking these properties up.
- Your estimates are correct but there are other investors willing to take a smaller return on investment or are volume players.
- You're not missing anything and these investors' optimism is going to get them extremely hurt.
Based on what I see a lot in my market, it's more of the latter two. People with higher incomes splashing around without a true understanding of the implications of their purchase. I have a number of doctors in my market that are some of the major landlords of single-family and small, multi-family rentals that I can only imagine are squandering away money and opportunity.
Then there are others that are wowed by what they see on HGTV and decide to try their hand at it only to get punished. This often occurs with things like the stock market as well, or even things like sports betting and poker. People hear the one-in-a-million story and believe they are destined for the same greatness.
Hang in there and be mindful of your process. Take the blinders off every once in awhile to reevaluate yourself. Often, not much will have to be changed but I think it is important to remain adaptable in an ever-changing environment.