Tips for Newbies - Who is your end buyer?

[Bryan L.]

Yesterday I went to look at an REO that just recently hit our market. Three-bedroom brick listed at 25. It turned out that another Realtor/investor got there about 2 minutes after I did. I know her since we used to be at the same brokerage firm, so we just looked at the house together. The house was in bad shape and my estimate was that it would take 20-25 to fix it up. I think that she was also thinking about that same ball-park range. But here's the difference. She wanted to buy it, rehab it, and keep it as a rental. My goal is to rehab and sell to a retail o-o. We talked about ARV, and that discussion centered around an ARV of about 60. At one point she said that she would have to be all-in at no more than 45. So again, here's the difference. If I were to buy it for a fix-and-retail flip, I would have to figure in Realtor's commissions and also figure on paying about $4000 worth of the buyer's closing costs (that's common in my area for entry lever houses). So, if I listed it at 64, sold it at 59, and paid commissions and closing costs totaling about 7, then I would walk away with 52. If I'm all-in at 45, that's only 7 in profit - NOT enough. On the other hand, she has different goals than I do, and she would be OK with being all-in at 45. So, whether you are wholesaling or rehabbing, always consider your exit strategy and the potential end-buyers.