Bought properties at a surplus sale and can't unload them

[Holli Phillips]

My husband and I decided to invest in some properties last summer from our county surplus sale.  We had a "mentor" that got us into this and charged a fee for his guidance.  The whole idea behind these were to buy them and then sell them on contract.  I had posted about my experience with this in another post and was told to ditch this mentor.  Which, I have since done!

I am now finding myself in a situation where we have 2 out the 3 investment properties left and I can't sell them to any wholesaler around for anywhere close to what we paid for them.  It blows my mind what wholesalers buy or offer to buy properties for.  I thought we got a great deal at the sale on some of ours, but I am seeing things differently now.  I have a wholesaler telling me to take their offers because we are going to lose money regardless and the longer we hold them, the more we will lose.  

One house is a 2brm house in a decent area, not super distressed, comps showing in the high 20's.  I can't even get $6000 for this house..

The other one came with two parcels, one with a 1bdrm house and one with a converted garage stripped down to the studs.  This one comps out around the same for each lot.  I can't get close to $7000 for both combined.  

Am I missing something here?  

[Nathan Emmert]

Originally posted by @Holli Phillips:

One house is a 2brm house in a decent area, not super distressed, comps showing in the high 20's.  I can't even get $6000 for this house..

 Hopefully a lesson learned on "free" houses.

Look at your numbers... lets say you're right... the comps are in the $20s... say $25k.

You want $6k... and I'm guessing that's a mark up from what you paid "just" to sell it to a wholesaler... the wholesaler is also going to want a market up to find a cash buyer fix/flipper.  What is his time worth?  Is he going to work for less than $2,000... $4,000... $6,000 a transaction?  Lets say $4,000... that's not a ton of money per "deal"... but man, that's a HUGE mark up on a $6,000 property.

So now he's in $10k selling to a fix/flipper... they want to be at 70% of $25,000 or $17,500.

So if he bought it for $10k... he has a $7,500 budget for repairs... if you read anything by J Scott, it's hard to do much for less than $15,000... and that's purely cosmetic.  By your own admission, this property isn't "that" distressed... which means it "is" distressed.  But lets say by some miracle he can do the rehab for $7,500.

Now what?  He took that risk... all for a $7,500 gain?  All it takes is 1 surprise in the walls and he's not only working for free, he's losing money... Electrical, Plumbing, Asbestos... any of them could completely wipe out his profit.  Sure... making $7,500 on a $7,500 rehab, two for one improvement sounds great percentage wise, but the numbers are too small for that to matter.

So maybe he isn't planning to sell, he flips to himself as a landlord, he wants to save the closing costs (which I didn't even mention above and would eat away $7,500 pretty quickly). He buys it, gets it ready, and rents it for $500 a month. But, why? He bought and rehabbed a $25,000 property for $17,500... I'm sure he can buy $25,000 properties for $20,000 or less all day long off the MLS, through Craigslist, wholesalers, etc... and NEVER have to worry about the risk of a rehab. He's a landlord, not a flipper... if he were a flipper, look above, the margins wouldn't make sense!

I agree with the wholesalers... get some capital back, lesson learned, and move on.  If you have access to the capital and believe your own numbers, chase it... but having money tied up with no clear way out... get the cash back in your pocket and put it to work in a useful way instead of allowing it to waste away in a sunk cost.