$20k in repairs leading to $60k more in total sale

[Jeffrey Grieshop]

I came across the term wholesaling and had to google it. I came upon this passage in an example: The wholesaler has a house under contract for $90,000 that he estimates needs $20,000 in repairs but will sell for $150,000 once the repairs are made. Using his network of investors, he finds an eager buyer at $100,000. He assigns the contract to this investor, who then has a profitable fixer-upper project. The wholesaler makes a $10,000 profit without ever owning the home.

I semi get the wholesale deal. What I was surprised about in the hypothetical is that $20k in repairs was projected to get $60k more in total sale price, essentially, right?

The wholesaler buys for $90k and says with $20k in repairs it will sell for $150k, his assessment. First, please correct me if I am not looking at it quite right. Secondly, and why I made the post, does $20k in repairs ever lead to a sales increase of $60k? That seems really strange to me.  

[Michael Randle]

Hello Jeffrey,

So you seem to be coming at your initial question from two different places, Does $20k in improvements lead to $60k more in value? And second, the idea that the wholesaler "buys" the property. And then there is the idea of "still made $10k with what seemed like minimal work"

Before I go on, I do not know a ton about wholesale, and honestly I have not been very interested in it, so hopefully someone more knowledgeable will chime in.

So what you are missing about the $20k investment isn't that the house is worth $90k right now. More likely the house is really worth a market value of $120k - $130k. But due to either your expert sales ability, or personal issues (bankruptcy, divorce, death in family) the seller needs to move the house fast or with minimum interruption. Or generally some reason that they cannot/will not put it on the market and wait 60+ days for closure. So the seller is "paying a premium" for moving the house faster, in this case $30k - $40k from the fair market value to the wholesale value of $90k. So therefore when the wholesaler advertises a $20k investment with a $60k return, he is accurate, but it is because you got the house under contract for less than a fair market value.

And there is the reason why wholesale is such a hard job, you have to find those people who are willing to sell their house for below market value in exchange for a speedy closing time. Now there ARE people willing too or needing to do this, and if you market well and hit the streets you can find them. But saying the task is "minimal work" really is false, its like the gurus that sell "minimal effort to flip and grow rich". My understanding that it isn't easy, it is feast or famine, and takes a Herculean amount of effort.

Last is the idea of the wholesaler 'buying' the property. To be honest this is where my knowledge really drops off, so take it with a grain of salt. The wholesaler doesn't buy anything, there is not close date, no financing, no loan application, and no indication that the wholesaler will actually ever transfer money into the sellers account. The wholesaler is no more 'buying' the property than the individual car salesman at your local Ford dealership 'owns' the truck he is selling you.

That is the way I look at anyone who is wholesale. For better or worse they are salesmen trying to get you to buy a house, or a salesman trying to get you to sell your house 'faster' but for under fair market price. 

Again, take my advise for what it is worth on the subject, probably very little. But I hope this might have cleared up some of your questions.