Real wholesalers - or hype pricing - my numbers are not adding up - dilemma

[Luis Maza]

Hi all, 
returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
I just add the spreadsheet we use as a sample to see if this makes sense....

Would love to hear your opinions on how much money are we making for everyone else, before we make 20k

[Evan Polaski]

@Luis Maza, there are multiple factors.

First, I can't speak for all wholesalers, but all but one wholesaler I have ever worked with has been very far off on their numbers.  ARVs that are inflated by 15-20%.  Rehab costs that are under estimated by very wide margins.  And therefore purchase prices that just don't work for me.  In my opinion, a wholesaler is nothing more than a "listing agent".  They share a property, but I don't rely on them in anyway.  If I want a property, I will look at all available properties and run my own numbers, and ultimately may find one.

Second, it is not the wholesaler's job to care about how you finance the deal.  I buy my flips in cash.  I don't want the pressure of a ticking clock every day with high interest.  I "could" make higher returns on my equity if I borrowed, but it also increases the risk.  And at the end of the day, using your example and disregarding percentages: if you could buy this all cash, instead of "maybe 20-30k" you would make $70-90k, based on your projected profit and anticipated financing costs.  

Third, and tangential to first point, there are not a lot of deals out there.  

I am not sure what your experience with "wholesalers" has been in the past, if any, but let's just say wholesalers are not in this game for you.  They want to make the biggest fee off of each deal they can.  And as I continue to see more and more "we buy houses, cash" advertising, even the distressed homeowners are likely getting multiple offers from wholesalers, driving up the wholesaler price, which means higher price for you.

[Kevin Ivey]

simple answer yes this is mostly what I see from a wholesaler and a 90 day turn is tight especially like our local market froze for all of July and August almost nothing sold.

As the previous person said the wholesaler isn't in it to make the end user money.  I have seen where lenders balk if the wholesaler fee is over 15%.

a lot of flippers have started trying to find their own deals with driving for $ and direct mailing.

[Peter Mckernan]

Quote from @Luis Maza:

Hi all, 
returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
I just add the spreadsheet we use as a sample to see if this makes sense....

Would love to hear your opinions on how much money are we making for everyone else, before we make 20k

I would search out for another deal, reduce the rehab (get multiple quotes) or for example I am doing a flip right now we took out redoing all the windows which saves us about 8K... Your consist numbers you have and the variable numbers that you can play with are rehab and holding costs... Finding another contractor, cutting costs somewhere in the job, and finding cheaper money (doing it all cash). 

[Luis Maza]

Thanks Kevin, Thanks Peter..

Good info, we are trying to get cheaper money by financing it ourselves and getting 1 partner in on the deal.

15% do seem high, i can see myself running for the fences at 15%, but like you all said, every deal is different and we do have to find creative ways to play with the numbers.

[Bob P.]

Quote from @Luis Maza:

Hi all, 
returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
I just add the spreadsheet we use as a sample to see if this makes sense....

Would love to hear your opinions on how much money are we making for everyone else, before we make 20k

Your comment: "keeping the property for 90 days while we finish the rehab". I'd in the month that it takes to actually get an offer and the additional month it takes to close. 90 days is too optimistic.

[Luis Maza]

Quote from @Bob P.:

Quote from @Luis Maza:

Hi all, 
returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
I just add the spreadsheet we use as a sample to see if this makes sense....

Would love to hear your opinions on how much money are we making for everyone else, before we make 20k

Your comment: "keeping the property for 90 days while we finish the rehab". I'd in the month that it takes to actually get an offer and the additional month it takes to close. 90 days is too optimistic.

Shoot, that is correct, completely forgot that could take longer and in my opinion i though that 90 days was ok, but you right from the time we can do showings and people get their paperwork/money together we could be talking about 60-90more days, thanks for bringing it up Bob..