How are you analyzing deals from wholesalers right now?

Question

Hey everyone — I’m doing some research and curious how other investors are handling deal analysis when leads come in from wholesalers (especially via email).

Do you usually:

• Copy/paste into a spreadsheet?
• Pull your own comps?
• Trust their ARV/repairs or double-check everything?

Copy/paste into a spreadsheet?

Pull your own comps?

Trust their ARV/repairs or double-check everything?

Just trying to learn how other flippers are filtering through all the info and deciding if a deal’s worth it.

If you’ve got 1–2 mins to share your process I’d really appreciate it.

Thomas Franklin · Answer

@Druce Asah

Wholesaling in many states is ILLEGAL unless there is intent to purchase, i.e. a Double Closing. For Florida I refer you to Florida Statues 475.42 and 475.43. Many other states have similar language.Link: https://www.richardhornsby.com/crimes/regulatory/unlicensed-practice-of-real-estate.html You need to make certain whether or not this Wholesaler is assigning the contract or if there will be a Double Closing. I have been a Real Estate Investor, since 1998. Please feel free, to review my profile. 
Since you are interested in fix and flips, I propose the following action plan. It is not the Fast Food Plan you want, but it is strategically methodical and highly accurate. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.  
 
1. How many investors do you currently work with and how many investors have you worked with, in the past?  
 
2. How many transactions have you closed, with investors?  
 
3. Do you currently own any Investment Properties? If so, what type do you own?  
 
4. Are you a member of any REIAs?  
 
The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality, and a breakdown of the number of SFRs. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. This will identify the retail price ranges, in which you can list the rehabbed property and the price ranges, of distressed homes, you should target.  
 
You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf.
 
Since you are interested in flipping houses, I thought I would share the formula I use, for determining my Highest Offer. FIRST, never trust an ARV that is posted by a Wholesaler.

Since you are interested in fix and flips, I propose the following action plan. It is not the Fast Food Plan you want, but it is strategically methodical and highly accurate. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.

1. How many investors do you currently work with and how many investors have you worked with, in the past?

2. How many transactions have you closed, with investors?

3. Do you currently own any Investment Properties? If so, what type do you own?

4. Are you a member of any REIAs?

The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality, and a breakdown of the number of SFRs. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. This will identify the retail price ranges, in which you can list the rehabbed property and the price ranges, of distressed homes, you should target.

You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf.

Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.   ARV - Desired Profit - Closing Costs to Buy - Repairs - 10% of Repairs - Holdings Costs - Concessions - Realtor Fees - Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).  ARV: After repaired value or what you think it will sell for once repaired.  Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.    Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.  Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.  Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, property insurance premiums, property taxes, loan payments, HOA Fees, etc.).  Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.  Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.  Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.  This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.

Stephen Morales · Answer

Most of the time, you can expect wholesalers to advertise ARV on the high end of the estimated value range.

Personally, I plug everything into a spread sheet with the repairs needed and the itemized cost of repairs. I also include the holding cost over 4 months, the closing cost at acquisition and the closing cost for the end buyer at dispo/resale. I then reverse engineer the offer based on the comps ran for ARV and working the numbers to where the end Buyer can expect at least a 15% return or very close to hit. The higher the better.

If you need further explanation or what to see how I run my numbers feel free to reach out!

Marc Rice · Answer

I use the MLS to evaluate deals. On my BP profile you can learn more about my experience in Ohio and resources I have in the local area. I generate my own off-market leads but when I get deals from wholesalers, it's a different number game. Happy to share my methods and experience with you

Scott E. · Answer

Just underwrite every deal the exact same. Doesn't matter if you found it on Zillow, if a realtor sent it to you, if a wholesaler sent it to you, or if your uncle calls you up and says he wants to sell you his fixer upper. Underwrite every deal the exact same.

Andy Sabisch · Answer

I think I answered this question but definitely NOT the third option.  Never take someone else's word for what the ARV and reno costs will be especially if they are trying to sell you the property... guaranteed you will be underwater by the end of the deal.

Pulling comps that you know are valid are essential.  Either using online sources or have an agent that can pull them for you.  This is one reason we buy locally as we know the area.  In urban areas a few blocks can make a huge difference in ARV so remote buying tends to worry me.  There are pay apps to get comps . . . you call on how much they are worth and how many projects you are doing to justify the cost.

I think we all have spreadsheets or tools that can help us determine if a deal is worth investigating.  Once you have done some and have trades you know what they will charge, you can get a ball park number fairly quickly.  One thing this also does for us is to vet wholesalers . . . if both the ARV and reno numbers are out of whack, I tend to discount deals that they send in the future and there are a lot of wholesalers that should never have gotten into doing it.

Hope this helps.

Remington Lyman · Answer

Be sure to verify all claims made by wholesalers. Since they lack licensing and regulation, many employ misleading tactics to secure contracts. When you attempt to sue, they often disappear, making it challenging to locate them. While not all wholesalers are deceitful, a significant number are.

John O'Leary · Answer

If you're working with a lender sit down with them and reverse-engineer the numbers based on your desired profit margin. Lenders want to finance deals where their clients make money because successful clients become repeat clients. At the same time, they aim to lend safely. It's a win-win for both sides especially on wholesale deals and wholesalers squeezing every dollar out on the assignment. Don't get stuck in a position where you can't refinance like a lot of investors in Florida that are currently finding that to be a reality.

Chad Shultz · Answer

@Druce Asah:

First thing, and most important... Wholesaling is a buzzword right now.  There are many, many so called "wholesalers" who have no clue what they are doing and they are the reason wholesaling is becoming unlawful in some states.  They don't have a clue what repairs cost, they don't treat sellers well, they don't know how to price properties and they give everyone in the investment arena a bad name.  You need to stick to your numbers and your formulas.  Let the poorly organized "wholesalers" die off when nobody buys their offerings.

@Thomas Franklin - overall,  you have great information, but most people I know would not get out of bed for $20k as a starting point.  The correct MAO should be ARV * .7 - all the other stuff you mentioned.  I have never seen anyone teach MAO as 80% ARV, until the market went crazy in 2022-2023.  This was when the so called "wholesalers" couldn't stick to formulas because they would lose out to the next guy who cheated the formula, so they started cheating the investors who actually handle the flips and changed the formula to 80%.  There are always surprises and 20% in most deals won't cover the bills.  Once people figure the proper MAO, they can adjust accordingly, depending on the project and their experience.  Even better, investors should stop using wholesalers and find their own deals where they can get them for ARV * .6 or better.

Peter Mckernan · Answer

I would do this... Know an area(s) you want to do flipping or have a partner who knows these area(s) and can calculate them quickly. The process below looks like how you should take it on..

1. Take the area, and know the average price for sales for SFR, condos and townhomes.. This can be a 2 mile radius or a 200 mile radius.. Once you know what is selling you can breeze through them within 30 seconds. For example, you see one selling for 450K and the comps you know without digging in for that area are 625k.. You are looking more at a deal.2. Once you do #1, now you take that property and look to comp it compared to real comps. SqFt within 200sf on each side (so subject is 1200sf I am looking at comps 1000sf to 1400sf). Also, I am looking at properties that sold within the last 180 days or sooner (sooner the better), and within one square mile. The other things I am looking for area lot size and bed bath count. If it is a 1 bath and all the rest are 2 baths that have sold for 625K, I am adjusting down for the subject property having 1 bath. But if you are 2 bath for your subject property I am not really adjusting a whole lot down for because all the comps are 2.5 bath. You need to know what has sold in that area finished fully remodeled. As mentioned lot size is a huge factor too, and you need to make sure subject prop verse comps are selling with/without pools/backyard BBQs etc. 3. Know you know your out price, with all that data, and it is truly a 175K spread in this example, what is your estimate on Rahab costs, and if you have them holding costs? These are the biggest variables now. Of course, you can have change orders and stuff that comes up with the flip, replacing a condenser on an AC unit if need be, but that is something a full inspection will tell you and you cannot get that info from a lot of wholesale deals. So, you'll need to just confirm all this stuff when viewing the property, or reviewing the pictures. Also, know you will need some gap in there for the deal with these possible change orders.

4. Make the offer/confirm the offer with the wholesaler.

How are you analyzing deals from wholesalers right now?

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