Investor says price is too high... is it?

Question

I have a feeling the guy is just trying to low ball me into making no money off of this deal, or he may be telling the truth.

This is a wholesale deal
ARV = 34,500 (at least it's what I see in recent comps excluding tax sales)
House under contract for $14,000
Repairs = Less than $1000. Needs paint.
Selling for $24,000 (leaving 30% Equity) and I'm paying all closing costs

Already has tenant paying $400 a month. 
Home isn't in the "ghetto" but it's not the nicest neighborhood either. 
Home next to it is near identical someone bought 2 years ago and rehabbed. Sold for 60k+

They keep telling me why would they pay 24k when they can get other homes like it for 5-12k at auction. It's kind of frustrating. I can't tell if they're serious or it's all part of the negotiation game.

Any advice would be appreciated

I have the property listed on my website (only one at the moment) so click on my signature link to view it. also has virtual tour.

Thanks

Chris Clothier · Answer

Michael Lerch - Can they purchase identical properties for $5k-$12k? You found this one for $14k so it does not seem unreasonable that they could find other similar properties in this area. If you are wholesaling the deal and selling as is, then make sure you are truly selling it as a good deal for the buyer. I would see it differently if you were substantially changing the property or had the ability to purchase it for $7k when everyone else is paying higher. Then you would be creating value by providing something they cannot get elsewhere (price may be the same but buying from you is much less hassle than paying the same price at auction). Hopefully that makes sense. None of us can tell you if it is a good deal based on the info, but I can tell you that based on that info. it does not appear that you are providing a reason for them to buy from you. You are just buying it first and then adding $10k to the price. Paying closing costs is not a convincing reason to get someone to bu - IMO.

Best of luck with the deal.

Aaron Norris · Answer

If you're literally $1,000 away from making this ARV, bust out the credit card, throw paint on it, and list it with the help of a Realtor at 90% of LTV and move it. Why leave all that profit on the table?

Jake Kucheck · Answer

Maybe it's just me, but I'm not going to get super excited about a deal at such a low price point where the wholesaler is making more than I am.

Steve Babiak · Answer

You said you excluded tax sales from comps - maybe that's what they are buying!

Look up their purchases at the county courthouse / recorder and see what they paid, then you'll know better.

Account Closed · Answer

Michael:  It's really hard to tell if you have a deal because you'd need to really know what the competition is. Can buyers in the area scoop up properties, easily and cleanly, for $2-15K.  Are there lots of such properties at auction or those properties few and far between?  Are they vacant?  Do they have clean title?  Are they all junkers?  I can buy the same house in CA for $25K, so I'm thinking you might be off on values for NE GR.

That being said, I dislike the limitations of "wholesaling" and feel that your deal may have an exit strategy that can support a sale price of $24K.  For all we know, there may be an end-user for $24K.  You can't know if you limit the marketing and offer it as a wholesale deal on a wholesaling website, presenting yourself a wholesale prodigy. :)  I'd stay away from ARV valuations and all repair estimates (guaranteed the house needs more than 1K) and information about a tenant that would like to stay.  Sitting tenants that don't want to move are a deal breaker where I am.  Let buyers do their own due diligence about repairs and values and rents

You may want to look into how to offer it to a wider market.  Take the exterior photos only, the size and price and put it on the MLS if you can or find a way to get the house in front of as many buyers as possible.  Is there a sign in the front the house?  (You put your right to market and show the house in your contract, right?).

One thing about 'hoods.  I grew up south of that house, near Fuller Park and know the Highland Park area.  Run down neighborhoods in GR, of which there are many, aren't all hoods.  But many of them aren't safe. Would you want your Mother, Sister, Wife or Girlfriend, Daughter or even least favorite Female Cousin to drive up to that house after dark to check on a repair issue or pick up the rent?  "After dark" being key.  I buy and sell in many such neighborhoods but I don't go alone and we don't go at all after dark.

Michael Lauther · Answer

Michael , this is the way the deal looks to me as a  buy and hold investor. 
your price 14000 , The 2% rule would put the max price at 20,000 this would be justified given the $400 month rent. 
The 50% guide would suggest 200 month positive cash flow after taxes ins. property mgmt vacancy and maintenance. 
This translates into a 12% return . This may not be a bad buy and hold at your price. The return jumps to 17% for you but not a great deal for the end buyer if the end buyer is an investor. 
The market in an area like yours ( and Mine Dayton OH) is  probably loaded with vacant properties that need to be rehabed to get into rental condition. investors suited to do this and pay cash are in a position to pick up properties like yours all day for 6 to $7,000. after putting in another 7k at most they have a property  with updates that probably looks better than yours. 
The rent on your property may be too low so you need to check what comparable rents are in the area,  $400 per month will not justify an ARV of 34,000 to a buy and hold investor in a B  or C area. 
In my marketing area there are comps of 35k for properties that I am all in for 20,000 and the rent is $550 monthly but the market is spotty and the price end users  are paying appears to be substantialy higer than what investors are willing to pay. 
The bottom line is that the number of people who want to live in thses areas and are paying more are rare. If I am correct you will see a far larger volume of sales in the low teens rather than in the mid thirties. Retail buyers fall in love with the property and will pay more to live in an updated home. Investors need the numbers to work to make it worth while.

James H. · Answer

Paid 24K including full rehab and central HVAC for rental that spits of $550/month and can fetch $600/month. Using 50 percent rule which is very valid for a low income rental, that doesn't leave a whole lot per month. So I agree, 24K is too much for something that still needs work and only rents for 400/month.

Next time I have 24K to work with - its going to a down payment on a property that has a lot more value.

Carlos Flores · Answer

Might as well say the current owner could have painted it and increased the rent by 50%.  Then why didn't he?

Michael Zuber · Answer

I have to agree with Aaron.  If the numbers you list are accurate why the heck would you wholesale the deal. Again if your numbers are correct why would you give up 30% of the profit simply because it needs 1K in Paint (Maybe it needs more than just paint).

But again with your numbers:
Buy it for 14K
Transactional Funds cost 2.5K
Two Closing Costs = 4K (Guess on my part)
Selling Commission = 3K (almost 8% and high on purpose)

You think you can sell it at 34.5K but lets say it goes for 32k.

32K - 14K - 2.5K - 4K - 3K = Profit of $7,500 (Much better than the 3K you are looking for)

Now ask yourself how good are your numbers!!!!

Timothy Rogers · Answer

Michael,

The property went under contract too high. It should have been negotiated around $9K or $10K and assign for $12K or $13K. You would have your $3K and your end buyer would be happy with the deal. There was no need for transactional funding. You just negotiated the deal wrong. I made the same mistake when I started wholesaling, by trying to make a no deal into a deal.  The one advice I can give is not to be greedy wholesaler. We as wholesalers are not taking on the risk, so leave most of the profit for your end buyers.

Tim.

Investor says price is too high... is it?

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