First Potential Wholesale Deal

Real Estate Deal Analysis & Advice
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First Potential Wholesale Deal

John M.
Real Estate Investor · Orlando, FL · Member since 2013 · 30 posts · 2 votes

Hi everyone. Long time reader, first time poster here. Introduction will follow.

I'm new to real estate investing, and I'm working on my first potential wholesale deal where a local seller saw my sign and wants to sell a house she & her mother own about 1 hour away. This seller threw out SO MANY of the motivation key words! "Over it", "Divorce", "Get rid of it", "get out of it", "tired of being a landlord".

Even if this isn't a deal, I'm going to use it as a learning experience (so here I am!). First, here are the stats on the deal:


3/1 property (Jim Walter home). Seller wants the loan of $48,000 paid off, and to "walk away with $10,000", which is very unreasonable for the below numbers, so I'm thinking I could easily talk her down. Seller is ok with leaving existing financing in place "if that's what it takes", however I wasn't thinking on my feet, and forgot to ask what the interest rate was.

Using zillow/realquest/eappraisal/trulia/redfin to identify estimates for the target property, ARV averaged out to $48,134.

Using nearby comparable sales (there weren't many), ARV estimated at $39,916 (which method should I use for ARV, typically they are pretty close but this one is way off?)

I'm assuming $10 repairs per sqft @ 1152 sqft as the house was built in 1972 and the seller said the only thing she would replace if she lived in it was windows. (is this reasonable?)

If the house is located in another city, do I need to find a title company in that city to work the transaction, or can that be done where I and the seller live?

Finally, I'm thinking I would have to take a seller financing approach on this, because the house is worth less than what is owed. Even if I did take a seller financing approach, would it be reasonable to assume that a rent-to-own buyer would agree to the loan of 48k, plus a down payment as my assignment fee?

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Wendell De Guzman
Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
13y

John, this is a bad deal to wholesale. It's probably worth what they owe on it based on the comps. Also, estimating the repairs at $10/sqft is not right. You need to ask what repairs the property needs (say it needs updated kitchen and bath, new carpet, repainting, etc.). Based on that, you can calculate the repairs and then your MAO or maximum allowable offer.

So my advice: move on and find a better deal. A motivated seller is just one component of a good deal. The numbers has to work also. And this deal fails to meet the numbers.

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  • John M.
    OP
    Real Estate Investor · Orlando, FL · Member since 2013 · 30 posts · 2 votes
    13y

    I didn't necessarily mean "rent to own buyer", in my last paragraph, I meant more or less any buyer who is willing to go the route of seller financing.

    0Reply
  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    13y

    Do you have anyone who is more experienced who can help you with this deal?

    A mentor is so crucial to the success of a newbie, helps you avoid mistakes and chasing your tail.

    If you want to go seller finance you need to know all the details on the mortgage. Rate, term etc... To the point where you want to call their lender with the seller and have them send the forms needed to give you permission to view those files.
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  • John M.
    OP
    Real Estate Investor · Orlando, FL · Member since 2013 · 30 posts · 2 votes
    13y
    Originally posted by Tim G.:
    Do you have anyone who is more experienced who can help you with this deal?

    A mentor is so crucial to the success of a newbie, helps you avoid mistakes and chasing your tail.

    If you want to go seller finance you need to know all the details on the mortgage. Rate, term etc... To the point where you want to call their lender with the seller and have them send the forms needed to give you permission to view those files.

    Hi Tim,

    I do not have a mentor here in Orlando. I've seen a couple different experienced wholesalers offer programs, however I'm not sure how beneficial that would be as I currently have a 7-4 day job. This doesn't leave me with much time for hands-on experience or communication, assuming the mentor wants their nights and weekends to themselves. How would you handle this situation if you were in my shoes?

    I see what you are saying about the mortgage information. Would it be best to wait until after I've evaluated the situation and determined that it is a good deal based on the information the seller provides, and then request that these forms be sent to me? Based on my initial post and assuming a low interest rate, do you have enough information to analyze the deal and see if it is worth pursuing?

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  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    13y

    I'm sorry I've been slammed.

    First, you need to get a good idea of what the house is worth now. And what it is worth fixed. It seems like you are struggling with this step which is fine it is tough.

    Look, if you can't decipher these important parts you need help. I handle business all hours of the day, you will need to as well to be successful. Contact one of these people you like and trust and partner up. You need help and considering I'm the only person whose responded you aren't getting it here.

    Try it, whats the worst that can happen?

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  • John HornerPro Member
    Flipper/Rehabber · Columbus, OH · Member since 2013 · 1k+ posts · 655 votes
    13y

    Even if the ARV is $48k and not $38k, after your assignment fee (assuming $5k), closing costs ($1500) and repair costs ($8,000 - windows, paint and flooring), the buyer would be in it for close to $62k. So best case scenario, even in a standard rent to own situation, selling for 30% above retail would be quite a challenge.

    In wholesaling it is all about the numbers, you can't force a deal. You may be able to make this work on a short sale.

    Good luck to you!

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  • Danny Day
    Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
    13y

    I wouldn't assume repairs price per sq ft unless you know you're going to be doing something measured per sq ft. Ex: flooring, etc.

    Doesn't sound like a deal if thats the ARV

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  • John M.
    OP
    Real Estate Investor · Orlando, FL · Member since 2013 · 30 posts · 2 votes
    13y

    Thanks guys. This was my first experience talking to a motivated seller who used the key words I mentioned in my initial post. For this reason, it seems like I've gotten ahead of myself. Thanks for your analysis @John Horner.

    0Reply
  • Charles Hill
    Multi-family Investor · Vancouver, British Columbia · Member since 2011 · 56 posts · 6 votes
    13y

    Hi John,

    If you contact The Naked Investor's Michael Carbonare in Florida, www.naked-investor.com/contact_information.html. He will be able to give you some valuable insights and he is available for mentoring. I personally consult with Michael on deals.

    Tell him I referred you so I can get my free microwave oven :-)

    0Reply
  • Shariyf GreviousPro Member
    Investor · Philadelphia, PA · Member since 2012 · 135 posts · 80 votes
    13y

    I thought the point of him coming on here and asking the question was to seek help from those on the forum which would be the "mentor" what's the point of answering a question in a forum just to tell the person to seek a "paid mentor"

    See how much RealQuest.com is I believe they provide comps

    Also check out this BiggerPockets link http://www.biggerpockets.com/forums/48/topics/77999-finding-comps---faq

    0Reply
  • Charles Hill
    Multi-family Investor · Vancouver, British Columbia · Member since 2011 · 56 posts · 6 votes
    13y

    It has been my experience with BP members that valuable and credible information is gleaned from the member forums. The information I have sought from the BP forum has provided me with intelligent questions to ask of my mentor(s).

    There are many people who find it difficult to ask questions because they think, "that's a stupid question, I'll look foolish." That's a behaviour that has stopped many from a life of prosperity and happiness. This forum creates a venue for the "stupid questions" to be asked and a thoughtful response from experienced investors to reply.

    With the exception of my lawyer (who always gets paid for his mentoring) none of the other "mentors" have received monetary compensation. Some of my "mentors" are BP forum contributors. Several have provided me with their phone number and/or email for a deeper conversation. I recently had a 45 mentoring conversation with a BP contributor. This person was not "paid" he did receive a heart-felt acknowledgment (different kind of payment), which was graciously received.

    In my opinion, It is quite possible that mentoring can be achieved through the BP forum, if you choose to invest the time and energy to follow the hundreds of threads of your particular question and the ancillary questions that will arise.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    13y

    Just my opinion, but a beginner should stay away from lease/option assignments, sib 2's, sandwiches, etc. There are too many moving parts and possible future time bombs. What do you do for the end buyer when the seller stops making mortgages payments and goes Ito foreclosure, or gets an IRS/credit card/whatever lien?

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  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    13y

    John, this is a bad deal to wholesale. It's probably worth what they owe on it based on the comps. Also, estimating the repairs at $10/sqft is not right. You need to ask what repairs the property needs (say it needs updated kitchen and bath, new carpet, repainting, etc.). Based on that, you can calculate the repairs and then your MAO or maximum allowable offer.

    So my advice: move on and find a better deal. A motivated seller is just one component of a good deal. The numbers has to work also. And this deal fails to meet the numbers.

    1Reply
  • James Moesch
    Miami, FL · Member since 2014 · 19 posts · 5 votes
    12y

    Wow, you're in my old stomping grounds! Orlando is a great area to do this! If I can give you 1 piece of advice, it would be to record an affidavit and memorandum concerning the purchase and sale of property at the court house as soon as you have an effective contract. Secure your interest in your deals! Man, I wish you the best of luck! Try the local REIA. It is great!

    0Reply
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