Is this property worth investing for a wholesale??

Question

Hi everyone, thank you for taking the time to read my post because I am a beginning wholesaler with serious question!! I see a good potential wholesale, but am wondering if investors and buyers would also think so.... I know 'it's all about the numbers'

This property doesn't need any repairs, it is a single family home, located in South Kingstown RI, the owner rents it out and has good paying tenants there for $1,600/month.

Details:

ARV: $222,943

I negotiated to buy for: $ 175,000

Sold comps: $220-$250k

I am estimating closing costs to be about $1,200, looking for a fee of about $5,000- leaving $41,243 on the table for profit.

My question is, would this be worth it for an investor or cash buyer? The big picture here is that there are already tenants living there, $1,600/month coming in on time, and the market in the area is on the rise 2.2% by next year based on my research (based my discussion on a couple of realtors working in that area, zip code 02879). I see this as a great return on value, as the profit for the buyer will keeping increasing with every month of rent collected.

The owner wants to get under contract, but i want to make sure this is a deal I can sell.

What do you think ?? Advice please !! Much appreciated, thank you!!

Aaron Mazzrillo · Answer

In a really hot market, I could find an all cash buyer for this, but personally, I don't see any profit in this deal. If your buyer needs to borrow hard money, the small margin you negotiated will be eaten up just in points, interest, closing costs and sales fees. The one important thing you left out was estimated fix up to get it to that $222K ARV. ARV being "After Repair" value. Unless, the $222K is the current "As-Is" value and fixing it up will push it closer to $250K. As mere spectators to your deal, we don't know.

You're closing costs seem a bit low as well and finally, I would never trust a Realtor's economic opinion, because that is all you are getting an opinion which is as valuable as an onion with pi in it, as to what the market will do in the next week, never mind over a 6-12 month period.

Toni Bird · Answer

Hi Aaron, I appreciate your response! However, I would be looking for a cash buyer, hopefully avoiding any type of need for a loan. And yes, $222,943 is the current ARV. The house doesn't need repairs, the owner just wants to sell and move to FL. The market looks on the rise also based on online resources based on past market value and current sales going on in the area...... thank you again

Toni Bird · Answer

Hi Gerald, thanks for your response! However you use the number 250k with your math and my ARV is $222,943.... But I agree, I am going to try to make some wiggle room on that 175, even though the ARV is actually $222,943. I was thinking even at a higher rate, around 80%, it's still worth it for the buyer because there are already tenants in there at $1,600, or he could raise the rent/get new tenants if desired. So as you see, they'd already be making a return on value instantly with the rent.......

Toni Bird · Answer

Thanks for the reassurance! I was thinking the same thing. The good part is the buyer wouldn't have to keep the tenants there if they didn't want to, but in my eyes it looks more secure they will get an instant cash flow... I see the equity worth it too! Thanks for the response, very helpful!!

Gerald Harris · Answer

Option 1 - Wholesale

In my experience, an investor who wishes to fix and flip a property wishes to get is at 70% ARV and under.  so to use your numbers

250k x 70% would be 175k.   This is where your cash investor would like to buy the property at.  175k and under.

so knowing this you want to see if there is any wiggle room on the 175k.   if you can get is under contract for 170k and below, you can get your 5k fee and sell it to an investor via wholesale for 175k

let me also say this

I am assuming the value is at 250k like you said

make sure your back end investor can take care of closing costs.  With a discount like this, the seller may be reluctant to help with closing costs

I do not know your market.   You may have an area where investors will buy at 80% arv (After repair value)

So

Just know your numbers and make sure you have solid comps to back it up

Option 2 - Buy and Hold

Find buy and hold investor who has great credit.   If they can finance a deal like this assuming they have great credit, the monthly cash flow could be worth it.

Seller Carry & Lease Option could be available here as well.  Just depends on seller flexibility.

Good Luck

David Veikune · Answer

I love this deal. If your wholesaling though you'll probably have to sell to an investor because most "regular" buyers would feel uncertain on buying a property with tenants living in it. They usually want to move in right now. I don't see why an investor wouldn't swoop up this deal 41k in instant equity and hopefully some good cash flow.

Is this property worth investing for a wholesale??

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