Wholesalers- are people still buying flips?

[Patrick Kaiser]

Wholesalers-

Are the flippers still doing well and at what price points?

[Dustin P.]

Hey Patrick!

I know you and I talk about this a bit but here is what I am seeing

Before the last month we were selling deals at roughly 85% of ARV minus repairs. I try to put together a realistic ARV and the repair is I'm sure light by most people's standards (These are wholesaler deals). However I do not send an ARV or rehab number out with the houses, just pictures / comps and a price

I've tracked almost 100 houses that we sold that have been at least partially remodeled and resold on the MLS and I'm seeing an average of 9.5% above my estimated ARV. However I'm also sure that a lot of the ones that hit well above ARV also spent more on the rehab (I confirm when I can but people often don't want to give their true rehab numbers). I did some math on a lot of them and a lot of the deals, after selling, penciled out to between 76% and 83% of ARV minus repairs

A lot of this was obviously just the market being crazy. I anticipate this last wave of deals to be hitting a lot closer to the actual ARV I calculate using closed comps. I'm expecting this number levels out to 105% to 107% of estimated ARV by the year's end

As far as what price points, here's my data from May / June

May - 35 deals total, $14k average wholesale fee (High month for us, average month is more like 25)

Under $400k - 14 deals

$400k to $600k - 16 deals

$600k+ - 5 deals

June so far - 22 deals closed or set to close, $12.6k average wholesale fee

Under $400k - 13 deals

$400k to $600k - 8 deals

$600k+ - 1 deal

So at the lower price points we are seeing things still move very quick, typically sold within 8 hours, but the higher price point houses are moving slower and are also where our cancellations are higher. Our cancellation rate has hovered around 20% but I see this going to closer to 30-40% which is higher than I want to be

What I'm doing to combat this is

1) Better training for acquisition agents. When the market is red hot it's easier to be too light on rehab or push numbers too high because that's what you have to do to make your offer competitive. I've made over 1000 offers in the past 9 months or so and I track every one and a lot of investors beat out my offer by quite a bit. Obviously some of them have licenses so they're getting or waiving their commission, they may have seller credits that do not reflect in the tax records, but in general our offers have actually been light compared to a lot of others. However with the market shifting right now the numbers have to be a lot more on point so I have been canceling a lot more deals before we even send them out to buyers

2) More offers, better follow up, leaning more on agent relationships to find deals. Supply has almost doubled. That means I need to be sending double the amount of offers at least. I need to be better at catching deals that fall out from other wholesalers / investors, following up, and getting the deals cheaper. We are working on this

We are still selling deals. I just got one in Scottsdale $100k off list price and was able to mark it up $20k and sell it so the buyers are still out there. There's just far less speculation and buyers are falling into a few groups

A) Big buyers that have always and will always be buying, they are just adjusting down on numbers

B) Buyers that are afraid of the market and opting to wait and see what happens

C) Buyers that know we are in a market shift and are making hail mary YOLO offers to see what they can get (Which will work better now than when the market was red hot)

I'm actually glad we are shifting. The market was getting a little too crazy. I do 3-5 deals a year myself and it's always nice to be able to pick up deals at a steeper discount. I think once summer is over we will get a better idea of what the market is actually doing (Since at least for me the summer has always been my worst time for deals)