Wholesaling Contracts and Driving For Dollars???

Question

Hello BiggerPockets Community,

I’m Zach Rumfield, and I’m just starting my journey in wholesaling. While driving for dollars, I’ve come across a neighborhood that’s older but is surrounded by new construction. It has many distressed homes, and I believe this area holds great potential due to its location just outside the city. However, I’m not sure how to determine if it’s truly a good place to focus on. Once I build a list of prospective homes, what steps should I take to identify which homeowners might be interested in selling?

Additionally, I’ve been working on getting a solid purchase agreement and assignment contract. I’ve used ChatGPT to draft both, but I’d appreciate any advice on how to ensure these contracts are legally sound and ready to use with sellers and buyers.

Thank you for your time and guidance!

Respectfully,Zach Rumfield

Jonathan Greene · Answer

What's your goal for wholesaling? How are you going to estimate repair costs on a property in the beginning? How are you going to pinpoint the ARV?

ChatGPT is only a draft tool. It will be a mess if you don't show it to an attorney or get advice from other wholesalers at real estate investing meetups. The truth is, you shouldn't be talking to potential sellers, if you get that far, if you don't have these things set up yet because you can't really help them. Have you read the two best wholesaling books by Jamil Damji and Todd Fleming?

You have to remember that you are new, you are unlikely to uncover something new about your market right now so that pocket of homes might have potential being close to development, but other investors are already on or off it for a reason.

Jonathan Greene · Answer

You've been sold the wrong groceries here. You CAN NOT use per square foot repair costs as a new wholesaler. This is why their numbers are always wrong and no one can trust them. Per square foot can only be used for a gut rehab in the same neighborhood with no structural or other environmental anomalies...so almost never. You can only know the true ARV with MLS access.

Wholesaling is a dead end for 95 percent who start. You can learn things, but if you have no money, how are you holding the properties until you assign them? What's your pitch to someone when you are a new wholesaler and have no buyers to assign to? Long way to go here, but those books will set the table a little better.

Zach Rumfield · Answer

Great advice! Thanks for being real!

Zach Rumfield · Answer

Thank you kindly for this exceptional advice!

John Clark · Answer

Your offer, contract, and assignment, documents are the most important documents, as they are the bases for all rights and responsibilities. That means you need a lawyer first. Tell the lawyer what you want to do and how you want to do it. Ask him to research if it is legal in your state, and work arounds for doing it legally. Then have him draft accordingly.

Then you work on how to value properties, and how to estimate rehab costs.

THEN you start looking.

Zach Rumfield · Answer

Thanks John! That is great advice. In fact I have just enrolled in a Wholesaler course with a guy I met at a Real Estate Investor meet up yesterday! Thanks again for the advice and best of luck!

John Ma · Answer

Zach. Don't let others' responses discourage you. Everyone starts somewhere, and you're at a good start in that you have a big picture of the steps, but there may be a few detailed steps in between that would make it complete.

Areas where there is clear transformations are great areas for finding deals.  These may be the easiest because if they are new constructions or full gut rehabs, you can see what the final product value is, and what these developers are buying at.

It would be a good skillset to have to actually understand renovation and build cost.  Dollar/sqft is effective.  It is what many contractors ballpark their estimates.  You just need to understand what that cost/sqft is based on the type of work needed.   I would est $40/sqft for cosmetic interior renovation, $90/sqft for full gut renovation, $150/sqft for new construction.   If labor is cheaper inyour market,it could be less.

Its also good to know what discount margin buyers are buying your market.  In our market is 80%-82% of ARV.

In some markets is low, like 70% ARV.

I recommend finding a good wholesaling guru course, working for someone/partnering with another investor or just having someone you can pester.

Zach Rumfield · Answer

Caleb,

Thanks for the clear advise. I will surely do that. Greatly appreciated.

Zach Rumfield

Caleb Brown · Answer

Jonathan gave great advice. I would look at solds before going too deep on deals. In my city it's very street by street. Yes you can be close to new construction but that street might not be great. On the rehab I would maybe pay a GC to walk a few properties with you so you can learn and understand the costs. Per SQ FT is too broad to work for you. For getting owners info you can pay for lists or use a service like Propstream. Be prepared to use initial capital to get in contact with leads and market. Also networking and seeing where people are buying deals will be helpful in directing your efforts. It won't be easy but can be done