advice on my first deal - Wholetail- maybe?

Question

Here is the skinny.

Small 2 bed 1 bath house in MA.

Zillow - 155-165K Realtor.com - another 10K

REAL MLS Comps. = 140K.  Looking only in a 1 mile radius of what has sold with the same house make up.  This was also the price I got from a realtor friend as well.  I simply am showing the zillow price to make the point I understand the real comps.  I have not been in it yet, but I know it is not as nice as the houses selling for 20K+ more.  All that said this is my first deal, I believe the numbers look good, what I am not sure about at this point is what to do with it.  Wholesale it at 90K?  Wholetail it at 130K to a cash buyer?  If I do that I believe I will need financing to make it happen.  If a hard money loan was 15% with 6 points, that would cost me $10,800 (I am not sure I care about the money at the moment, I just want to get my first deal done)

Any advice is more than welcome.

Joshua Brown · Answer

@Matthew Forbes

As someone who has brokered many hard money deals, I have learned that each deal is different.  If you are planning on using hard money you have to have an "out" when that note matures.  Whether that is to flip a property or refinance it.

That is why I, almost, never recommend hard money for buy and hold deals, unless there is significant rehab/construction that is needed that will increase the value of the property because more times than not there is not enough equity in the real estate to pay off the hard money loan.  Especially when conventional, commercial, lenders are reducing the advance rates on SFR anywhere from 60 - 70% LTV.

Matthew Forbes · Answer

Shannon,

No disrespect taken.  My point with the hard money is: even if I took it but didn't need to and the numbers prove out that I come out ahead in the end, then it is worth it.  Don't get me wrong I don't want to throw money away, but I see a lot of posts of people who are afraid to do a deal because of the cost of money.  To me it is the cost of making the deal happen.  Yes I will be getting in the house this weekend to look at what a renovation would be.  I do have experience on that front.  On the wholetail side of the equation I guess I want to see how people finance the deal if you can't get a Subject to contract in place.

Shannon K. · Answer

I mean no disrespect, but I'm just curious... what do you care about if its not the money or $10,800 cost of capital? Are you going into this first deal planning on using hard money and just wishful thinking it works out in the end? That's kind of how I interpreted it from your last few sentences there.

Numbers are king in the real estate game. Hard money is useful if your method of wholesaling/whatever strategy will support the cost of capital. You don't want to be so eager to get your first deal done that you just throw all the math away... Perhaps the initial numbers look good on paper, but before you think about wholesaling or hard money, I assume you'd want to get inside the house first to estimate a rehab budget, then calculate if hard money can support your needs for a few months if you can't find an immediate buyer to pass it off to...

Melanie Hartmann · Answer

Thank you for the real life input and outcome! I'm in a similar situation that you found yourself in. I know the safe thing to do would be to assign it to an end buyer, however, putting it on the market is appealing as well. The main issue being that it is rented. I'll find out some more details tomorrow.

Matthew Forbes · Answer

In the end I ended up getting the house under contract for 70K.  I listed it with my agent and got an offer at 90K but it fell through.  The owner asked if he could just get out of the deal and he would do the rehab himself and I agreed.   I should have just done a quick assignment for $75 or 80K but I was hell bent on doing a wholetail deal.

My vision in all of this was to make some cash to re-invest in buy and hold houses.  In MA the home prices are very high and the rents don't always leave cash flow.  After 8 rounds of direct mail, I really only looked at 4-6 houses and never closed a wholetail deal.  I burned around 12K trying this out.  Although I don't think this strategy is terrific near me I know it works well in other parts of the country.  After over 300 hours of podcasts and countless books, I am skipping to the end of what my original goal was and working towards commercial multi-family apartments.  I now know this is possible.

Brendon Botelho · Answer

results? @Matthew Forbes

Zach Purcell · Answer

What was the final result, @Matthew Forbes

Account Closed · Answer

First, remember that no deal is better than a bad deal.  Bad deals only get worse over time.

I only write that because you stated, "I just want to get my first deal done."  I don't think you have a bad deal, I just want to caution you.  Better to walk away than force something.  (How do you think I know this?)

Second, since getting your first deal done is your objective.  Keep it simple, take the path that will appeal to the most people, and take the path of least resistance.

Trying to get fancy will only confuse people - a confused mind always says no.  Trying to milk the deal for the most you can get out of it will increase the odds of this not working out for you.  Plus, you are confusing selling a property with selling a deal.  In wholesaling, you are selling a deal...people buy the deal not the real estate.

Get this deal done since it will be your first with the simplest exit strategy.  Worry about getting fancy later when you have more experience.

Matthew Forbes · Answer

Update:  The seller after talking with his wife did agree to 80K.  I will be out to see the house this week (we had a nice little snow storm on Friday), and the 80K soft offer is contingent on the walking the house.  We will see how it goes.  My strategy is pure Wholetail.  Do all the direct marketing, buy at .60%-70% of the "as is" and then sell it on the MLS to a cash Fix and flip person.

advice on my first deal - Wholetail- maybe?

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