Formula for finding the best city in which to wholesale.

Wholesaling
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Formula for finding the best city in which to wholesale.

Roy Leach
Wholesaler · Parker, CO · Member since 2016 · 40 posts · 25 votes

I'm sorry if this has been covered a zillion times before.  I didn't see anything in my search so here we go.

In the Denver market, there aren't a ton of deals out there because there isn't a ton of inventory.  This means that any inventory out there is high priced (even for distressed properties).  Seems that the amount of return for the amount of effort currently in the Denver market is excessive.  There's got to be somewhere else that I can get more deals.  I can put together a team anywhere in the US but the big question is WHERE...

I'm trying to find a formula to determine what the best city to wholesale in is (okay, it doesn't have to be wholesaling, but that's what I do so that's my focus).

The formula I'm trying out is... 

Number of properties listed on MLS / number of people in the area.

Now, I know that most of my deals are OFF MLS, but I don't have any way to get the number of those properties, so assume that there is some correlation between number of MLS properties and the number of off MLS properties (even if we don't know what that exact correlation is)

So for Denver, there are currently 1015 properties for sale on the MLS (I told you it's tight out here!) and a population of 650,000

1015 / 650000 = .0015

The actual mean of this number isn't too important (I don't think).  Rather, I'm using it as a metric to compare it to other places.

Oklahoma City's number:

2920 / 610000 = .0048

Okay... just looking at the fact there are almost 3 times as many homes listed in OK City as Denver with a similar population tells me that there should be a bit more inventory to wholesale.  So for OK City, the magic number is about 3 times that of Denver (go figure... that math stuff is pretty consistent :) )

Tulsa comes out as:

2974 / 400000 = .0075

So this means Tulsa should have even more homes available per capita and maybe an easier market still.

Of course, you have to pick large enough markets to be worth your while, so I don't know that this would work for Blythe, CA (174/19000 = .0092) even though the number is awesome!

Now the big question...
Does anyone have any other input or thoughts on other variables to consider?

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Bill S.Pro Member
Moderator
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
9y

@Roy Leach more inventory means harder to move deals. Wholesaling isn't easy in any market. You are just trading one problem for another. Denver = hard to find deals, Tulsa = hard to sell deals. The lack of inventory doesn't mean there are fewer motivated sellers. It means you have more motivated buyers. Just my 2 cents.

I would add that if you think there are no deals then there will in fact be no deals. Ponder that for a bit. 

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  • Jeff Filali
    Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    I'm killing it in Oklahoma and Texas, and rarely buy anything in the metros, but also over 90% of my deals never hit the MLS. I feel like once deals hit the MLS, they're usually not good deals. So, although I see what your measurements are trying to do, I think you'd need to run the same numbers on some other markets like DFW, Cali, Florida, Atlanta, Chicago, etc to see if its really accurate indication or if its just coincidence. In my opinion, its "analysis paralysis"... just find good deals where the numbers make sense, regardless of location and pull the trigger before others find out about the deal. If you buy low enough, you can always sell for a profit. Good luck!!

    5Reply
  • Roy Leach
    OP
    Wholesaler · Parker, CO · Member since 2016 · 40 posts · 25 votes
    9y

    @Jeff Filali Thanks for the input.  Since you have experience in Oklahoma, do you have any input on which market is working better for you... Oklahoma City or Tulsa?  (not sure if you have experience in either).
    According to my formula, Tulsa should be easier to find properties than Oklahoma City.

    I absolutely agree with you about analysis paralysis... it would be easy to try to study the numbers forever.  But you have to have some ideas on where else in this big country to look at expanding into.

    Again, I'd love to hear your experience to see if my number are even close to reality!

    0Reply
  • Jeff Filali
    Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Roy Leach Tulsa is a little easier to find properties then OKC, I do some in both metro areas, but I mainly deal more in the smaller communities throughout the state because there's a lot less competition for the deals and I'm mainly rehabbing and reselling.  As a wholesaler, you would probably do better in the metros, because its easier to move deals, but there's a ton of competition for deals and most sellers aren't that motivated and want too much for their properties for you to wholesale it.  If you get 50 leads in the metros, you may find one who's willing to take a price that you could work with and half the time when you do find a good one, by the time you contact them back, you're already in competition with 2-3 other buyers or wholesalers trying to get the deal.  I move some in the metros, but would go broke waiting on deals there because of the competition.  Now, whenever you get one, you can move it easily and fast.  In the smaller communities, I don't deal with as much competition for deals, but they take longer to move, but my primary market there is owner occupants, after I rehab the property.

    0Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Roy Leach more inventory means harder to move deals. Wholesaling isn't easy in any market. You are just trading one problem for another. Denver = hard to find deals, Tulsa = hard to sell deals. The lack of inventory doesn't mean there are fewer motivated sellers. It means you have more motivated buyers. Just my 2 cents.

    I would add that if you think there are no deals then there will in fact be no deals. Ponder that for a bit. 

    9Reply
  • Jeffrey Hotz
    Real Estate Professional · Dublin, OH · Member since 2013 · 251 posts · 165 votes
    9y
    Roy Leach Inventory for properties is tight country wide. I wouldn't think there's a better market than the one you have in depth understand about. Can't imagine why you would want to look at a market other than Denver? We wholesale nationwide and I'm sure you've seen our "We Buy Ugly Houses" billboards. Each market has its own difficulties, but all nationwide have wholesale potential.
    0Reply
  • Roy Leach
    OP
    Wholesaler · Parker, CO · Member since 2016 · 40 posts · 25 votes
    9y

    @Bill S.  Great point about trading one problem for another....   It actually seems that having trouble offloading deals might actually be a bigger problem because you've got your name on a contract promising to buy a property which is a bit more stressful than not having properties to buy IMHO (I've been on both sides of this).

    @Jeffrey Hotz I've spoken to many investors across the country and they agree with you... it's tough all over.

    But, these are both discussions about "Why would you look elsewhere?" which isn't really the topic.  In all honesty, my plan isn't to abandon Denver, but to expand into other markets.  If I can find 1 deal a month in Denver or 1 deal a month in Baton Rouge, why work both of them and get 2 deals a month total.

    So, that's the real impetus for my search for other markets...

    IF you were going to consider other markets, do you have input on whether the concept of the formula would be useful?

    1Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Roy Leach if you can do 1 deal a month in Denver you can do two deals a month here and not have to learn another market and develop a second buyers list and and and ... 

    You don't want to work both to get two deals a month because it's 10x the effort with only 2x the returns. Put 10x the effort into the one market you know and your results will be more like 10x than 2x. Just my 2 cents.

    6Reply
  • Maxwell Lee
    Real Estate Investor · Miami, FL · Member since 2013 · 474 posts · 214 votes
    9y

    Another concern is that yYou're using city boundaries for your data set which is a bit limiting and precludes apples-to-apples comparison across multiple cities. For OKC and Tulsa it's not so bad, as the city limits stretch across much of the metro area and offers a lot of options...but in Denver, and even worse Atlanta or Miami for example, you'll be searching a much more constrained (and arbitrarily constrained at that) geographic area. There's no reason people in the city of Miami couldn't be seeking properties outside city limits, nor would the inventory within the city only be sought after by people within the city. 

    1Reply
  • Roy Leach
    OP
    Wholesaler · Parker, CO · Member since 2016 · 40 posts · 25 votes
    9y

    @Maxwell Lee That is a HUGE point and you're absolutely right!  Trying to find number of properties for sale (initially I'm using Trulia and Zillow) and matching their criteria to what I can get from census data to try find number of people is not reliable at all.  I don't know how each is defining their boundaries.

    It would probably be more accurate to do it by state (I know what the boundaries are) however, as you pointed out, the different markets within a state would make that number unusable...

    Thanks for the input!

    1Reply
  • Robert G.
    Residential Real Estate Agent · Miami, FL · Member since 2013 · 195 posts · 138 votes
    9y
    Originally posted by @Maxwell Lee:

    There's no reason people in the city of Miami couldn't be seeking properties outside city limits, nor would the inventory within the city only be sought after by people within the city. 

    Your point remains, but Miami is a poor example for this.....with the Atlantic Ocean to the East and the Everglades to the West, you can really only go North/South.  To the North you'll find Broward and then Fort Lauderdale, and to the South you'll find a a mix of rough neighborhoods and agrigultural areas until you hit Homestead.  Nature and circumstances have created boundaries around good ole MIA. 

    1Reply
  • Maxwell Lee
    Real Estate Investor · Miami, FL · Member since 2013 · 474 posts · 214 votes
    9y

    @Robert G. Hmm. Granted I do not know Miami well and definitely have a lot to learn (moving there later this year) but I really don't understand what you're saying in regards to my comment. Maybe I'm misunderstanding you or you're misunderstanding me, or perhaps since you work in the region you're used to thinking of boundaries different from the official ones. But anyway, why is it that someone living within the city boundaries of Miami would never consider buying a few minutes south in Coral Gables? Maybe Miami Springs or Doral? Or in Miami Beach? Surfside, Bay Harbor or Bal Harbour? Miami Shores? Biscayne Park? Each of these are separate municipalities despite all being within ~15 miles of each other and have their own (tiny) population figures that would skew the OP's basic formula. It appears according to the US Census there is something in the range of 175 separate designated areas in South Florida so I actually think Miami is likely the best example for this problem. The city of Miami's population is 6.7% of the overall MSA population and its land area is 0.6% of the overall MSA area. By comparison, OKC's population is 43% of its MSA and its land area is 10%. Jacksonville, where I currently live, is even worse. Of course, South Florida is a behemoth of an MSA so its entirely fair to point out that folks in WPB would never be shopping in Homestead, but nevertheless it doesn't come close to balancing out the insane discrepancy. 

    So anyway that was my point. I am a city nerd so I apologize if this was of interest to no one else lol. 

    1Reply
  • Michael Anderson
    Real Estate Professional · Baton Rouge, LA · Member since 2016 · 109 posts · 30 votes
    9y

    keep posting but most of all keep sharing, great information and @Roy Leach, great idea, keep up the great work in denver and the here in the redstick state, keep louisiana strong

    0Reply
  • Robert G.
    Residential Real Estate Agent · Miami, FL · Member since 2013 · 195 posts · 138 votes
    9y
    Originally posted by @Maxwell Lee:

    @Robert G. Hmm. Granted I do not know Miami well and definitely have a lot to learn (moving there later this year) but I really don't understand what you're saying in regards to my comment.  

    @Maxwell Lee  I understand your point from a literal point of view.  If one were to crunch numbers and stick to just the official city boundaries, they'd absolutely be missing out on quite a large amount of relevant data.

    My comment was more directed in a practical manner re Miami.  If searching for properties elsewhere and not having much luck, you can just go a few minutes further (in whichever direction).  You can't really do that here (well, absolutely not to East/West......you can go North/South in certain respects).  

    There may be a large number of official "cities" down here, but in reality it boils down to Miami, Miami Beach, and Coral Gables.  I may be wrong, but I don't think investors in Doral or Hialeah really consider those to be separate entities from Miami.

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    There are so many variables and assumptions here.  This is a statistical nightmare for sampling and data selection.

    • mls entries vs population

    How many are actually buyers willing to make an offer?  IMO, the ratio makes no sense.

    • assume that there is some correlation between number of MLS properties and the number of off MLS properties

    Go that right, but IS THERE a correlation? The heart of the question is Why properties actually for sale are not on the MLS? Whatever the answer, you're scraping the bottom of the barrel -- meaning only LOTS of hard work as the seller is not truly motivated.

    Even if MLS / Population is interesting, it doesn't tell you WHY there are so many listings. Did you look up Detroit or South Chicago? That ought to scare the heck out of an REI prospector. YEA, sure 'someday' this will turn around - - can you wait that long?

    I love math, but don't let numbers cloud your judgment when there are so many social issues hiding in the wings.

    0Reply
  • Roy Leach
    OP
    Wholesaler · Parker, CO · Member since 2016 · 40 posts · 25 votes
    9y

    @Jeff B. I love it! You're absolutely right... I don't know how to include "Social Issues" in the formula... MLS / Population * CHI
    :)

    I think from my brief investigation, I found that Denver is .0015 which I know is a tough place to be...  Let's look at Detroit 6347/677000 = .0093  This is the highest number I've seen anywhere.  It seems that might be a good indicator that it's a city to stay away from for generic wholesaling.

    So MAYBE the math does kinda work... (MAYBE!)

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Roy Leach:

    @Jeff B. I love it! You're absolutely right... I don't know how to include "Social Issues" in the formula... MLS / Population * CHI

     Glad you understand.  Math is SO ABSTRACT that the issues which underlie get obliterated.  It's a major issue for social researchers and statisticians.  As you see, the best  we can do is pick off the top of the generalization and not get too specific.

    0Reply
  • Derek Scruggs
    Denver, CO · Member since 2016 · 20 posts · 7 votes
    9y

    @Roy Leach despite what others say, I don't think your formula is bad at all. It's probably necessary to make regional adjustments based on quality of life. E.g. San Diego is generally more desirable than Buffalo, so people will devote more of their income to housing, 

    But I bet if you did this formula for every city the rankings would align very closely with the price to rent ratio. 

    https://smartasset.com/mortgage/price-to-rent-rati...

    If you look at the list, San Antonio and Memphis are near the bottom. I know folks who are absolutely crushing it in both markets.

    2Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y
    Originally posted by @Derek Scruggs:

    @Roy Leach 

    But I bet if you did this formula for every city the rankings would align very closely with the price to rent ratio. 

    https://smartasset.com/mortgage/price-to-rent-rati...

    If you look at the list, San Antonio and Memphis are near the bottom. I know folks who are absolutely crushing it in both markets.

     Looking at that link is interesting and the comparison is tempting.  But even that site has caveats, is clearly sampling only SFRs (not reasonable in high density metro areas) and assumes a $1,000 rent which not even a national average nor applicable in many cities.

    If only this kind of analysis could be automated and kept up to date and be more inclusive.

    0Reply
  • Maxwell Lee
    Real Estate Investor · Miami, FL · Member since 2013 · 474 posts · 214 votes
    9y
    Originally posted by @Robert G.:

    There may be a large number of official "cities" down here, but in reality it boils down to Miami, Miami Beach, and Coral Gables.  I may be wrong, but I don't think investors in Doral or Hialeah really consider those to be separate entities from Miami.

     Hi Robert, I'm not sure if you really get what I was saying, cause your last sentence here actually is exactly my point. Nobody realistically considers these separate entities, so if you run your analysis using population data that distinguishes all of these as separate entities then it is not going to be realistic. 

    Anyway, this isn't terribly important. If we still aren't on the same page then no worries, we'll keep it that way. 

    0Reply
  • Maxwell Lee
    Real Estate Investor · Miami, FL · Member since 2013 · 474 posts · 214 votes
    9y
    Originally posted by @Roy Leach:

    @Maxwell Lee That is a HUGE point and you're absolutely right!  Trying to find number of properties for sale (initially I'm using Trulia and Zillow) and matching their criteria to what I can get from census data to try find number of people is not reliable at all.  I don't know how each is defining their boundaries.

    It would probably be more accurate to do it by state (I know what the boundaries are) however, as you pointed out, the different markets within a state would make that number unusable...

    Thanks for the input!

    My point was pretty rudimentary. You can easily adjust for it (assuming the data exists) by finding the corresponding population for the MLS region. I don't really know and haven't paid close attention to how our NFMLS data breaks down, but it allows you to search by neighborhood so you can try to make those neighborhoods align with the Census Bureau's census tracts and then use your formula to decide which submarkets are best. Or you can keep it simple but less precise and just use the broad approach you described in the original post, but make sure you are using population data for the entire region, not just the central city. Good luck!

    0Reply
  • Jeremy Marquez
    Investor · Sacramento, CA · Member since 2021 · 44 posts · 15 votes
    4y

    Following, thanks for this thread !

    0Reply
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