Avenues for wholesale investment

[Rodney Dawkins]

Through conversations with a few investors and investor brokers, I am getting the thought that as a wholesaler, it's best to find properties that either have not hit the mls yet and or have just hit the mls for no more than a day or two since everyone seems to have access to mls info. Looking for insight on whether or not I'm on point with this analysis and if so how to go about this? My thoughts are also that as a rehab and flip investor that mls properties are a decent way to go if I find through a broker and do the rehabs and then flip the properties.

[Jaremy Moritz]

Rodney, here are a few tips on how I did the deal above:

First, meet the seller in person. This seems obvious, but many wholesalers I know of only work deals on the phone. I'm amazed they get any deals at all. (The initial phone conversation is key to a great "in person" meeting. Start to build the relationship from the get-go. Ask specific questions about the house including what price it would take for her to be willing to sell it now - this seller said $55K). More on this later...

Second, build their trust in you by spending time listening to their issues and their problem. Most sellers will open up and spill all kinds of useful information to you if you take the time to listen. Unbeknowst to them, though, with each tidbit of info they give you they keep lowering their expectations of what they will be able to sell the house for. In this case, the seller let some repair issues slide for too long and wasn't aware of the hidden damages caused by her neglect. I explained what would have to be done to fix it and BAM!, another $5K off the price. I listened a little longer and she spilled more and more issues. Ca ching, ca ching. More price drops. With each confession of neglect from her, she got a brief lesson on what that mistake will cost to fix. When all was said and done, she went from thinking all she needed was carpet in a few bedrooms to the house needing as much as $30K in repairs (retail price for repairs, of course).

Third, her house had been on the market for over 6 months and she didn't understand why. She had lived in the house for over 20 years and couldn't understand why no one would buy it. Her realtor either didn't know or just wasn't truthful about the neighborhood having been in decline for the last few years. The house had a tax assessed value of over $120K but there hasn't been a sale for over $80K in three years. Once I gave her a little education on the neigborhood values, how that affects her house, and why her house hadn't sold, her trust and belief in me was through the roof! She was amazed - not because of what I told her but that her realtor didn't explain any of this to her and the realtor was a friend of the family.

Fourth - the offers. By now, the seller is well aware of how much work the house needs and why it hasn't sold at or near her listing price. Here's where a multiple offer approach works like a charm. I explained to her that I do various different things with the houses I buy - rehab and retail, rehab and rent, or wholesale.

My first offer to her is my buy price for me to close on it and retail it (keep in mind that I DON'T want to retail it). I again go through the amount of repairs it needs, how long it will take to fix it up, how much it will cost me to hold it for 6 to 9 months before it might sell, and I'm now down to my offer price of $25,000 cash. She rejects this, of course.

So now I'm to my wholesale offer. I explain to her how I have many investors who look to me to find them good quality rental and rehab properties. Because they don't advertise, and thus have lower overhead, they can afford to pay higher prices for their properties than I can. I explain how the wholesale process works, how I market the house to my buyers, and how I get paid in the transaction. I then tell her that based on my analysis, I think I can get her a buyer at $35,000. (again, well below what I can really pay for it). I now ask her what price would it take for her to be happy - she's now at $40K. Initially she said $55K, so now we're getting somewhere. I told her that we can write up the option agreement for $40K allowing me to begin the marketing process. I agreed to market it at $40K but I told her that we will likely only get an offer in the range of $35K. She said "try it at $40K and if we can only get $35K, so be it." Sweet. I now have the option agreement signed at $40K with the seller aware that a price drop is likely when we sign the full blown contract once I have the buyer in place.

Total time spent - 1 hour. Potential profit - $10,000 with my option price at $40K.

Simple, huh? I know this isn't new to a lot of seasoned investors, but to newer folks, this method can change their whole belief level in their own ability to do this business. Try it out, it just might work for you. Remember, honesty and truthfulness with the sellers will get you what you want, most of the time.

Sorry for the long post...