My First Wholesale Deal. FSBO or Realtor?

[Anthony Gayden]

Good afternoon BiggerPockets,

About a week ago, a lady who works in my office approaches me and says that she heard that I buy real estate (awesome that someone I hadn't even approached heard about me). She then tells me that she and her sisters inherited a house when a relative recently passed away. They want to sell it as soon as possible, and they don't want to do any work on it.

I tell her I'm interested and she gives me the address. I do a lot of online research and find that it is in an older part of a fast growing Omaha suburb with an excellent school district. I looked up a few comps in the area using Zillow recently sold. Another house on the same street with less square footage and the same number of beds and baths sold for $130,000. Another a block away sold for $125,000.

One of my coworkers who wants to get started in real estate investing hears me talking about the deal and wants to be my partner and put up some of the cash. Of course I agree. 

I went out and looked at the house today. The house is dated, but livable. Built in 1900, it had updated electrical, HVAC, plumbing, and windows. It was cluttered but not bad and a good clean up and paint would do wonders. 

My offer was for $65,000. I told them the offer was all cash, no inspection, and 100% as-is. They seemed very interested but said they would think about it and had to discuss it with the third sister who was not present at the showing.

There are two different things I was thinking about doing. 

1. Purchase the house cash and do a simple clean up and immediately list it FSBO on Craigslist/Zillow.

2. Purchase the house cash, do a minor flip, paint, and replace carpeting. Have a realtor put it on the MLS.

Which way would you suggest?

[Owen Dashner]

@Anthony Gayden, it depends on a few things.  Is there enough margin in the as-is value to support paying out commissions, closing costs, etc.?  Do you have time/is it worth your time trying to sell yourself (doing showings, coordinating with title company/appraisers/instpectors/buyer's agents, upkeep on the house while waiting to sell, etc.)?  If you flip it, are you going to do some/all of the work yourself?  Project manage/be your own GC?  Make sure you put a value on your time because being your own agent/GC/laborer can seem like an attractive way to juice profits on flips/but has an opportunity cost to go with it because there will be no way for you to scale the business (if that's what you want to do) while wearing all of those trade hats.  Don't buy yourself one or more jobs.

You will get the most potential eyes on the property by putting it on the MLS with an agent who is well-connected and actually puts effort into the listing. If you can make a 10% profit on the house by wholetailing it to a conventional/cash buyer instead of flipping, I would do that in a heartbeat. Less risk, way less time and stress, faster redeployment of your money. I have done this several times this year and would take those kind of deals over rehab flips all day every day.

One thing I would comment on though is to make sure and check the DOM and material finish levels for the comps you are pulling.  And the building's age tells me that it is close to downtown.  Is it southeast Omaha?  If so, be conservative in your estimated sale price and your estimated DOM because some pockets of housing in that area are tougher to do retail flips in.

Just my $.02.    Good luck!