How much would you wholesale this for?

Question

I am not wholesaling anything but had a question.

You find a REO for $500,000. Market value is $3,500,000.

How much would you wholesale this property for? And would your end buyer have a problem with the spread?

Jason S. · Answer

If you had this deal under contract you could get the cash to buy it yourself outright in a snap.  Assuming the numbers are real.  Then you would re-sell it.

You will always get more money as an owner over being a wholesaler.

The hypothetical dies right there.

If you are really buying bulk reo then you should have $500K sitting around in commissions and/or profits already.  Sorry to say "if you are really" because I have never found someone that actually does have access to bulk reo, but I am always looking.

Curt Davis · Answer

This example is almost doomed from the start as a regular LLC which most of the time has no credit or cash in it with a regular investor could not show a POF and I am guessing the earnest money will be more like 5% or $25,000 which your average investor will not be able to make happen.  A good and fair sale price to me would be $2,625,000 or 75% LTV.  This way there is still mean on the bone and you made a healthy sum without much work.

J Scott · Answer

Lisa -

If you truly buy bulk REO, you should have access to $500K or to someone who can loan you $500K.  I imagine that with a $3M spread, you shouldn't have any trouble finding someone to loan you $500K.

So, I would suggest buying the property outright and selling it to an owner occupant for $3.5M.

Justin S. · Answer

Looks at from an investor standpoint.  An investor has $3M in cash in the bank in which he buy 10 $300,000 homes and make 10-15% profit after closing costs and spread their risk over multiple homes.  OR they can go with your deal which makes them 6% profit after closing and put all their eggs in one basket. The $500K GROSS spread is eaten up pretty quickly once you agents, closing costs, etc.  It sounds like a big number, but a savvy investor knows they can make more doing the same thing with less risk.

Colbert Saint-Laurent · Answer

Why are you thinking so small? If you have and end buyer you could do a simultaneous Closing so the end buyer never knows how much you actually got the property. Its really on you how much you want to throw on top of that 500k. In this business people like to count pockets so if you wholesaled this property for 100k not many people would want to sign a check to you for that amount just for a finders fee.

Lisa Monroe · Answer

I have wholesaled REO product that I acquire from banks. Our contracts are always assignable so I always assign instead of buy.

My only concern was the end buyer having an issue with that large of a spread. If any spread at all. In any case, without going into too much specifics....here are some numbers and details about the property.

Commercial property
purchase price- $600,000 (REO)
Appr- $4,500,000
Appr Date- 9-10-2010
Year Built 2008
No estimate on amount of repairs, if any. 
Bank attempted to sell the note before. I passed on it. Now it is an REO.

I am just evaulating my options. This is why I am here because I have never had this type of situation before. I am an ethical investor and dont want to be greedy. Like someone said before, I want everyone to have a good piece of change in the deal.

If I needed to buy it outright, I would have no problem with that. But so far, I appreciate the input. thanks.....

Jason Roberts · Answer

Ahhh, no investor that I know ever buys a property with what amounts to be a 7% profit spread. Remember that we also pay commission, interest, closing costs, etc on our houses which is usually around 5% of the sale price. Justin is dead on with the profit margin being around that $220-$250k range. Gurus talk about wholesaling houses and making $2.5M on one deal. In the real world if you are wholesaling that specific example it means you dont have the money to buy it yourself and hold it long enough to sell it for $3.5M. Therefore in the real world you market that house as either a partnership opportunity or for $1M and then go tell all your friends how you just made $500k on one deal! To market it for $3M is not at all realistic unless you are trying to find an end buyer and we all know how hard it is to wholesale to a retail buyer with no money in the deal.

In either case, if this is a real deal...CALL ME!!

Lisa Monroe · Answer

Yes all of you are right especially about buying it and selling it. $2,600,000 was a number I had in mind. Thanks!!!!!!!

Rob Gillespie · Answer

I completely agree, but we are not looking at an either or option. The question was about a rock star home. I would never invest in a deal like that either. The big margins are made in the smaller deals. But I am comparing that to lets say a 3 mil apt. building. You would not get more than 500k equity in that on a flip. 
I would think anyone buying a deal like the McMansion would be buying it as a deal to live in and not as an investment.

Lisa Monroe · Answer

I buy bulk reo and I get unlisted properties at discount. I came across a similar property as mentioned above. before it was an reo, the bank tried to sell the note. The owner made two payments since origination in 2007.the LTV at the time was less than 40% I think so from the beginning there was substantial equity. I havent decided what to do. I may or may not wholesale it. Just wondering if a buyer would have a issue with spread.

How much would you wholesale this for?

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