Does Anybody Here Wholesale Homes Over 200K?

Question

Hello,
I've been on here for a little while now and I really haven't seen people talk about wholesaling homes valued at say 299k but selling them wholesale for like $225k. 
Say you purchase the home from the seller for 200k and then you assign it for $220k. (would you try to squeeze more than 20g's out of the deal?) Is it some sort of unwritten rule that wholesalers should not focus on the more expensive homes?

Ann Bellamy · Answer

That 50k spread will turn into no profit "in a heartbeat", as Jon explains in some detail.  Closing costs are high in Westchester county in NY.  It's not California.  Hard money is also more expensive, if the rehabber has to borrow it.  And property taxes in White Plains are very high, along with city taxes, county taxes, school taxes, transfer taxes, attorney costs, and miscellaneous "because we are the government" fees and taxes.

Many of the houses in the area are pre-war, and have aging wiring and plumbing, so contingencies can catch the unwary.

All this goes to show, K Marie, that real estate is very local, and a deal that flies in one area, will sink in another.

Jon Holdman · Answer

So, say you buy a property for $225K that needs 25K in work and will sell for $300K.  Is there any profit?  No.

Sales costs, about 11% currently, 6% for commissions, 3% for commissions, and 2% for title insurance and other closing costs.  That's $33K
Purchase costs, about 2%, so $4.5K
With a cooperative title insurance company, you can do a hold open and save a few grand on that piece.  But still, you're spending $35K out of your $50K profit.  You have $15K left.

But what about the money?  You get a hard money loan for six months or so at 70% of ARV.  You'll pay about 10% of the loan amount in points and interest, which is 7% of ARV.  In this case, about $21K.  Oops, now you're in the hole $6K.

Now, if you have your own cash, and are willing to have it work for free, sure, you can make money.  But you could make more by lending that money out to a rehabber, and have a lot less risk.

To answer Alex' question, I don't think there's any magic cutoff for what works for wholesaling.  If the deal is sufficiently good, whatever that means for your area, you can wholesale the deal.

Account Closed · Answer

Ann Bellamy  You are so right when you say the hardest part of wholesaling is not finding buyers.  Finding a good deal is the work!

I continue to be surprised at how many new wholesalers focus on their buyer's list and the set-up of their buying entity instead of finding a deal.  I really think people should try marketing and/or making offers for a few months to find out if they even like this work.

Account Closed · Answer

Alex Jefferson  I would love to have such a deal to offer to my buyer's list.  However, the 25K would have to be a realistic repair number.  $25K goes far in term of cosmetics, but is way short if the property needs roofing or major exterior repairs or any systems replacements.  And to be honest, I would not wholesale such a deal because I would keep it and get the rehab done and sell retail.  I have decent hard money (decent interest, no points) so the lender costs wouldn't be a deal breaker. Many rehabbers borrowing hard money for 90-120 days in the $250K price range are often paying 5 points and 12% or more.  So they would be getting in with thin margins and no room for error.

That being said, can you find a house for $225K with only 25K needed in updating/repairs?

Account Closed · Answer

Ann Bellamy  Where I am there would be/is real competition for a $225K house needing only $25K repairs for a retail value of $300K.  In my farm a good number of the props selling at $300K are better quality construction in from that last 10 years.  The trustee sale buyers in my area do this deal all the time.  If the house only needs carpet, paint, appliances, landscaping and minor repairs, you can get a lot done for $25K.  The majority of the volume players are agents as well, so they pay less to sell.  And they have cash, so they aren't paying any points or fees.  They would love a 50K spread before sales commissions, selling closing costs and having to pay buyer's closing costs.

I think that the 70% of ARV minus repairs thing has to be looked at in a hard core way when the values are lower.  But a quick in and out for $50K minus closing and sales costs?  I'd take it in a heart beat.

Jeff Coga · Answer

Price is price... we've flipped and assigned 2 contracts in beverlyhills for $50K+ and i've done deals in Watts, Compton for $25k+... leave enough meat for the actual rehabber. Meaning know what your risk tolerance level of your end buyer investor.

Keith Lutz · Answer

I have a buddy that just picked up an estate sale off the MLS in North Jersey, it was listed for 299k, got it under contract for 275k, needs about 50 to 70k in rehab (I forget which), and ARV is 580K.  Those #'s work!

Alex Jefferson · Answer

Good stuff Ann. I'm sure once I start placing these homes under contract, you will want to make any investors you know aware.

How about this..why don't you give me a good example of a Westchester home that would be a great deal for one of your investors. Give me the #'s so I have an idea of the type of deal you are talking about.

Also, you are so right about $300,000 not being high end. It's actually on the low end. I own a 2 bedroom co-op in White Plains where I live and it has a value of $275,000 - $300,000.

Ann Bellamy · Answer

Alex Jefferson, an ARV of $300K is not high end in Westchester County.  Far from it.

I know, I'm selling one in a few weeks in that area that is an estate property.  It's in need of updates and repairs, and I'm not letting it go for anywhere near 300K.  (This is not a solicitation, I'm listing it on MLS in that area)

The hardest part of wholesaling is NOT finding buyers.  If you find a good deal, I can connect you to several investors who will buy it from you, even in Westchester County which is 4 hours away from me.   The problem is finding deals AT A PRICE THAT WILL WORK FOR A SERIOUS REHABBER IN THAT AREA.

You can find buyers at the REIA's in the area, and I will give you the phone number of a rehabber if you get a good deal.  But from the above and from what you are saying, you are paying too much for your deal.  That's the problem.

IMHO.  Actually, probably not too many of my opinions are humble.  :-)

Alex Jefferson · Answer

I'm sure it shouldn't be a problem but I will definitely let you know. Give me like 2 weeks and I'm sure I will have one. Thank you for the advice and I'm sure I will be speaking with you soon.

Does Anybody Here Wholesale Homes Over 200K?

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