Wholesale Buyers: What's their exit strategy/business model?

Question

I'm interested in the business model for for investors buying the wholesale properties.  Are these cash buyers typically just looking for buy and hold or fix and flip using their own cash?  Is there a way to fit hard money into this from a buyers perspective?

My ideal business model would be:
- find local wholesalers to send me leads
- buy at 65% ARV using hard money
- refinance to take out hard money lender
- hold

The big question that I have regarding the above is: is there typically enough margin to buy from a wholesaler using hard money?

Darrick P. · Answer

I think 65% is very ambitious. I've always heard 70%

Arktavious Sally · Answer

Derek Carroll The goal of a wholesaler is to find killer deals and to pass that great deal on to a cash buyer for a profit. Most cash buyers are using HML or PM, So yes the numbers must make sense, that a HML will want to do the deal.

Stan Butler · Answer

I invest in the Northern Atlanta suburbs and I would also love to find wholesalers to buy from, but its not as easy as it seems.  In the almost 10 years I have been investing, I havent found one.  Im sure there are some really good ones here, but I imagine that it is a closed circle.  Like Manesh Hardeo indicated, you really have to do your own due diligence because most of the time you will get inflated ARVs and underestimated Repair Costs.  One other thing to consider with your Hard Money to Permanent financing strategy is that your costs are front-end loaded with Hard Money.  This may make it too costly to switch to other financing options and make the deal profitable.

Manesh Hardeo · Answer

Purchasing for a buy and hold with hard money is perfectly fine -- that's if you're in the right market.  I've been in both the Texas and now Georgia markets.   I'll give you examples here.

In Texas, you can purchase deals from reputable wholesalers, get in using an up to 70% LTV loan and then refinance (hard money lenders there still base your ability to purchase on credit).  The comps there generally are much easier to come by.

In Georgia, unless you plan on purchasing more of an A-type (homes in better school districts) property, the price point for rental deals don't have very good supporting comps to justify a purchase, then refinance and hold.  Most lenders here don't even care about credit more as they do a liquid ability to purchase, experience level, and the type of home your purchasing considering exit strategy.  Unless, they know right upfront your goal is to buy and hold.  The problem is finding those type of deals you'll be okay with holding as most lenders here do require 20% down and only lend up to 65% with most LTVs in the end being less.  This market is getting snatched up cash by larger institutional clientele.

As far as getting on wholesaler lists -- that's great, but just be prepared to do your own homework or have the ability to.  This is coming from someone that owns and runs this very type of business.  There are a ton of wholesalers, but reputable ones are who you want to deal with and even if they are -- always double check yourself.  As long as you check the numbers yourself and ask questions you should be fine.  I don't know your market very well, but consider that they are ever-changing and depending where you are, then being all in at 65% sometimes still isn't realistic.

Hope that helps a bit.

Derek Carroll · Answer

If i use Hard Money isnt that the margin that it HAS to be?  I thought that they wont lend more than 65% ARV?

Also arent most wholesalers getting contracts at under 65% ARV?

Eric Thomson · Answer

That may be a tough margin to get. Typically I have seen all cash buyers, but I don't see why hard money would be a problem. You may dig more into the refi process. If you are looking for rental units you may be required to provide 2 years rental history before a bank will touch it.

Wholesale Buyers: What's their exit strategy/business model?

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