Deal Diary: Wholesaling in Havelock, NC

Finding the Deal

I found the property through a postcard that I had sent to the owner about a year-and-a-half ago. She had kept it on her fridge and, when she was ready to sell, she gave me a call. She had called to ask if I bought properties that needed a lot of repairs. I asked her to describe to me the condition of the property. She confided to me that it was in terrible condition and that her tenants had destroyed it. As she went on, I thought to myself that this property was beyond repair. After looking at old pictures on Zillow, I was able to get a better idea of what the condition was. The seller's husband had unfortunately passed away and she was exhausted by the prospect of continuing as a landlord. She did not want to re-rent the property, especially after her tenants destroyed it this past go-around. She asked if I could come over and take a look and see if we could come up with a good number.

Negotiating

Her ballpark was around 70k. When I went and looked at the property it was, in my opinion, in fair shape. While a quick flip would make it a decent rental, a full flip could result in a decent profit. I went ahead and discussed a potential seller financing with the owner. She said that she needed a little bit more information on how that would all work, so I went to the drawing board and showed her a graph of what payments would look like. I then told her that I would provide a formal offer presentation to her, so she could view several options on how to move forward. We decided to meet a couple of days later. When we met, I presented her with the seller finance options. My cash offer was for $54,000. I used the 70% rule to formulate the initial offer of $54,000 (see below). A few days after I had presented the offer, the seller gave me a call. I was sure that she would be deciding on the seller financing option, due to the fact that she didn't have any plans for the money and wanted to put it into some kind of retirement fund. To my surprise, she went ahead and accepted the cash offer for 54K.

Exit Strategy/Closing

At that moment, I had to scramble to figure out how I was going to make this deal work. This was a, “if the deal is there, the money will come” type situation. A flip would have been a good call, but I did not have the money to fully fund the purchase and the rehab. I reached out to a couple of investors that I had known from my real estate meetup group in Jacksonville, NC to see if anyone would be interested in partnering on the flip.

In the meantime, I had contractors creating bids for the property, with a preliminary scope of work. It proved difficult to receive a reliable quote or to have anyone reply with an estimate. *Add a gripe and complaint about Eastern North Carolina contractors here*. During this time, I was still trying to lock in a partner to perform the work or manage the project. The week prior to collecting all these bids, I had connected with an investor who had called one of my bandit signs and wanted to meet at his CPA firm. When we met, we had talked about what I was trying to achieve in the local area with my marketing and, at the end of the conversation, I had mentioned my woes with this property. I gave him a quick rundown of what the numbers looked like and he immediately told me what he would be able to pay for the contract. After experiencing a lot of tire-kickers, shysters, and persons with zero moral character, I was impressed with his transparency and blunt honesty. He had a track record that supported my overall comfort in sending him a deal. I told him that if things didn't work out with the partners and the contractors, then I would definitely be in touch with him. Lo and behold, since I was not having much luck with receiving contractor bids, I was at a decision point.

As other deals started to fill my pipeline, the time and effort involved with identifying the right personnel for a flip was becoming a detractor. I was also up against an education opportunity that involved a month-long, TAD trip to Quantico, VA (I am active duty military). I decided that the path of least resistance would be the wisest. I gave the investor a call and he visited the property the next day. He sent me a text from the property; “I’ll take it”. The assignment contract was signed and, about a week later, we closed.

The Numbers

After going through comps and collecting enough information on the rehab, I initially assumed the following:

ARV: ~$145,000

Rehab: ~$40,000

($145,000 ARV * .70 ) - $40,000 Rehab - $7,500 buffer = $54,000

Offer ranges were 54k to 62k

This was not an exact science. The buffer was a shwag.

How it really went:

The investor had a better idea of the comps, the rehab costs, and did not abide by a black and white 70% rule.

Estimated ARV: ~$155,000

Rehab: ~$55,000 (buffer probably included, not sure to what capacity)

Assignment Fee: $8,000

Paying $62,000 worked in his analysis. 

Future Plans

I will stay in touch with the seller and see if she would like to part ways with other houses in her portfolio. The assignment fee will go towards renovation cost on a “subject to” deal I will be closing on soon. For future wholesales, I will continue to employ the strategy of using assignment fees to pay for down payments or rehab costs associated with the acquisition of new rental properties. I still have a ton of marketing materials and a solid budget to purchase more if need be, keeping the deal flow steady. The flip is complete, as I did a walk-through on it the other day and saw the listing on Zillow shortly after. List Price: 170K! I am really hoping that it flies off the shelf in the high 160’s. Although I was not involved, and mostly out of the area, it was insightful to be able to walk the property. Being able to see a before and after comparison on the property will help in developing my local market intuition.

I’ll make sure to post updates.

Thanks for reading,

Padric



Before

After