All In On One Deal and Now My Numbers Are Firing Back

Hello everyone. It's been over a month (maybe even almost two months) since I started this journey called Real Estate Wholesaling. I've read the forums, books, chatted with successful flippers, built a small (probably too small) buyers list and did a direct mail campaign on about 700 homeowners. I totally wasn't expecting to get any calls on this campaign because all I kept hearing repeated was it doesn't happen until the third, fourth, or tenth campaign. So I was pleasantly surprised to begin getting calls from interested sellers after sending out my "mail merged, professional white-letters". If you don't know what that is, let me explain - though I'm likely making up the term myself. Mail-merge is something you can do on Microsoft Word. Create a letter template and then, using an excel spread, plot the location of the homeowner's name (next to Dear So&So) and the address you're interested in buying. You can a basically type 100+ letters in a few clicks. It's awesome. I did this because 1. I couldn't afford to do another postcard mailing and 2. I read that a lot of people were getting really good returns on these types of letters. And what do you know, I actually got call-backs after just one mailing. So I think I'll stick with the mail merge for a bit. At least until I can afford to experiment a little more. 

Anyway, I did the mail-merge and got some call backs. None of them met my criteria and thought I really really wanted to get a contract I bit down on my over-zealous nature and waited. Then it came. The deal I was waiting for. 

The seller was a retired broker that had been buying up houses in this one neighborhood and though she was really a distressed seller by definition, she wanted to sell and wasn't asking for much money for the house. Or so I thought. 

The home was a 2 bed, 1 bath, 748 square foot house in a B/B- neighborhood. Comps showed that most similar houses in that neighborhood were about $75,000. The seller wanted $29,000. I did the number and my MAO was like almost $40,000. So I got it under contract. That was my first mistake. I didn't negotiate, took the seller's first offer and used the seller's original rehab numbers as well. She told me it would take $7,500 to fix the place up. To me it made sense because she had paperwork to show GC quotes and also the demo on the inside was already done. 

So I put the house on the market for $34,000 with the goal to land a $5,000 wholesale fee. My contract was for 30 days, by the way. This was November 10th. So I still have the house under contract. You can probably find my ad in the marketplace if you look (I should probably renew it with my new price). 

I put the house on Craigslist, emailed my buyers list, and passed it along at REIA's. I instantly got interested buyers but whenever they went to see the house they would fall off the map. Side note, that is another mistake I think I'm making. There's a lock-box on the porch and the house is of course vacant, so I'm just letting people go see it without having me there to be in their ear. So anyway, when I get no calls I begin to wonder. 

I will tell you, the house has an ugly rail road yard just two houses over. It's on a dead-end and that is what is on the end of the street. It's also on the one block that is more in the B- part of the neighborhood. Now, just a few blocks away is a very trendy and upcoming neighborhood, so I thought the location being so close would help but no. 

 A lot of the buyers were using the rail-road yard and the condition of the neighborhood to bring the ARV down to $60-$65,000 and rehab costs up to a nice round $10,000 number. So I re-ran my analysis or BP's calculators and still, there's room for money to be made. Which is the next lesson I learned. Investors are freaking CHEAP. Even though this house has room to make money either as a rehab and sell or buy and hold, every single investor has said that they will not buy this house for more than $25,000. Almost $10,000 less than what I have it marketed as. 

So, for the sake of closing a deal but also not getting any kind of a payday, I started marketing the house at $31,000. I even tried to talk the seller down from $29,000 to $25,000. They came down $500 instead. Really? I mean, really? 

So, now I'm thinking of putting out there as $30,000 or even $29,000 and walking away with a $500 fee just to say I closed. And then use the lessons learned on the next deal. If you missed what those lessons are, I'll repeat them. 

1. Never take the seller's offer. Always let them put their number out there first but then you come back with a much much much lower number (unless of course their numbers are already awesomely low). Negotiate. Always negotiate for less. If they don't want to budge, walk away. WALK THE HECK AWAY. Don't be afraid to miss the opportunity. There will be more. 

2. Take the comps you come up with (whether they're yours or, in my situation, a realtor's) with a grain of salt. In my opinion, if your gut feeling says that the price is higher than expected after seeing the house and surrounding area, or if you're wowed by how high the ARV is, then it's probably too high. Bring it down by $10,000 or so. Or ask other investors what they think then find a happy medium. 

3. Don't except the seller's rehab numbers as fact or true, even if they are. Investor's are going to find a number of things that will need to be done - whether they really do or not - just to bring the cost of renovation up. 

4. Never market the house at your MAO. If the MAO is the lowest you can go on the deal, it will likely be hard to sell because investors are going to negotiate down and you'll have no wiggle room to negotiate. I'm not saying to not get it under contract. I still think that for someone, this deal is going to be good. But I'm also under no illusions that I'll sell this house at all. 

So, that's where I'm at. I'm about to mail out 350 more letters. So hopefully more deals come in. I also have a few houses that I am planning to go see after the holiday weekend. My first close is just around the corner. I know it. I feel it. I smell it. I taste it. I'm ready for it. But I can't try to do force it. And that is the biggest lesson I learned. Investors are not gamblers. They're smart and they bet on winners only. Do not go into a deal trying to make it a deal. And even though I have read it a hundred times and heard it on every podcast, I still found myself in a situation convincing myself that a mediocre deal is an incredible one. 

So, wish me luck. Maybe I'll sell this thing, maybe not. Either way, I'm a whole lot smarter because of it. And as long as I continue to improve, I know I'll be a YUGE success. 

Thanks for reading.