Hey BP,
I’ve been planning to post about my first deal for several months, so here goes.
Summary: This was a wholesale deal in Duncanville south of Dallas that I put under contract for $64,000 and sold for $76,000, partnering with another wholesaler. We split the $12,000 profit. ARV $105,000-$110,000; repairs $10,000-$15,000.
The Details: As my first deal, it was actually the easiest phone call I’ve yet to receive. I sent out 500 yellow letters in October to absentee owners using @Jerry Puckett, so a special thanks to him. I actually had a good response rate for the first two mailings -- about 30 calls total, or 6%. I looked at maybe 10 houses, had a handful a discussions on price, but no real takers. This call came in January a few weeks after the second mailing. The seller was a dual citizen who lived in Canada and had inherited a SFH in Dallas about seven years ago. She had never seen the property and had been using a property management company to rent it out. Now she just wanted out (tax reasons, or something) and wanted to sell quickly.
Over the phone she told me the house was worth $96,000, but she assumed it needed at least $10,000 in repairs, so that would make $86,000. She then said if we could avoid going through a realtor, she’d knock off another $10,000. And because she wanted to sell quickly, she'd knock off another $10,000. So now we’re down to $66,000. She said if I made her an offer in that ballpark, she’d accept it.
Obviously I got excited, but here's where I made my first mistake. I knew she was motivated, but I didn't know if the house was really worth what she claimed. If it was, then yeah, there's a deal here. So I asked her if I could do a little research on my end and get back to her within 24 hours. She said sure, and I got off the phone and started pulling comps. She was pretty close with her numbers, so I knew it had potential. ARV was maybe $105,000-$110,000; current as-is value probably around $80,000-$85,000. I thought about calling her back right away but decided to wait until the next day.
I called her back the next morning, and she told me she had received an offer the night before (!!!) from an agent at the property management company who wanted to buy it. But she hadn’t accepted that offer yet because she had committed to giving me 24 hours to get back to her. So the fact that she kept her word meant a lot. I told her I was very interested and went out to look at the house about 30 minutes later with the current tenant there. The house was in horrible shape with insanely messy tenants, and the property management company clearly never made repairs. Honestly it didn’t fit the usual investing formula, but I still knew it seemed like a deal. I also knew from what she told me that the other offer was in the low 60s, so I had some confidence that I was in the right range. I called her up and offered her $63,000. She asked for an hour to think about, at which point I went up to $64,000 and she said yes.
I emailed her the contract the next day and had it signed a couple days later. From the first phone call to acceptance was only 24 hours. I’ve talked to some other motivated sellers since then, but still haven’t had a phone call that easy!
Because I was just starting out, I decided to partner with a local wholesaler to sell the deal. We accepted an offer of $76,000 and had a backup offer of $74,000. I split the wholesale fee with him and walked away with $6,000.
Lessons learned:
- Don’t wait. I knew 10 minutes after our first call that it sounded like a deal and I should go look at it, but I waited until the next day to get back to her. That almost cost me the deal, and likely would have with a different seller.
- I need a better buyers list (which I’m now quickly building). I was more than happy to partner with another wholesaler on my first deal and share the profit with him, and I learned a ton in the process. But if I’d had my own buyers list with true cash buyers that I could have tapped into, I would have made a lot more money.
- I spent too much time trying to figure out what to do with it once I got it under contract. I thought about trying to keep it as a rental myself and looked into getting funding for that. Honestly I went back and forth several times and delayed making a decision. I finally decided to wholesale it about five days after I got it under contract, which was too long to wait. Now I just pick an option and move forward as quickly as possible.
- I need to allow more time to close. She wanted to close quickly, so I put a 14-day close in the contract, and this was my first deal. Ridiculous! It all worked out and the buyer closed on time, but way too much stress on my end. I now try to put in a 30-day close with a 21-day option period.
- Know the market, and know when to ignore the traditional formulas. I learned this again on my second deal, which I'm closing now. The market is so tight in Dallas, and people are so desperate for property, that the old 70% ARV minus repairs just doesn't work. I'm competing with other wholesalers offering more than that, and my investor-buyers are willing to buy for 80-85% ARV minus rent repairs, especially for good rental properties. And even inexperienced sellers know they can get more for their house, assuming there are no serious issues. It's just crazy.
Thanks to everyone on BP who helped me along the way. I’m closing my second wholesale deal now, which is a probate case several months in the making. I’ll post about it later. If you’re in the Dallas area, feel free to connect with me!
Chad
