Hi, Paul! It's awesome that you're trying to get started. I'm a beginning wholesaler as well.
First off, you said you've found a homeowner interested in a cash offer. Did you make a cash offer? It sounds like a great situation, but if you haven't made an offer yet and don't know what she wants or thinks it is worth, it could potentially start to fall apart. To give you some basic answers to your questions, though,
Then ask yourself questions based on that, and search them. If you've searched all day and still can't figure it out, it must be a doozy! In that case it's worth it to ask a new question in the forums.
Good luck, Paul!
Thanks for your post, @Rick H..
I did call her a few days ago (took a couple times to get ahold of her). Developers are also interested in the property, and her family and lawyers are in the process of splitting the (double) lot into two.
Developers apparently gave an offer with the single lot, but they came in "so low that it wasn't even worth it." She doesn't know what the real value is, but is thinking along the lines of $275K per lot (for the land, because it's a pretty prime neighborhood in Tampa -- Bayshore Beautiful, ~$500K+/- per home). I'm sensing that:
MotivationToSell < WantToMakeAsMuchMoneyAsPossible
I'm going to show it to some more experienced wholesalers I know in my area and see if they know how we could go on it, but it sounds like a bidding war that may not be worth it, at least not to a wholesaler.
Please express any further thoughts!
Hi, Adriano!
I'm no expert, but 6.1% is low in general for REI. Remember that the stock market has an average ROR of about 7% long term, and while real estate returns are different than stock market returns, you might consider things in these terms.
Average CAP rates are between 7-10% from what I've heard, but everyone will tell you a little differently; I've been looking for properties with at least 8%, but I'm a beginner so I just need to get in the game anyway, so I wouldn't let one-notch-shy-of-pristine discourage me.
Maybe a better question is, did you get that CAP figure from the seller or their listing, or did you calculate it yourself? Sellers are almost always conservative in the costs they associate with owning a property, while being liberal in the income they associate with the property. The CAP rate might be different with your calculations.
Hi, Nick!
I haven't been at it for long so I'm currently working on/waiting for results, but what I've been doing is driving around looking for distressed properties (which in wholesaling, is most of the deals regardless of type), noting the address, knocking on the door, and qualifying the prospect if someone answers, or leaving a simple handwritten note with a call to action if no one is home. Some are obviously absentee/abandoned, but I've still been leaving notes in those cases because they are often still visited, even if no one lives in them. Someone probably comes to mow the lawn every once in a while, bad as it may look.
If someone answers, I go through a pretty standard script. You just want to seem casual, but professional, and you want to find out some key things from pretty much everyone:
If possible, you want to get into the property. The first time I went door-knocking, a friend of mine with experience in D2D told me an old variant of "assuming-the-sale" where you don't ask to come inside, you assume they are inviting you inside. When you get to the point where you ask how the condition of the property is, if you've made the homeowner comfortable enough at that point you can often confidently walk a couple steps forward (you should be several feet away from the door in the first place) and ask with sincerity, "Should I take my shoes off?" and the homeowner will say, "Oh, sure," or "Oh, no, doesn't matter." Now you're in. If they became defensive instead, just apologize (maybe look a little confused), and say with a casual tone that the sooner you can see the inside (purely for the purposes of seeing what condition it's in and taking some photos to show your "partner," whether they actually exist or not) and you just thought it made sense to get it out of the way. You can also try to jokingly ask, "Oh, are you in the middle of your Spring Cleaning?" or something like that, but if you had built any rapport and the person objects to you coming in, you may just not have a motivated seller. That, or it could be an old lady who thinks her house is a mess (sometimes, it really might be, too). The bottom line is, you need to see the inside, and why not on the first meeting? When you proceed with confidence, people tend to want to go with the flow and not break a social norm.
So you're inside. If you have enough experience and are okay with the risk, you can look around, estimate repair costs, find out about how much is owed and all, and make an offer on the house based on what the seller said they would like. If they'd like $50,000, obviously you want to offer $35,000 if it works based on ARV and reno-cost. I've never done this, partly because I'm not good enough at estimating repair costs on a dime like that, and partly because by all accounts, I'm still a beginner; I'm actually still working on closing my first deal because I started recently as mentioned. I've heard of this being done by pros, though. One important idea/strategy is you don't want the decision to depend on you. Your contractor is going to have to run the numbers, your partner is going to have to run the numbers, et cetera. If you try to close a contract in their house that day (I've also heard other people condemn this, by the way, because it can be a waste of time if they lie to you or there ends up being something on the title they don't know about, and then you have to break the contract) you should go outside and "send the pictures to" and "call" "your partner," who may or may not exist. Maybe your partner said due to the state of the bathroom or the HVAC needing replacement, you can only offer $40,000 instead of their asking. Shoot, darn your partner, but you ran the numbers and he's right.
This is getting to be a long-winded post, but if you don't want to sign the contract that day (I don't feel comfortable even trying this yet), you just want to get as much info as you can (and as many pics as possible, make sure you see everything), and let the seller know you will run the numbers, and if everything checks out you may be able to buy their house. Don't make an offer unless you're a reno-genius that's comfortable with the risk. Thank them, leave a business card or flyer if you have one, and offhandedly mention that if they know anyone else who is looking to sell their home you may be interested in buying theirs as well, so keep your card on hand and give them your information. I've heard of some people offering a referral fee of $500-$1000 for this as an incentive.
Later on, after I've done all the driving I intend to do for that day, I will put everything I know into a spreadsheet and research more online. You'll find out whether the owner is really an absentee, who the homeowner is, et cetera. So far I'm loving what I'm doing (I work in sales for my 9-5) and I'm looking to start sending direct-mail to all the property owners I haven't been able to find. I'm really busy right now, so I don't have as much time as I'd like, but I'm hitting the streets as much as I can.
P.S., it helps to have a partner to back you up, and also for security.
Please let me know if you have any questions!
I found an abandoned property while "driving for dollars" and after some research I found out that it's owned/in an estate because the owner must have died. After more research I believe I've found a landline phone number and address of the daughter. I've been looking through the information for probate deals, and from what I've seen this is a little different because it's not technically probate.
I've seen some back and forth about whether you should call or only send letters to get initial contact with heirs/estate holders (out of privacy or respect I suppose?). What are your feelings? If I've found a phone number, is it fair game?
Also, and the more important question/request, could you please provide a link or give me a run-through of how such a conversation should be handled? I'm mainly curious about questions like, "How did you get this number/find information about my property?"
Thanks in advance, everyone.
Hi, Anthony!
The most time-efficient way of locating all the names of your occupants might be looking on the local tax assessor's property search site. Just search "<your county> tax assessor" in Google, and you should find what you're looking for. From here you should have the opportunity to search by address, and you'll be able to find out the owner's name. This method isn't infallible because the records could possibly be out of date, but they are updated every year so you should have a fairly narrow margin for error. The names of owners are public record.
Another option is going to the neighborhood and knocking on nearby neighbors' doors to ask what they know about the home, including the names of the owners. This is a more time-intensive method, but can give you more insight than you'll find online outside of the owner's name.
The optimal frequency with which to send out your letters and your ROR will be something unique to your market. Once you start sending them out, though, you want to be consistent. Start by sending them out once per month, and do your best to keep careful records of how many calls you get. After 2-3 months decrease your frequency to once every 2 or 3 months. Record your data, give it another couple months and then bring it to twice a month, and see how things go. It will take some testing to get things to where you have an optimal marketing solution, and the market will always be changing as well. You can ask some wholesalers local to you how often they send out direct mail for an idea of what your best ROI will be.
Don't be afraid to split test, too. If you send out letters to 1000 different addresses, send to 500 every two weeks, and send to the other 500 every month. And/Or, use a differently worded or differently designed letter to one half versus the other half. This is a great way to improve marketing! Just don't test too many variables at once.
Good luck, Anthony!
Welcome to the BiggerPockets forums, Jay!
As Nick said, there's more to the deal than what's on the surface. From what I've seen so far in all the deals I've analyzed and reviewed here on BP, the seller's numbers are always skewed in their favor, and naturally so. There's a lot to take into consideration, in fact.
We are in different areas, though we're both in the South. Still, your numbers and estimates may differ.
For my area, property management ranges between 8-12%, though i sometimes calculate at 15% because you want to be pleasantly surprised, not disappointed and reaching in your wallet for more cash when you thought you'd cash-flow.
You can find property tax info (approximate, because it's usually the prior years') online by googling "New Orleans tax assessor" and related search terms.
CapEX and maintenance will depend on the quality of your neighborhood, tenants, and the age and condition of the property. I don't have solid recommendations here because this can vary so much. Maybe $50/unit per month of maintenance? Hopefully it works out more in your favor than that, but if only 1/4 of your tenants have any maintenance (leaky faucet, etc) in a given month, that'll be $300 that slides from expenses to income. CapEX should be a fixed percentage, and I tend to see 5% or so per month.
The deal with vacancies is that they happen, and they can be really easy or really rough from what I've heard (As a disclaimer, I have never had tenants, just read a lot about the buy-and-hold strategy because it is my long-game). If you've sought out quality tenants you shouldn't have all that many problems with it, but big things happen in people's lives in a given year so you never know. I usually try to be conservative here and say that in a given year, 1/4 of my units will be vacant for 3 months out of the year. That means 2 units, for 1/4 of the year, are not producing income. That would mean $1320 in the expenses side. Keep it there for safety's sake, because from the outside in you have no idea how this property will do. You want to overestimate.
Well that's the basics. As a disclaimer, I have not purchased my first multi-family property yet (hard to find good ones in my market) but I'm looking for a 2-4plex in the Tampa area that I can owner-occupy (also called house-hacking around here). I've learned all that I have by spending hours each day finding and analyzing deals, and helping other people analyze deals, here on the BP forums and just by spending time looking at offers on RedFin, Zillow, Realtor.com, and LoopNet.
Good luck, @Jay L., could I please get access to that spreadsheet? Handy little tool you've got there! I'd like to use it for my own analyses in the future if you wouldn't mind.
Hi, Sonny! Welcome to BiggerPockets.
BiggerPockets recently introduced special sub-forums for individual states and within those, individual metropolises. Here is the one for LV, Nevada:
https://www.biggerpockets.com/forums/712-las-vegas...
There isn't too much region-specific going on in them yet because there's so new, but the more we get the word out there the better, because they're a valuable focus on specific areas of interest.
There's actually another question in there asking what you did, and apparently there are a couple wholesalers around, but they're hard to find. If you live in the area, look around for bandit signs as you drive around, and google any companies you may come across. Also, keep posting around BP talking about wholesaling and you're bound to come across a few people who do it in the area.
Good luck!
There's always the marketplace here on BiggerPockets. In addition, you can look at your local REIA meet-ups to network and build a better buyers list, as well as market your current property. You will want to have good comps prepared as references to prove the ARV of the home, and actual estimates from contractors for repair costs would be very helpful and professional, although while some buyers will consider this step requisite, others may not even care. Regardless of how far you go with accuracy, I would prepare a good presentation for your properties, meaning a nice portfolio/folder with the property, pictures, some briefs on comps, and a delineation of what the ARV is, price to the buyer, estimated repair costs, and maybe some features of the property. I haven't seen a lot of people do this but I feel like it's more professional and impressive.
I haven't had to market any to buyers myself yet, but at every REIA meeting I go to in the Tampa area, there are always deals being presented to buyers. You could consider hiring a V.A. to market your wholesale deals online for you. I don't know if you have any experience with VA's but they can be super cheap, helpful, and professional. You could also hire some people with mobility (not stuck behind a computer in the Philippines) in your area that are willing and able to market the properties for you in exchange for a small commission. They could scout your local meet-ups and you could cut them 10-20% of your assignment/finders-fee.
It depends on how busy you are. What is the highest and best use of your time? Haha.
Hi, Eseta!
I"m currently learning about ARV and rehab costs as well.
You might think that if you put $5,000 into a bathroom, you'll only get $5,000 out, but if you do it right this isn't the case. Here's the thing: Buyers are lazy, in almost any industry. People that want to get in a house and do nothing but live in it are usually willing to pay a premium for a turn-key, tight-sealed, and packaged home. This is why $5,000 (and any time and stress involved in the renovation) put in yields higher resale value.
A few places I have found for getting good at estimating rehab costs are simply calling local contractors and sending pictures of what needs to be done;
Looking around through Biggerpockets and other places online to find (rare) full rundowns of before-and-after's including costs, sometimes all within a spreadsheet with photos. The closest example of this one I have for you is J. Scott's teardown/new-build which includes the costs for everything.This isn't a rehab, but it's a perfect example of the itemization of specific jobs within the project and costs.
https://www.biggerpockets.com/forums/522/topics/90...
Speaking of J. Scott, he wrote these two awesome books on the topic that I am considering purchasing in a while (once I'm done with what I"m already reading). I've heard rave reviews, and while I don't really plan on flipping properties as my main business, eventually I'd love to rehab condos because I love them, but they aren't a good deal for buy-and-hold which is my long-term game. Besides, they can both be helpful for estimating rehab costs, whether you're planning on rehabbing yourself or estimating the costs for a buyer in a wholesale deal.
http://get.biggerpockets.com/flippingbook/?utm_sou...
I would give you a rundown of all I've found for rehab costs in my market, but you're in Cali and I've heard crazy things about prices there, so I don't think it'd be all too helpful for you. What I recommend is that you find out what approximate costs are for big things like roof repairs; cabinet, and countertop replacements for kitchens; new appliances for a kitchen (dishwasher, fridge, stove); new laminate by square foot, new hard wood by square foot, carpeting, tile; new light fixtures; new door hardware, plumbing hardware; new doors, for front doors and interior doors; interior and exterior paint, by square foot usually I believe; retiling a shower, new sink, new toilet; new HVAC; new windows (per window);
Then take all of this info
(and don't forget to include the installation/labor costs, because a buyer won't be happy and will lower his/her opinion of your business and abilities if you don't include actual costs. Rehabbers don't do their own rehabs, at least, the smart ones don't.)
and put it in a spreadsheet that you keep close by. The goal is to get where eventually you can walk through a property and add up estimated repair costs within about 10-20% or better in your head. You should always overestimate, but still.
Now, as far as the actual ARV, this will be obtained (estimated) by looking at "comps," or comparable properties in the area. You want to find properties that have as close to the same number as bedrooms and bathrooms, and approximate square footage as your house, as well as being in a completely finished condition, or similar to how your property will look. You could go to a professional for this, but I think most wholesalers and rehabbers just end up getting so much practice that they begin to understand how much homes are worth in a given area. If you have contacts or are friends with real estate agents, they could probably be a big help as well.
I don't think you need an appraiser, unless you have one close to you that will do it as a favor or for cheap.
Let me know if anything was unclear or if you have further questions. Good luck!