I am not going to comment on the bill or what the state of Illinois thinks it's going to stop, by writing this into law. Instead I will point out some actual facts that should have been considered, prior to wasting taxpayer resources.
I won't pretend to know the motivation behind the state's desire to draft this bill, because I was never invited to the discussion. I will simply go on a limb and say that one of those factors, was probably this gross misconception that we steal equity, and I would guess that it's this 50% number that has the "ouch" factor.
It would be my guess that the wholesaling industry makes up less than half of 1% of the overall market, or worse. That alone should have been enough to make anyone realize that this law is going to have zero effect, overall. However, it's easy to say that the investor industry out numbers wholesalers, by a bunch. Would 100x, 1000x or more, be reasonable?
Now I would suspect that those agents/brokers and investors themselves, that are quick to put a wholesaler on blast for their thievery, utilize the very popular 70% rule when it comes to evaluating a property. This of course means that according to that rule, you should never offer more than 70% of its value. Now I have no idea who came up with this rule, but I feel comfortable in saying that it was NOT a wholesaler. So let's see what that looks like, in real numbers.
Little bit of a test here.
Subject Property
3/2 1800 sq ft. ARV 200K
Needs the following: HVAC system replaced and updating of kitchen/baths, paint and floors. No other mechanicals are needed.
Let's start:
200K ARV * .70 = 140K purchase price. Right out the door 30% equity, GONE!
For those that have actually renovated/updated a home of this size, what are the odds you get this done for 40K? Because if the 50% equity creates the problem, you only have 40k to spend to renovate and state within that 50% equity grab. Of course, this math only works if you do NOT use HML or private money, only if you use cash.
Let's be real. Doing a professional renovation on a 200K home that needs updating and an HVAC system, for 40K, is going to be very very difficult. With over 100 renovations to my credit, I can tell you the only way this stands a chance, is you have a rock start crew that turns this within 3 weeks, or you are stealing the material.
To summarize my point in paragraph 3. If theft of equity was a strong motivator and investors grossly out number wholesalers, then by the popularity of the 70% rule, it would actually be the investors causing more of this problem, than us wholesalers. The irony that there are many agent/brokers that are investors themselves, and live by this rule, yet preach fiduciary responsibility, is not lost.
However, I am not going to be the one that criticizes and then not offer an alternative view, in fact, a solution that apparently would satisfy all.
If there is so much concern over the theft of equity, the solution is real easy.
To the fine folks of BP that provide this great community for all of us to speak freely and offer advice.
Would you please dropkick the 70% rule calculator out of the window, because it is causing a lot of stress for those brokers/agents and investors that have an issue with wholesalers bringing 50% deals, but they can only buy at 50%, themselves.
Are all of you that are actual investors that fix/flip and buy/hold, willing to backup what you are arguing, by promising to only buy at 80% or higher, before repairs?
In the spirit of showing my flexibility, how about 70% or higher, before repairs? I would be fine with either personally, as a wholesaler or investor.
If so, please join me in my effort of asking BP to remove this calculator, or at least modifying it to say, 125%? I am open for negotiations, so whatever the majority thinks is fair, I am good with it.
I mean, it's in the best interest of the seller, right?
