We closed on The Wrong House today… (see all the financial results below)
This was a wholesale deal (which I bought it and sold it to another investor for a small markup without doing much of any rehab work). We got our first offer on this house last month, and we agreed to give the investor buyer a month to get her financing in order, even though we preferred to work with someone who was paying cash. As we feared, she couldn’t get her loan, and backed out of the deal last Friday, the day we were supposed to close.
But, we put it back on the market last weekend, got an offer on Monday, and even though the new buyers hadn’t yet seen the property, they were able to get through their inspections and due diligence in just a couple days, and closed today with cash. Yup, just five days from offer to close. That’s also a benefit of having a great real estate closing attorney who was able to turn this around so quickly!
Anyway, it took longer than expected to sell this property, but between the $3000 we kept from the first buyer who fell through and the markup to the second investor, we did pretty well for a wholesale deal. And, I’m confident that the buyers still got a great deal for much less than the property is worth.
Here is the final analysis for this one…
Timelines
We only did a couple days of rehab work on this one, but held it for about 50 days between purchase and sale. Most of this time was waiting for the first buyers to close, which they never did.
Here are the key timeline milestones:
- Purchase Offer Date: 4/21/2011
- Purchase Closing Date: 5/12/2011
- Rehab Completion Date: 5/17/2011
- Sale Listing Date: 5/18/2011
- First Sale Contract Date: 5/30/2011
- Final Sale Contract Date: 6/27/2011
- Sale Closing Date: 7/1/2011
Financials
Here is the breakdown of financials for this project:
Our profit on this one was over $11K, which for a wholesale deal is great. The only downside is the relatively long hold time for a wholesale deal (and the fact that our cash was tied up for that entire time), but given that we didn’t have any other projects that we needed it for, I guess it’s not a big loss.
Final Statistics
Here are just some of the final statistics that I’ve been tracking for all my projects, and that summarize the success/failure of each project pretty well:
- From Offer to Purchase Time: 21 Days
- Rehab Time: 4 Days
- Selling Days on Market: 40 Days
- Selling Close Time: 4 Days
- Total Hold Time (Close to Close): 50 Days
- Total Profit: $11,258.48
- Return on Investment (ROI): 23.%
- Annualized ROI: 173.19%
Great Deal J.
It’s awesome that you were able to pick this up right off the MLS… and then turn around and wholesale right on the MLS as well.
Why do you think people had overlooked this property initially and did you market it differently when you wholesaled it?
I’ve always wanted to do this but have never pulled it off in my market.
Matt, that is the exact same question I had.
If I found this property my first thought would be “if no one else has already purchased this property why would I be able to find a buyer?”…
Matt, Luis,
These days, it’s definitely tougher to find MLS deals that can be wholesaled, just because more and more investors are starting to look at the MLS every day. That said, here’s how we do it (and the criteria we use) when we do try to wholesale MLS deals:
1. First and foremost, my wife gets the bulk of the credit. She is very good about mining MLS data for investors and their agents who go after investment deals. She’ll get on the phone, sell the agents on the property, offer a bonus if need be, and just build a rapport that really gets the buyers to at least take a look at the property;
2. Second, always remember that there are a lot of investors/buyers who hate buying REOs, either because of the perception that there are hidden defects or because it’s just a tougher transaction. We try to make it easy by turning on all the utilities, offering as much disclosure as we’re comfortable with, and even making repairs if the buyers request them (as long as it’s built into the price). Many buyers will look at a property when the listing says, “Not a foreclosure or short sale,” but wouldn’t have otherwise;
3. We will often do minor rehab work before we resell and factor that into the resale price. On this house, we painted the interior, pressure washed the exterior, steam-cleaned the carpets and did a general cleaning of the kitchen and bathrooms. The $2000 we spent easily came back to us;
4. Don’t discount good pictures and good marketing copy in the MLS listing. Most REO listing agents don’t spend more than 10 minutes listing their properties, and it shows. My wife takes great pictures and writes great copy; we actually get a ton of owner occupant interest on our wholesales, despite the listing saying, “Investors and Cash-Only Offers, please.” Based on the same property listed by an REO agent, most OO wouldn’t even look twice;
5. It always helps to pick these properties up when they first hit the market (or for FNMA, when they first open to investors). Oftentimes, other investors would be very interested in the property, but they just don’t check the MLS every day. By the time they see it, we have it under contract. But, had they seen it before us, they would have pursued it;
6. Because we have the cash to close on the property, we’re not desperate to find a seller like a lot of wholesalers are. I’m happy to not really market it until we own it…most wholesalers will try to market it before they own it, meaning they can’t put it on the MLS, they can’t do any rehab, they can’t get all the utilities on, etc. Time is on our side;
6. Lastly, I try to ensure that the deal will still make sense to another investor, even at my resale price. For this one, I knew that I wasn’t going to be able to resell it to a rehabber (the numbers were too thin after my markup), but at our sale price, the numbers certainly made sense for a landlord looking for a turn-key property. As long as the number make sense, I figure we’ll eventually sell it;
All that said, we’re always a little surprised when we resell these easily… 🙂
And the most important thing to us is that if we weren’t able to wholesale it, the numbers still make sense as a rehab/flip…so it’s not a huge loss if we end up not being able to find an end-buyer. Though we’ve been lucky that the 5 wholesale deals we’ve done off the MLS have all worked…so far…
As usual this is great advice, thank you very much.
I agree with your comments on pictures and MLS description. I had noticed the same thing and there are some listings that don’t even have pictures. Those are the first ones I go take a look at because I know that others will not look at them.
It sounds to me that for a property to make sense more as a wholesale opportunity rather than a flip the hassle factor should be low. Meaning that the effort and time it takes should be a lot lower than what a flip takes. So I can certainly see that if it’s going to be a quick and painless process then it makes sense to do this kind of deal.
Love the ROI! 173% ain’t bad ;).