Matt's Army

Carl, I agree with your statement!! I also found out that the 70% won't work in my area. I guest we are going to have to wait for another book to come out to see how to get to the correct percentage. Seeking the truth lies within oneself.
Raymond

Hey guys,

I'm new myself but I will try to clarify what they are saying. Yes it's make offers at 70% of asking price. But remember these are properties that already discounted because they need work or the sellers are motivated.

So lets look at it like this. At full retail value (ARV-after repair value) this property X is worth 100k. Right now it needs work and is listed at 70k to reflect the needed work. So you come in and offer 70% or the 70k. So you take 70k * .7 (70%) which is 49k and offer them 49k for the property they have listed at 70k.

So when you market it to your buyers you tell them the ARV is 100k. It needs 20k worth of work (you have to inspect this yourself after it gets accepted or have someone from your team ie. a contractor do this). You also tell them that you are looking to get say 55k for it.

So 55k (asking price) + 20k (repair/rehab cost) = 75k total investment (for a completely finished house ready to rent)that is worth 100k now.

So subtract your 49k you offered the property owner from the 55k you get from the new buyer and that leaves you with 6k profit. You make some money, the existing owner gets to sell and the new buyer gets a house fully redone at 75% of RETAIL value (not foreclosure values).

So when Dean and Matt say just get in a little lower than foreclosure prices... look at it like this. In the example I went with the assumption that foreclosure prices are 70% of Retail prices i.e. 70k list ARV 100k.

But, in your area foreclosures might be listed at 50% of Retail. i.e. listed at 50k for a house that has an ARV of 100k. So then you just need to get it a little lower than that (50k) price. So start your offers at 70% of 50k.

Or maybe where you live foreclosures are listed at 80% of ARV i.e. listed at 80k for a house with an ARV of 100k. So you would need to make offers at 70% of the 80k to get under what others are paying for the same properties.

I realize that they are different (when comes to the amount of profit you can make). I.E. lower you can get it from ARV the more potential everyone has to get a better deal including yourself. You can still make money either way but maybe you only make 3k when they are listed at 80% instead of 6k when listed at 60% of ARV.

The principle of both are the same. Get properties for a little less than what the average buyer is getting them at. This is where you make your profit.

I want to stress this point. When marketing to your prospective buyers DO NOT ask for a price that is more than what it is listed for or that could buy it for themselves. They won't buy it nor would I. They have to be able to get it below what the current prices are going for to make it a deal for them. But, you still have to have room in there for your profit.

I hope this helps, good luck everyone.

Jason

Jason, that was an excellent explanation!!
Thank you
Raymond

I was wondering as well, but made the.70% offers this morning for 17 properties.
Will see

That was a very good explaination

I appreciate your explanation; however, in my location that is not reality. Most Sellers (MLS, Bank Owned, FSBO, Absentee, even owners of war zone properties) are demanding close to asking, and setting their prices at or above market/ARV. Don't get me wrong, I extremely optimistic about the wholesale model, but properties in my area are not "at" price points you find in the Sand Belt (Florida, Arizona, Nevada, or Califronia) or in the Rust Belt (Philly, Ohio, Michigan, NE, or other industry-high inventory cities/towns).

If a property here has an ARV of $100K, the Seller is usually looking for about $90-$95K (sometimes over $100K). I can get these properties for $70K! The next problem becomes the Buyers. They are looking to buy at much lower levels....closer to 50% or lower. I have had several tell me not to contact them unless I control a property at 50% or lower. BTW, I have tied up several, left a lot of meat by only looking for $1K to assign, and have still been left at the alter. Sorry, it all sounds good on paper, but the formula doesn't always work. I stopped counting how many offers I've made at 103.

I'm not quitting, that's why I asked Dean or Matt if they are interested in inveting in this area, because this area was not hard hit by the housing crisis, the properties here are maintiaing or increasing in value. That's why I'm looking for outside Buyers/Investors. I can lock them up all day at 70%, but can I assign the deal?

What you said does not make sense as far as the laws of supply and demand are concerned.

Investors only buy at 50% or lower and these deals don't exist.
Houses are only selling at 70% or higher.
This means Investors are not in this market at all right? They simply don't buy there. I don't buy that idea for a second!! You are doing something wrong. Or YOUR buyers are not real investors. Wrong area, wrong type of property. ARV is too high. If the market dictates a 70% buy price, real investors WILL PAY 70%, period.

Time for a re think of your strategy.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLc

I also appreciate your comments, but since you don't live here, I really don't think you can assume I'm doing anything wrong or that what I stated is equally wrong (I have no reason to exaggerate). I have followed the basic wholesale model very closely.

As a matter of fact, after I sent my last post in response to Jason, I pulled up all the properties I've bid on in the past, and looked at the Market Values vs the Asking/List prices in order to confirm in my mind what I said. I "can" get properties at 70%, but I can't assign the contracts...sorry but that is the ground truth here.

The reason you don't want your first offer to be accepted, is if they accept the first offer it wasn't low enough. As far as the earnest money, you don't put that down until it goes to contract, not before.

As far as making a mistake, here's what someone once told me. "If you don't fail at least once a day, you're not trying hard enough." Don't let fear stop you, you can do anything you set your mind to!!

Live abundantly!

I am actually working with several investors in Alabama. Properties are being bought and sold. So I don't know what to tell you. I know Montgomery is not far from Huntsville. Birmingham is also pretty active. we are offering and getting our offers accepted at 65% of ARV and moving them at 70% of ARV. Minus repair costs of course. So some times 40% of ARV! Like I said, you can not stick to a model that does not work! Something is being done wrong in your MARKET. Once again, if you can only get properties at 70%, investors are paying that OR they are not in business in that area, Period. I did not mean that you are doing something wrong in a negative fashion. Just a fact. OR change investing locations because NO ONE is buying there!
Asking prices in most cases ARE the market value. You can say the market value is this or that but if it is not selling at market value, once again the MARKET tells you what properties are worth. Comps sold in the last 90 days, currently listed and currently under contract comps will tell you what so called "market value" is. When determining ARV you must look at re modeled comps that are like the properties you are trying to wholesale.
One other thing. If you are offering at 70% and getting deals excepted left and right like you say, YOU ARE OFFERING TOO MUCH! Drop it down to 65% and then 60% if your offers keep getting accepted. Once again, you will be letting the market determine what is what!

Good Luck!
Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

There are great deals to be had in Montgomery (3 hours away from my location) and Birmingham (two hours away); however, I have a full time job (40+ hrs) and a family to support, so I don't have time to run up and down a highway in search of properties....and no I don't know anyone on the ground.

Birmingham is part of the Rust belt and there are houses (3/2s/1000+ sqft) going for under 10K, and HUDs are outrageously cheap. Some of the factories in Birmingham have closed down and the dense population there has created a bonanza of cheap house...oh btw, Jefferson County (B'ham's area) declared bankruptcy late last year. Montgomery is in the same boat (more like a sand belt area), there are large pockets of abandoned houses and you can get the same prices, or better, as B'ham.

Huntsville, is located near the Tennessee border, has a military base that is growing, a stable defense industry, and a lot of paying jobs. Here is another tidbit: rental vacancy rate in B'ham is 15.88%, vacancy rate in Huntsville is 9.89%.

Michael, I've done my homework and have worked hard. I've gone above 70% and gotten burned by the Sellers, and have gone well below 70% (~50%) only to either get no response, or a flat "No" from Sellers. And I've offered all between 50% and 70%, so I know where the sweet spot is.

That is why I asked the original question to Matt and Dean. Since the Buyers here are looking for ridiculously low ball deals, it is difficult to get what they want. So I've decided to look for out of town investors, because I can find tenant-ready/turn-key properties for 70%.

Hi Raymond, don't be discouraged if these models don't work in your area, I certainly am not. I believe that we have to find out what works best in our own areas. I often find myself dubious about the next book that comes out too. Not long ago, I bought into a course from a guy in Florida who also offered "no miss contracts"...his contracts were for the State of Florida. Bottom line my friend, we have to find out what works in "our" areas and start from there.

I think the bottom line to what M. Mangham is telling you is that you may need to rethink your strategy for your area. My guess is that if investors are buying at retail prices, they are most likely not looking to wholesale the prop but use it as a cashflow prop or a lease/ option prop, etc OR the people buying in your target area are not investors. (Which I doubt btw) Best way to find this out is to ask your buyers what they intend to do with the prop so you can find them a good fit for that strategy.
In a buyer's market, a truly MOTIVATED seller is going to sell at below the "norm" so that they can be out from the debt or burden. The problem might be that you are not finding truly motivated sellers. Not everybody is motivated to sell so you need to refine your filter to find the really motivated.

I have the same problem here in FL. Most banks are not working with borrowers and have recently stopped working on shortsales pretty much. Where I'm at, the owners are longtime owners and holding on to props until they die and the family doesn't want it. Most FSBOs are underwater and with the banks not helping, not much else we can do for them. Foreclosures are over 300 days from filing to eviction in most parts of FL so there is no urgency from pre-foreclosure people. BUT, Buyers are still buying and the proof can be found from the recent solds list through the MLS. So you should regroup and figure out how to become part of the package. From what it sounds like, you need to hunt for more motivated sellers and a new group of real buyers that understand the market or are buying TODAY at today's pricing. I refer you back to the cash solds list from the MLS or the county courthouse. Those buyers are the ones you need to go after. If they are getting deals at 50% so can you,(with the right sellers.)You can find out how they did it from the listings or from the listed seller at the courthouse. If they are paying 70%, you know they are full of BS when they say they will only buy at 50% so scratch them from your buyers list and go find some real buyers.

I leave you with this: There are so many areas in this country that real estate is making people a nice living. If your area isn't making it for you (like mine isn't for me), you might want to think about expanding your area of interest. Just a thought.

Hope this helps...

Andy Sager
DG's AndyS
CFIC member

Sounds like Huntsville is a great place to invest. Vacancy rate below 10%. Better than Montgomery and Birmingham. Despite what you have stated about the two areas, people are buying houses. Do some research on the number of solds in those areas. Sounds like investors ARE getting cheap rentals and fix/flip in those areas.
Birmingham's bankruptcy was the largest is US history I believe.
Are you familiar with Trussville??? Very low average DOM. Properties available at 65% of ARV minus repairs. I know this to be a fact.
What were the number of solds in Huntsville in the last 90 days?
If your area won't work (not likely) and if changing your strategy does not work, you will have to look elsewhere or give it up.

If there is a "sweet spot" your investor buyers have to work with in that spot also, that's why what you say does not add up UNLESS there are no investors buying there, then you must go elsewhere.

Keep working it!

Michael

Thanks for the comments. I've done just about everything you mentioned and a little more, except expand out of my area. I have a full time gig and a family to support...I'm not putting that in jeopardy to run up and down the highways and byways.

I actually believe that my town is about to turn the corner and become a "Sellers Market"; however, it's not there yet and there are still some diamonds in the rough. That is why I am in the midst of changing my strategy to trying to find "out of town" investors who want turn-key rentals. Thanks!

Appreciate the comments. I will continue to march until I find out what works in my area. My primary thesis is that the wholesale thing is extremely hard in my area because the market conditions and inventory are somewhat stable.

I am also aware that we only know what we know. I could be missing the whole forrest, but I have to tell you that I constantly back-up and look around to avoid tunnel vision. I ask a lot of questions and speak to a lot of investors, realtors, sellers, and other real estate savy folks in my area, and they all seem to have a similar opinion. However, I don't talk to everyone and can be missing something.

This is why I'm in the midst of changing my strategy to find out of town investors. Thanks!

No need to jeopardize the family but here's a way to incorporate family time with working time. As I stated in my bio, my Mom was a RE agent when I was growing up. My Dad had a 9-5 in another town which he commuted to by train 5 days a week. On the weekends, to help my Mom, they would pack my sister & I up in the car and we'd go for a ride. Then when we got to our destination, the game was for my sister and I to find as many for sale by owner signs as we could. (Hey, we were young and naive, what can I say? LOL) As I got older, I realized that this was lead generation for Mom but so what? The family was together, we weren't "stuck" in the house and we were having a good time. We'd eat at the "Golden Arches Supper Club" (My parent's name for McDonalds) which was a treat and most of the time,we slept on the way home. Maybe, you can do this as well with your family and take them to another town to scout out the area. Just something to think about.

I don't believe a seller's market is a good thing for a wholesaler which makes me question your staying local. ( Why look for the 1 in a million when you can look for the 1 in a thousand?) That being said tho, if you have rental props under contract that are cash flowing, why aren't your local buyers buying them? Out of town buyers are going to ask this question I'm sure.
Just some things to think about

Best of luck,
Andy Sager
DG's AndyS
CFIC member

What Matt said was to make offers @ 70% of the asking price.

Also keep in mind that you have already screened the properties that you have made offers on. They must also, at a minimum meet the following:

- has had a price reduction
- being sold "as-is" (needs work)
- properties are vacant

in addition you are looking for addition keys in the notes section: diamond in the rough, handyman, TLC...etc.

Hope that helps!

Thanks again, the rentals aren't selling because the local buyers want them at 50%; hence, the reason I'm reaching out to out of town investors. There are a good number of available properties, but the Buyers' criteria here are unreasonable - at least the Buyers that I have met.

Thanks, I fully understand the checklist of items Matt was talking about. There are plenty of properties that meet the criteria he is talking about, the problem is finding local Buyers willing to pay at 70%. Most, if not all, of the Buyers I have met are looking for ~50% to ~60%. The Sellers are rejecting these kinds of low ball offers. I can get properties under contract at 70% of asking, but I have been having a hard time assigning the contracts because the local Buyers want a deeper discount. That's why I posed the original question to Dean and Matt, asking if they want to invest in this area, or can they point me in the direction of someone else who may consider buying in this area.

as in every industry, it is the difference between the pros and the new kids on the block.

I agree....the "so called" pros always think they know what they are talking about...even when they have never put a foot on the ground being talked about.

Did you come up with the number of solds in the Huntsville area in the last 90 days? Which ones were investor properties? How were they fixed up? Were they sold higher than what the comps reflected? What were they purchased for?

Also, determining a real estate market is the same all over the country. You just have to have the ability to determine what the market is in your location. This is established the same way everywhere. And of course the numbers ans spreads that you determine must be accurate. Also, your buyers must be real investors.

Bill (trustpoint) could come into Huntsville and know exactly what is going on in about 3 days. Maybe he will find that you can only get properties at 70% of ARV minus repairs and NO investors are doing business there because they only buy at 50% of ARV. Properties are only selling to owner/occupants and he might
leave town too.

Don't give up and always listen to people that are trying to help you.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

Carl,

You're history so far in Huntsville certainly presents a challenge to find or create a niche, and I'm sure you will. It may seem you're beating your head against the wall, but everyone here is trying to help.

Initially, I was thinking it was just a matter of looking at asking vs ARV, like Jason said, but I see there is more to it. Impossible though? No-- there is a niche, and I believe you will uncover it.

Maybe step back and look broader, absorb all the tough love here and maybe you'll get an AHAH!

Keep going!

-Tina

In the last 90 days ~108 (3BR/1+BTH/1000-3000sqft) homes were sold. ~65 were sold to Owner/Occupants (~86% - 101% of asking); 35 were Cash purchases with an average purchase of ~53% of asking.

No information on fix-ups yet, or if they have sold since. On average, the buyers here put about $15K - $20K in repairs to re-sell.

The formula that most of the Buyers use here is: ARV X .7 - Repairs ($12-$15per sqft) - holding - profit - closing - my fee.

Michael, I always listen and I always absorb everything I take in from conversations. However, comments like Trustpoint's are unnecessary. I appreciate the fact that you at least challenge by asking for real data. Thanks!

Respectfully, Carl

Thanks, challenges are only things to be conquered....even if the head-to-wall banging gives me a migraine. I will keep going, and I will find my niche. Thanks!

- Carl

Are the best ones.

They are designed to fire you up and motivate you.

Don't get mad, use it as fuel for your fire!

You can do this!

Lane, I must respectfully disagree. Constructive comments, like those of Michael's, challenges me to think and look at my data. Cattle calls like Trustpoint's only adds to the remarks I get from the wife that I "need to stop dreaming and chasing a fantasy" or the out-right demands she's making on me to dissolve my LLC.

I know I can do this...just trying to find a path. That is why I asked the question that started this string.

Thanks!

- Carl

For a newbie you did and excellent job of explaining that.

Thanks,

Thanks, Doug!