Stop Shooting From Half Court and Start Making Lay-Ups: Picking Better Wholesale Deals
If you are out hunting for wholesale deals and think that you are finding really great stuff, yet you can’t seem to get other investors interested, then maybe your deals just aren’t good enough.
We see many deals come across our desk that really are not investor friendly, though they may have some equity in them.
Two of the big mistakes that we regularly see are deals above the median price range and deals that lack at least 30% or more of a discount.
First off, occasionally you may find a really stellar deal that is above your market’s median price, but generally speaking, most investors aren’t interested in going into this higher price range. If they are, the discount needs to be significant. Think of it this way: if they are looking for a long-term rental, then higher priced properties are much less likely to cash flow. If they are looking for a fix and flip deal, then there needs to be a healthy cushion of equity in the deal for unexpected costs in repairs, longer than anticipated holding time and of course their profit. Especially in the current market where prices in some areas have dropped dramatically, investors don’t want to get caught in the upper end of the market with properties that are no longer worth what they used to be.
Second, having an adequate discount is essential. If you were trying to wholesale a house worth $200,000, then at the very least, an investor would like to pick up that deal for $140,000. A larger discount is always better and makes it much more likely that your deal will get scooped up quickly. Also, remember that in our current market, you can’t rely on the price that a property sold for two years ago or even last year. You need to be sure that your equity assessment reflects current values.
So, a $100,000 discount may sound really great to you, but if the house is worth $600,000 very few investors will want to take that on. Trying to wholesale upper end properties and/or properties that lack a 30% or better discount is like taking shots from half court. You might land a rouge shot, but it’s going to take a ridiculous number of attempts to score that way. Instead, I recommend that you go for the lay-up. It’s hard to miss when you pick the right deals: greater than a 30% discount and below the median price.
Until my next post,
James
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