Deal #3 Update: Every deal has it’s own crazy, But CHA-CHING!!

Scott Costello All, Blog, Featured, Lessons Learned 10 Comments

My partner and I have now officially wholesaled our second property!!  The timing of this deal is another reason why having a partner is worth it’s wait in gold.  I couldn’t imagine trying to work this deal while my life was changing with the birth of my son (that still gives me goose bumps saying it, my son!).

While this deal closed on schedule, we did have some ‘oh shit’ moments as we approached the closing date. …

First the title company took 2 weeks to get everything completed and that wouldn’t have happened if my partner didn’t discover that the person/company we were dealing with was actually farming out the title work to another company.  When we found this out, we went directly to this other company to push it along.  After doing a little research, we found that the lady who we were using (who ran her own title company) had recently needed to take a second job and only was doing title work on the side (read: not first priority anymore).  We will be using another title company in the future.

Second issue was even more fun (at least for my partner).  This deal mainly involved 2 people, the executrix (who was the wife of the deceased son) who lived in Wisconsin and a son who lived in Pennsylvania.  As part of the agreement, the son had until March 19th to remove any thing from the house that he wanted.  After the 19th, our buyer was allowed to pick through the left over stuff and take what she wanted.  She was going to use some of the furniture for her staging business.  We would then close on the 26th.  Here is what happened…

March 19th – Son never showed up to remove items, executrix gave our buyer the go ahead to take what we wanted.

March 21st – Our buyer brought in some u-hauls and took quite a bit of furniture and other things.

March 23rd – Son shows up at the house. Freaks out because all the stuff is gone and starts phone bombing my partner.  He threatens to call the cops saying we stole the stuff even though we got permission from the executrix.  After speaking with the executrix (who can’t stand the son by the way) and our buyer, we all decided it was best to return the items.  Thank god we had a great buyer!!

Only problem was that the stuff was all over the place by now (in a few houses for staging and in a storage facility)  Our buyer refused to meet this guy at any of the houses so she gathered the items and trucked them back to the house for the crazy son.  However the items in the storage facility she was not going to truck back and the son had to go pick it up.  Our buyer said that if all the items are not gotten by closing, she was not going to release the money to buy the property!! and closing was in 2 days.

Luckily the son showed up 2 minutes before the storage facility was locking up for the night on Saturday and got all the items.  Our buyer released the funds and we closed on schedule the day after.

March 26th – Closed!

Needless to say we learned a few lessons in this deal…

Lesson #1: Never remove anything from the house before closing.  Even if you agree to it with the seller.

Lesson #2: Stay ontop of your closing company, call them every day until it’s completed.  It’s our job as wholesalers to keep the deal moving along.

Lesson #3: Every deal has it’s own crazy!

Deal Final Info & Numbers

 

Additionally we estimated Repair Costs, Arv and Rents as…

  • Repair Costs: $35k
  • ARV: $160k
  • Rents: $1,400 to $1,500
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Comments 10

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  1. 15K is a nice profit for a wholesale deal. Congrats!

    If you are like me, you are always wondering “what if”. So, if you don’t mind my asking, how much would it have cost to fix this house, and what would it have sold for? Also what would it rent for in good condition?

    Be interested to see the numbers.

    Chan

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  2. One more lesson Scott. Get everything in writing. If son was not the exector and the actual exector had given you the go ahead, the son would have just been out of luck if you had that in writing.

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  3. thanks for providing those numbers. looks like your buyer will make a good profit, with 95 in after repairs and a resale price of 160…a 50K hit for her. so, i am curious…why didn’t you keep and fix it yourself? yes, i know you have a full time job and a new baby, but you could always hire a contractor at cost + 10% to run the job for you. and even borrowing at hard money rates, you could have made at least double what you made.

    but, of course, the big money is in keeping the property. think about this…if the house rents at 1400 a month, and you only had 95 in it (your purchase price + 35 in repairs), it would yield an 11.5% return, cash on cash, after allowing for 35% of the gross rents to disappear to expenses (taxes, insurance, repairs, vacancy). could you borrow 95K at less than 11.5%? if so, you would have cashflow. that cashflow would be taxed at passive rates (ie about half what you will pay on your flip profit), you will have depreciation to offset other taxes, and you will capture all the future appreciation of the house. if that house grows at 4% a year (very conservative) it would be worth $192K in 18 years, taxed as a long term capital gain. you would clear enough to pay for your new son’s college education. from one house.

    the property you used to own does not make you rich! 😉

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      You bring up some great points about how we can make more money off of the deal. The extra money would be wonderful, but in order to earn that extra money you have to take on more risk by taking out a loan, and taking the chances that there are no “Gotcha” problems in the house that are only uncovered after renovations begin. Eventually my partner and I want to fix and flip a house, but at the current time we are not prepared to take on that increased risk. We have talked about it already and with each house we get under contract we’ll have the discussion. I will say I like making 15k in 3 days 🙂 That is good money for the time spent.

      As for holding the property as a rental, I’m up in the air about being a landlord. Sure I could hire that job out as well, but then I have to manage the property manager. Plus this particular property was well over 90 minutes from where I live. That would get old quick. If I found the perfect property then I would really have to consider being a landlord though.

      I really appreciate you breaking down the numbers and showing me and everyone else that there are other options then just wholesaling a property. Makes me think about it even more.

      1. good and valid points, scott. lots of folks start off as flippers and slowly move in to rehabbing, it’s a natural transition. and with the property being so far away, i probably would have done exactly what you did. i generally won’t take on any property that is more that a 30 minute drive from my house.

        let me strongly encourage you to wrap your mind around being a landlord and start buying rentals. it’s where there real money is in this business. people avoid rentals because they are scared of tenants, but i can tell you from years of experience, there are ways to make landlording simple and easy. the current market is a goldmine for true investor (ie long term keepers vs flipping, which really is not investing…it’s speculating). and the future inflation that we can reasonably expect will be very good for keepers. google “warren buffet single family house” to see what the sage of omaha has to say about it!

        cheers,

        chan

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          I will admit that the horror stories, pertaining to tenants, you read/hear about scare me a little for sure. I can’t argue with you though that the real “passive” income when it comes to real estate is in rentals. Wholesaling and Rehabbing is a lot of work and constant. You have to keep hustling or you won’t make any money. On the other hand once you have a rental and a good tenant in place, you’ll get a rent check even if you go on vacation for a month.

          I’d love to have a handful of free and clear rentals (with good tenants).

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