Prepping Properties for ‘Wholesale'
Most of the time we are able to sell properties out right to another investor, as-is. Sometimes however, we have to put some additional cash and work into a property to help the buyer / investor purchase it. Here are a couple of ways we have done this.
We have completed "pre-habs" on occasion where we have put limited finds into a project to help an investor or buyer obtain the appraisal they need for their preferred financing. Pre-Hab is just a term we use implying that we are making minimum rehabilitation efforts to a property.
These days, most investor financing requires that a property have working plumbing, a decent roof, and an operating furnace. This is a big change from just a few years ago.
Rehab to Rental Standard
"Rental Standard" to us is a property that is clean, safe, secure, and functional. It is far from fancy and may in fact show some wear and tear around the edges. It will be to Section 8 standards - but no more. It has to rent for a fair price. We do not expect a premium.
Rehabbing a property to this standard should allow us to sell the property for 75% to 80% of appraised value. This allows the investor / purchaser to obtain favorable financing, some equity, and positive cash flow.
Sweat Equity' Wholesale Deals
Another strategy is to allow the investor/purchaser access to the property prior to purchase so he or she can get the property to a point where it can be financed. This way they can customize the rehab so it conforms to their lender requirements and / or exit strategy. If they fail to perform, the improvements stay with the property.
Land Contract Wholesale Deals
Sometimes it makes sense to sell a property that needs work to another investor via land contract. Houses that will not finance without work are great candidates. Any work done stays with the house if the buyer fails to perform.
Land Contract Wholesale Case Study
I have actually done transactions like this with friend of mine who has properties in the city that he does not have the time to rehab. He wanted to get a few off his books so he was willing to sell these with very favorable terms. Below is an outline explaining how a typical deal is structured.
West Washington Street - Springfield, Ohio
This was a single family home needing just about everything. The seller purchased it at auction for the equivalent of back taxes.
- Purchase Price: $4000
- Down Payment: $1000
- 6 - Months with no payments in order to have some time to rehab.
- 30 month land contract at 7%
- Monthly principle and interest payment = $109.30
- I estimate the property will cost $16,000 to rehab to a rental standard including materials and labor for my employees.
- Property will rent for $550 / month.
- The initial mortgage will be paid off in three years or less.
- Conservatively, I will recoup my entire investment in five to seven years.
- No bank, no closing costs, few hassles.
The seller is happy, I am happy. These numbers are small, but the principle remains the same. If you have a property that you are struggling to find a suitable cash buyer for, consider offering it to a fellow investor as a land contract purchase.
For more information about wholesaling properties to other investors, as well as our complete plan for listing and selling investment property, both retail and wholesale, email me for a FREE copy of The Help-U-Buy WayTM, from our forthcoming real estate independent study series The Focused InvestorTM.