Flipping Houses: Running The Numbers On Wholesale Deals (Part 1)

Flipping houses is what you make of it; there is no reason it can’t be as rewarding as any other occupation. However, nobody ever said it would come easy. Even wholesale deals, what many consider to be the introductory house flipping exit strategy, require an acute attention to detail and the utmost respect for due diligence. Anyone who tells you otherwise is simply kidding himself or herself.

There is a myriad of things you must do and concepts to understand before you even start looking at potential properties. Subsequently, you must run the numbers to even determine whether or not a deal is worth pursuing. Only once the numbers make sense can you actually consider a property to be a viable house flipping candidate, but I digress. Before you can even start running the numbers on a property, there are a few things you should know. That’s right; prior to minding your own due diligence you must, well, mind your due diligence.

That said, there are a number of things you must understand before weighing the numbers against each other. The next time you consider pursuing a wholesale deal, commit to learning the following information about a property first:

What You Need To Know Before Your Next Wholesale Deal

1. Sellers Contact Information:

This one is a bit obvious, but important nonetheless; don’t do anything else until you have established a viable form of contact. However, fewer people understand how much more important it is to collect contact information once a potential seller has demonstrated a significant degree of interest. In the event a seller contacts you directly and expresses interest, you must be ready. Neglecting to do so could cost you the deal later down the road. To that point, get as much information as you can. At the very least, you will want the following:

• The owner’s name(s).
• The phone number they prefer to be reached at.
• The email address they prefer to be reached at.
• The contact information of an additional contact (if there is one).

If it wasn’t obvious enough, you need to establish how you will contact them in the future. I also like to take down notes of a more personal nature. Try to remember something about the individual unrelated to the property itself. Perhaps they have a favorite sports team or enjoy a specific hobby. Take note of their personal interests and use it to spark a conversation the next time you reach out to them. You would be surprised at how many people will appreciate your attention to detail. Don’t miss out on this opportunity to make a genuine connection.

2. Realtor’s Contact Information:

While not quite as common, there is an off chance you will be working directly with the seller’s agent. If this is the case, you will want to collect their contact information as well. Not unlike collecting the seller’s information, this is purely a means of establishing the most efficient form of contact. I recommend collecting the same information I mentioned above.

3. General Property Information:

When meeting with a seller, I strongly advise getting as much of the general property information up front. If for nothing else, you will be able to use it when running the actual numbers against comparable properties in a future step of the evaluation process I have yet to disclose. However, I can’t stress enough how important it is to verify said information; don’t simply take their word for it. With that in mind, cross-reference any information they tell you with online valuation tools, the property card and the property itself. At the very least, you will want the following information at your disposal:

• The address of the property.
• The type of property: single-family, multifamily, townhouse, etc.
• The property’s square footage.
• The number of bedrooms.
• The number of bathrooms.
• The size of the lot.
• If there is a garage or not.
• Does the property have special features like a view or good location?
• Any amenities the property may have.
• What subdivision is the property located in?
• What school district is the property in?
• Anything else worth noting about the property should be disclosed here.

4. Current Status Of The Property:

Any attempt to acquire a property so that you may flip it in the future should be proceeded by a status check. That said, it needs to be abundantly clear that the owner is either living in the home, renting it out, or letting it sit vacant. For starters, it is always easier to wholesale a vacant property. Not only can a vacant property represent a distressed seller who needs to make a deal immediately, but it also makes the property easier to show should you get the deal; there is no need to worry about people moving out and wasting your time.

Owner-occupied properties, on the other hand, will require a little more finesse. Chances are the current seller has lived in the property for a long time and has developed a sentimental attachment.

It is also possible to come a cross a seller looking to get rid of a property they are currently renting out. This situation will require you to gather a little more information: rents, lease guidelines, personal information etc.

The key is to understand the situation the seller is in. Knowing where they stand will help you when it comes time to run the numbers.

5. Listing Information:

Before you can even begin considering flipping houses, or even wholesaling them for that matter, you must find out whether or not the property is listed with a real estate agent. There is a good chance that if the property in question is listed with an agent that you will have very little contact with the actual seller. Therefore, it is worth getting to know the agent. Any communications and negotiations will likely be done through the agent. If that’s the case, be sure to collect the following information:

• Is the property in fact listed with an agent?
• Has the property ever been listed with an agent in the past?
• How long has the property been on the market?
• How much is the property listed for?
• Have there been any price drops?
• How many offers has the property received?
• If so, what price did the offers come in at?
• Why weren’t the previous offers accepted?
• Who is the listing agent?
• What is the listing agent’s contact information?
• When does the listing expire?

6. The Condition Of The Property:

Sometimes the best decisions you make involve doing nothing at all. In fact, I could argue that some of the best wholesale deals I ever made were the ones I avoided altogether. One of the most powerful assets an investor has at his or her disposal is the power to walk away. However, how does one simply know when to walk away from a deal?

For starters, you could familiarize yourself with everything I have mentioned up to this point. Of particular importance, however, is the condition of the property. Before you even consider flipping a house, you must take note of the repairs that will be needed to bring the property up to par with the others in the neighborhood. Understanding its “as-is” condition will discern how you approach the deal itself.

Understandably, most wholesale deals require a bit of work. It’s unlikely that you will find one that is in pristine condition. However, you must mind your due diligence and make sure the property is something you can work with. At the very least, you will want to know:

• What repairs are needed?
• Have any updates been made to the property in recent history?
• What would it cost to bring the property up to your standards?

7. The Seller’s Motivation:

I hinted at this previously, but understanding the seller’s motivation is vitally important to navigating wholesale deals. In fact, understanding what it is the seller wants out of a deal makes flipping houses that much easier. At the very least, it gives you something to work with, and – in some circumstances – leverage. You can argue that the best wholesale deals are the result of motivated sellers that need to get out of the property. When I contact sellers, I look for answers to the following questions:

• What is the seller’s reason for selling at this time?
• How fast does the seller want the deal to happen?
• What’s the seller’s ideal closing date?
• What is the seller’s backup plan if the home doesn’t sell?

8. The Current Debt Against The Property:

Wholesale deals are contingent on more factors than many people are even aware exist, but there is one in particular that should determine whether or not the deal is even worth pursuing in the first place: equity. It is in your best interest to find out how much equity, if any, a seller has in a respective home. That said, any seller that is current on their mortgage with little to no equity may not even consider selling. A seller behind on their payments, however, may want to create equity by route of a shortsale deal with their lender. With this in mind, it is up to you to figure out the following:

• What does the seller owe on their property?
• Are there any liens or additional mortgages involved?
• Is the seller up to date on their payments?
• If they are behind on payments, how far back do they extend?

9. The Seller’s Bottom-Line Price:

This information is important for obvious reasons. You can’t commit to a property unless you know there will be room from profit on the back end. However, the key is to get the seller to divulge their bottom-line price; the point in which they are unwilling to go any lower than. This is something you must do prior to making an offer. Do your best to get the following information:

• What is the absolute lowest offer they will accept?
• Is the price flexible at all?
• Would a cash offer make a difference?
• How did they determine their current price point?

While you may have noticed that I didn’t actually get into “running the numbers,” I can assure you this information will be invaluable when the time comes to do just that. Only once you have this information should you even consider running the numbers.

This is the first intallment of a 3 part series on Flipping Houses: Running The Numbers On Wholesale Deals.

Click here for: Flipping Houses: Running The Numbers On Wholesale Deals (Part 2)