How do you wholesale a bad deal? The reality is that you can’t really wholesale a bad deal, but it is possible to turn a bad deal into a good one.
Let me explain how by using a wholese sale real estate investing deal example that just recently happened to me:
I got a deal under contract in Baltimore for $72,000. I thought that I had gotten the property at a pretty good price, so I shopped it out to the buyers that I have in that market for $80,000 (since $72K was my price and I wanted to make $8K by wholesaling the deal). Turns out, my buyers pointed out some issues with the property, such as the fact that it was located on a busy road, and gave me the feedback that my price was too high.
Wholesaling a Bank Owned Property Case Study
The Initial Wholsale Deal Setup & Blow Up
When I went into contract on this bank owned property, I had a ten-day inspection which allowed me to do what I am going to teach you today. After getting the feedback from my buyers, I went back to my listing agent who I was double-dipping with and let him know that I could no longer do the deal at $72,000. [Double-dipping means that I went directly to the listing agent on the property instead of using my own, causing the agent to work harder for me because he is representing both sides for a 6% commission, not just the standard 3%. To learn more about double-dipping on deals click here.]
I pointed out that during my inspection, I realized that my rehab was going to cost a lot more than initially planned so I would need the property at $55,000. A few days later, the agent came back to me and let me know that he received another offer for around $65K, so mine was probably not going to be accepted. I knew at this moment that my $55,000 offer was a good one because I could easily wholesale the property for upwards of $10,000 in profit at that price.
Bad Wholesale Deal Reversal
Ten days later, my agent called me back and let me know that the other offer fell through. I knew at this point that I had some leverage, so I made a new offer of $50,000. My logic behind negotiating was that I knew the property could be mine at $55,000, but why not try to come in a little lower and make more profit? The feedback from my buyers, as well as the previous offer, taught me that I could wholesale this deal for somewhere in the $60K range, so by making a lower offer I increased my profit potential significantly!
I took a bad deal, and was able to reverse it into a good deal.
This is something I do often in markets I am unfamiliar with because even though I run my formula and check comps to get the right number to make an offer, the cash buyers in the market usually give me the most valuable feedback. I get three or four cash buyers to go look at the property and ask them what they need the price to be at in order to buy it. In the instance of the Baltimore deal, I asked my buyers if I could get them the house at $65,000 would they would make the deal. A few said yes, so that meant that if I got the house for $65,000, I would just do the wholesale myself. If I was able to purchase at $55,000, I’d be making a $10K profit by wholesaling, and at $50,000 I could make $15K on the deal.
Does this happen every time? The answer is no, but what would most Investor Buyer's do in this situation?
Probably exercise their inspection and back out of the deal. But why do that? Why not try to get the price down lower? I gave my agent legitimate reasons to decrease the price by pointing out issues and letting him know that my rehab was going to be a lot more expensive than I had originally thought. I even offered to put my reasons in writing for my agent to take the bank to show why they needed to lower their price.
You want to avoid making a habit out of this strategy because if you do this repeatedly, you will burn bridges and agents will not want to work with you. However, if you have a logical reason behind what you are doing, you too can turn a bad wholesale deal into a good one. He be sure to check out my video on how to get earnest money from your buyers when wholsaling real estate deals:
Until next time!
|Jerry Norton is 33 years old and married with 5 children (ages 10, 7, 5, 3, 2) and lives in Lake Orion, MI|
He has a Bachelors Degree in Business and is a licensed Real Estate Broker
Jerry has a been a full-time real estate investor since 2004 and just in the last 3 years alone he has done over 200 deals!
Today Jerry owns 2 real estate brokerages and usually has 10-15 fix and flip deals going on at a time in his home market of Oakland County. Jerry also partners on deals with his students throughout the U.S. He does approximately 50 deals a year earning on average 25,000 -$50,000 net profit per deal!
Jerry Norton loves to teach other investors his techniques and systems for fixing and flipping residential properties and has taught thousands of investors from all over the country. When he's not doing deals, he enjoys, boating, wakeboarding, scuba diving, coaching his kids sports events, serving in his church, vacationing and spending time with his family.
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