So, a couple of weeks ago I gave you a peek inside my Saturday as a real estate investor. I ran four appointments (to buy investment houses), and bought three of them. This was a real estate investor’s dream! I bought three Ugly Houses in one day.I already told you about one of them, but thought I would tell you about the other two. If you haven’t read the first part, check it out here. Real estate investing is heating up, if you are considering it, now is the time.
The other two houses I bought that day were in the same subdivision in Desoto. They were interesting houses. Both were three bedroom, two bath, two car garage brick houses. They were excellent rent house candidates. Resale prices in the sub-division were capping out around $100,000, but rents were still around $1,200 a month. This rent to value ratio is attractive to most of my clients. One of the houses had a pool, which had me a bit leery.
At this point, I have to stop telling this story. I must do so in order to point out the role of supply and demand in the evaluation process. You see, this situation made me consider the exit strategy prior to making an initial offer. These houses did not fit any of my strategies other than wholesale. I had to stop, and think about my buyer. Here is what I determined:
- The potential wholesale buyer that would pay the most would be a landlord. Why? The rent to value ratio was high.
- A landlord would not want a pool. Why? Liability.
- I could charge a premium to a newer landlord. Why? Immediate economies of scale because of the houses being in the same neighborhood.
- Both properties from the same family meant both houses needed to be sold to the same buyer. Why? Only one client to manage as a seller, and only one as a buyer. Simplicity is worth a discount at times.
Now, on to the story. I evaluated the houses, and estimated they needed between 20,000 and 30,000 each. The combined value was about $200,000. I made my offer based off of my calculations of what a landlord would pay for the houses. I included demolition of the pool, since I knew my end buyer would not want it.
I made my offer. The offer was presented as two separate numbers. One for one house, and another for the other. I did it this way, because one house belonged to the mother of the lady I was meeting, and the other house belonged to the mother of her husband. At the end of the day, that told me (although I had the executor of one estate, and executrix of another present) two different families were involved.
The family left with my offers (they said they were a little low), but ended up accepting them within a week. I followed up, and explained the offers fully. Again, I was completely open, and honest. I didn’t fake a thing! Do you have any questions?
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To not offend the two parties, do you let them know upfront that you plan to sell to a landlord or was there a way of presenting the offer without revealing your exit strategy?
I never really discuss my exit strategy when wholesaling. I always discuss what what my end strategy would be if I closed on the property.