933 Branch Court
Grovetown, GA 20813
Monday to Friday: By Appointment
Weekend: By Appointment
933 Branch Court
Grovetown, GA 20813
Monday to Friday: By Appointment
Weekend: By Appointment
Home prices have skyrocketed and mortgage rates have doubled while rental rates lag behind. In other words, the market is crazy for real estate investors. Deals may be hard to find, but wholesale real estate can still offer opportunities to grow your investment portfolio.
In the Augusta area, where I primarily invest, real estate values have increased by more than 76% since 2017. The past year alone saw an appreciation of 20%. That level of appreciation is great for the homeowners; however, it makes adding new properties to my portfolio more challenging.
Up until 2021, I mostly purchased my investments through conventional means. However, rising prices have made it more difficult to purchase real estate that will achieve my target return on investment (ROI) for rentals. What’s worse is the uncertainty of when values will adjust as we saw in the housing market crash of 2008.
Wholesaling real estate can be profitable for investors who can find properties that will sell for less than market value. It also has a low bar to entry, requiring very little capital if not a lot of hustle.
If you own real estate, you probably know exactly who I’m talking about. They are the ones who call at all hours of the day asking if you would accept a ‘fair’ offer for your home. Feel free to read my other article, Excuse Me. Can I Buy Your House? for more details about their motivations, tactics, and why you may want to consider other options as a seller.
In this role, the real estate wholesaler–usually after many calls–will initiate an agreement with a seller of a property and then assign the purchase contract to a buyer. The wholesaler never has to use their own capital. Instead, they collect as a fee the difference between the seller’s agreed sell price’ and the buyer’s agreed ‘buy price.” Essentially, they are the middleman between the buyer and seller.
If you would like to learn more about wholesaling, you may want to consider If You Can’t Wholesale After This: I’ve Got Nothing For You, by Todd Flemming. While you are at it, you might try The Real Estate Wholesaling Bible, by Than Merrill.
As I mentioned at the beginning of this article, I do have criteria for what I consider to be a good investment. Many investors do, and they may be different from mine. For me, however, it is about cash flow and return on investment (ROI).
My target ROI for real estate is 10%. In my area, I find that I can achieve that if I can buy a property that will rent for 1% of its purchase price. So, a house I buy for $100,000 needs to rent for $1000 per month if I am going to hit that mark. That percentage puts me close to my target after paying taxes and insurance. Maintenance and fees can drive that ROI down further.
As a result of my criteria, which do not consider home appreciation, it is seldom worthwhile for me to purchase properties at market value. Fortunately, at least until recently, there have been enough fixer-uppers out there to support my investment goals. But, as that well dried up, I turned to wholesale real estate.
My first two properties were ones I purchased through conventional financing while in the military. My first one forced me to become a reluctant landlord. After the 2008 housing market crash, it was impossible to sell my house without losing money.
I turned it over to a property manager instead. The property did not cash flow, but tax incentives allowed me to reduce my tax liability and increase my tax return each year, which created a net gain.
The second property I purchased through conventional financing near the bottom of the housing market crash. My wife and I lived in it for two years and again turned that property over to a property manager when we moved. Again, I broke even with rent with an added bump from tax writeoffs at the end of the year.
For both properties, we had the added benefit of someone else paying off our mortgage for us. In turn, our properties continued to build equity.
If you are interested, I talk about these purchases and my road to becoming a real estate investor in my book.
I didn’t buy another property until I retired from the Army. It was then I decided I wanted to be a real estate investor in earnest. With my savings, I bought a townhome a real estate agent helped me find. It was an ‘okay’ deal. I paid cash, closed quickly, rehabbed it myself, secured tenants, and tried my hand at being a landlord while working a full-time job.
That lasted about six months before I decided a better move was to outsource my rental management. The 10% of rental fees that property managers charge is well worth me not having to deal with maintenance issues or tracking down rents while at work. This property came close to meeting my investment criteria.
Another single-family home I acquired was a bank-owned property I purchased with funds from the cash-out refinance of my first rental. I immediately turned this one over to a property manager who helped rehab the property and secure tenants. This property met my rent criteria even after rehab costs.
I also used financing for two properties I have never lived in. The standards and interest rates are slightly different, but the process is still mostly the same.
With the money, I gained from financing my first rental property, I was also able to place a significant down payment on another rental property and pay for rehab after financing. This property had a motivated seller and multiple interested buyers. I ended up submitting my highest and best offer, and it was accepted. I immediately turned this property over to my property manager for rehab and securing tenants. It too met my investment criteria.
Perhaps my favorite transaction to date is a deal my property manager brought to me. I had just closed on one property, and my funds were depleted from purchasing an auction property. As a result, I couldn’t afford a cash purchase.
However, he had a client who was considering a wholesaler’s offer. If the property sold, the property would have dropped from my property manager’s portfolio. So, being the savvy business guy that he is, he asked his client for an opportunity to match the offer.
He reached out to me, and I was initially hesitant, but once I heard the financials, I couldn’t say no. I called my bank, financed the property, took possession, and no rehab was required. The rent checks simply started coming to me. This property definitely met my criteria.
Having started to achieve some success with building my portfolio, I started exploring other options to purchase properties meeting my criteria. I ventured into online auctions.
I’ll admit I would like to go to some in-person auctions, but you have to miss work to go, and they require cashier’s checks to pay for the property in full as soon as the auction is closed. Personally, I don’t like pulling my money out of interest-bearing accounts until I have an actual purchase agreement. Those aspects of onsite auctions make them inconvenient.
Online auctions, however, offer a great chance to buy properties without leaving my home. I won the first auction I tried and got a great deal. Even after fixing the roof and other cosmetic problems, it turned out to be a great investment. Again, I turned it over to my property manager, and my criteria were met.
So what went wrong and why did I turn to a real estate wholesaler. Well, I wouldn’t say things went wrong as much as I needed to adapt to the market. I can’t help but believe our economy has peaked and quickly heading into a recession.
Interest rates are already at 6% and climbing. Financing now means I need to find even better deals, but housing market values are still holding strong due to lack of supply and greater competition. Even online auctions are seeing greater competition. All of which challenge my ability to meet my real estate investing criteria.
Once I realized that buying wholesale real estate might be an option, I considered my strategy. Real estate wholesalers have a similar problem as me: finding real estate deals. However, they have the added burden of finding real estate buyers. What if I just helped them out with that part?
It turns out that finding real estate wholesalers is actually pretty easy. As I said earlier, if you own real estate, you are probably talking to one, five, or a hundred of them on a regular basis already. You just need to change the conversation.
Just say, “No, I’m not interested in selling my property, but if you have any great deals in my area, I’d love to be added to your buyer’s list.”
I even went as far as to create a page that I refer wholesalers to when they call or text. I respond with this link: https://grith-llc.com/jacob-cox/you-called. At the end of the article, I provide reader’s a list of what I’m looking for and ask them to add me to their list.
Once you are on their list, you can expect to receive emails and texts anytime they have a property under contract.
It didn’t take long before I started receiving regular emails and texts about properties in my area. When a property was available, the wholesaler scheduled a 1-2 hour viewing of the property.
When I showed up, the wholesaler had arranged for a representative to be onsite with the owner, and we were permitted to wander the premises. Once I inspected the property, I decided I wanted to make an offer. I sent it that night. We went back and forth a little bit as the real estate wholesaler weeded our offers, but eventually, mine was accepted.
I signed a seller’s agreement that included the following:
The wholesaler next connected me with the real estate closing attorney, and her assistant helped me make arrange the payment of my earnest money.
Closing proved a little more difficult to narrow down. My wholesaler was not great at communication. That left both me and the seller guessing about the actual closing date.
We still ended up closing within 30 days, but the actual date remained anybody’s guess for a couple of weeks. At one point, I was notified that they were ready to close the following day. Of course, I still had not received my closing documents for review or the amount I need to transfer.
The uncertainty forced the seller and me to stay in contact throughout the process to ensure we both had the same information. As the saying goes, trust, but verify. Inevitably, our closing arrived, and once the seller received his check, I made sure to get a digital copy of my deed while waiting for the records to be filed.
I owned a 3bdr/2bth property with a large, detached garage on six acres of great real estate in a prime location. However, the seller still needed more time to get his belongings off the property. As it happened, I was going on vacation, so I let the seller have until I returned.
While traveling, he did manage to complete his move, but he left a lot of stuff behind. That is one of the drawbacks to buying a wholesale real estate property ‘as-is.’ Still, it wasn’t anything a dumpster and a weekend of labor couldn’t fix. Now, it’s time to turn the property over to the property manager for rehab and new tenants.
This property doesn’t quite meet my investment criteria for cash flow, but I have six acres of real estate that offer me some additional investment opportunities. I also have substantial equity in the property.
Looking for some books to help kick off your real estate investment portfolio? Here are some books I’ve found helpful.
I’d love to hear about your criteria for finding great investments. Did you use a wholesaler? Are you a wholesaler? What other questions do you have about purchasing wholesale real estate?