Real Estate Articles

Why You Can’t Sell to Every Buyer… | By: Multiple Speaker(s)

Upcoming Events with: Multiple Speaker(s):
Why You Can’t Sell to Every Buyer…
By Vena Jones-Cox

It’s a frustrating thing when you’ve put a wholesale deal under contract, have evaluated it to the nth degree, and then get told by a buyer that “It’s not a good deal” or “I’d never pay that much for that house”.
Yet it will happen to you, over and over again, even when you’re a REALLY GOOD wholesaler, and here’s why:
Despite the fact that we use the same set of formulae (After repaired value x 70% less repairs for retail deals, After repaired value x 60% less repairs for rental deals), buyers are not some monolithic group that all have the same costs, the same profit requirements, or the same rehab standards.
Yet when we make offers, we can’t do so to satisfy the needs of ALL buyers, or of particular buyers—we have to shoot for a number that makes sense to a lot of buyers, but not to the pickiest or to the ones that have the highest costs.

Let’s take an example of a single retail house that’s worth $100,000 fixed up and needs $20,000 in repairs. As a wholesaler, you’d want to pay around

X .7
$50,000 (your sale price)
-$7,000 for your profit
$43,000 offer.
Now let’s look at how 3 different buyers—all based on actual buyers I know—might view this same deal.

Buyer #1 is a retailer who buys and sells about 4 houses a year. He uses hard money to close and rehab his deals, an agent to sell them, and contractors to do all the work. He wants to make a minimum of $20,000 per deal, so he’d do his calculations like this:

$100,000 sale price
-$20,000 profit
-$10,000 sales costs (6% commission + 4% for buyer concessions)
-$20,000 repairs
-$6,000 holding costs
-$8,750 finance costs (15% interest + 5 points on $70,000 borrowed)

$35,250 maximum allowable offer.

Clearly, for buyer #1, your $50,000 deal isn’t good enough.

Buyer #2 is also a retailer, who buys and sells 6 houses a year. He uses a mixture of contractors and his own labor, borrows private money at 8% interest with no points, and sells most of his houses himself. He also wants to make $20,000, but he’d calculate his MAO differently:

$100,000 sale price
-$20,000 profit
-$4,000 sale costs
-$15,000 repairs
-$6,000 holding costs
-$2,800 finance costs
$52,200 MAO.

For this buyer, your deal looks really good.

Buyer #3 is a high-volume retailer. He uses contractors to do all of his work, and does a higher level of work than the other buyers. However, he’s also able to sell his finished properties at about 5% more than “market”. He’s a licensed broker who lists his own properties, thus paying a 3% commission rather than a full 6% commission, finishes and sells his properties in an average of 3 months, borrows money, at 12% interest, but has a profit goal of $15,000 per property. His calculation would look like this:

$105,000 sale price
-$15,000 profit
-$25,000 repairs
-$7,350 sales costs
-$3,000 holding costs
-$4,200 finance costs
$50,450 maximum allowable offer—right on target with what you’re asking.

The moral of the story is, as a wholesaler, you can’t and won’t satisfy all of your buyers with all of your deals. And it’s not because you’re doing anything wrong—it’s because your buyers have different needs and desires. Don’t take it to heart if a particular buyer tells you a particular deal isn’t a good one: what he really means is that it isn’t a good one TO HIM.

Reprinted with permission of Vena Jones-Cox. To get more free articles and tips, subscribe at  (Akron Canton Real Estate Investors Association, Inc.) does not give legal, tax, economic, or investment advice. ACREIA disclaims all liability for the action or inaction taken or not taken as a result of communications from or to its members, officers, directors, employees and contractors. Each person should consult their own counsel, accountant and other advisors as to legal, tax, economic, investment, and related matters concerning Real Estate and other investments.   

Your email will never be shared or sold to other members, vendors or any other third party without your consent.

Contact Us:

Akron Canton Real Estate Investors Association, Inc.

P.O. Box 176
Kent, OH 44240
(330) 858-0456

Proud Affiliate Member of Think Realty

Follow Us

  • Copyright 2020 © Akron Canton Real Estate Investors Association, Inc.  All rights reserved. | This REIA Website is powered by: Real Estate Promo