Case Study #236: $8100 in Less Than 3 Hours
In this article I’d like to share how I followed these 6 steps and made $8,100 wholesaling a house in less then 3 hours. Recently a house came on the market for sale in an area I farm for deals. I saw it first thing in the morning at 8:00 am. It was priced at $44,900. Since I knew that area fairly well, it immediately stuck out as being a potential deal.
I noticed a comment on the listing that caught my attention – “cash offers only.” I called the listing agent and found out that the property had an old boiler system for heating but it was completely removed and therefore, without any heating system, the seller knew traditional financing would never pass. The listing agent also disclosed to me that originally the seller was going to list it for $74,900 but since only a “cash buyer” would be able to purchase it, he decided to price it significantly lower at $44,900. I interpreted this information to mean that the seller was motivated to sell this property.
Step 1 – Determine the ARV:
First, I spent about 45 minutes analyzing the after repair value (ARV). That is to say, what the house would sell for if it were totally renovated. To do so, I researched everything that was for sale on the market, pending, or sold in the past 4-5 months within a one-mile radius. I determined that the ARV was $135,000.
Step 2 – Determine the Cost of Repairs:
Following that, I quickly ran out to the property and did my inspection. After about 15 minutes walking the property and crunching the numbers, I determined it needed $35,000 in repairs.
Step 3 – Run the Formula:
Now that I had the ARV and repair cost numbers, I ran my “fix and flip formula” to determine the purchase price. The formula I used for this particular deal was: (ARV x 60%) – repairs = buy price
($135,000 x .60) – $35,000 = $46,000
Step 4 – Make an Offer:
Since the property was listed for $44,900 and my maximum allowable offer was $46,000, this clearly was a great deal. At this point it was 10 am. I immediately called back the listing agent to make an offer. I explained that I was a “cash-buyer” and would like to submit an offer on his listing.
Now this next part is very, very important. I told him that I would like him to submit my offer as my buyer’s agent so that he would gut both sides of the commission (3% as the listing and 3% as the buyer’s agent). Do you realize how motivating it is for a listing agent to get both sides of the commission? In other words, he will make double what he normally would make to sell this property. In return, I asked that he work extra hard to get my offer accepted.
My offer was for full list price of $44,900. Why did I offer full price? For 2 reasons:
1). It fit my buy formula and
2). I knew it was priced right and didn’t want to risk a higher offer being submitted by another investor.
The listing agent said he would submit my offer immediately and that we’d follow up on the paperwork later. So within 2 hours of the property being on the market, I had an offer in. About 2 hours later the listing agent calls me back and explained to me that the seller is going to wait until 2 pm the following day before accepting any offers. This was disheartening to me because I knew that would give plenty of time for competition to get in on the deal. I can’t tell you how many times I’ve gotten great deals simply by being faster than the competition.
Well, by noon the following day there were 2 other cash offers submitted and the listing agent called to inform me (and the others) that the seller was requesting everyone to submit his or her “highest and best” offers. I decided to stay put at $44,900.
Fully anticipating one or more of the other investors to offer above list price, I waited. That evening the list agent called me to inform me that the seller accepted my offer! He went on to tell me that both the other offers were over list price and one was significantly higher but the listing agent persuaded the seller to accept my offer!
Step 5 – Put Together a Wholesale Deal:
Now, having been in this situation before, I recognized that there are other investors (at least one) who were willing to pay more for this property than what I had it under contract for. Bells were going off loud and clear in my head. I waited until I had all the paperwork signed from the seller and the deal officially “locked up.”
Then I called back the listing agent and asked if I could have the contact info for the buyers’ agents for the other 2 investors that offered on the property. He gave me the info without hesitation (after all, he just made a double commission sale!).
Next, I called the agents and told them that I was the winner on the property and that I’d be willing to sell it to their buyer for $55,000. To make it worth their while I offered the buyer’s agents a $1,500 commission if they put the deal together.
Note: Don’t try to go around the agent. That is their buyer and you will have much more success getting the agent working for you than trying to go around them.
Both agents agreed to discuss it with their buyers. The following morning, one agent called back and said their buyer accepted! I requested that the buyer’s agent get me a purchase agreement and a $2,000 earnest money deposit (EMD).
Note: Always, always get an EMD. I’ve had buyers back out at the last second by not having an EMD. Also make sure there is no inspection clauses or any reason to back out.
Step 6 – Close and Collect My Check
Two weeks later was the closing. I arranged for a double closing back to back. First was my closing with the seller. Immediately after my closing was the closing from me, (now as the seller) with the new buyer. I even got the title company to just accept the cash from the 2nd closing to fund my closing and didn’t have to come with any money (Not all title companies will do this)! After paying some closing fees and the $1,500 commission to the buyer’s agent, I walked away with a net profit of $8,100.00!
Not bad for only investing a few hours and using none of my own money to make $8,100.00. Leave a comment and let me know if you’d like to learn how to do wholesale deals like this.
Until Next time, Happy Investing,
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