So, in my last post, I shared that I was thinking about getting into real estate for some part time income, or possibly as a full time career. I've been watching a friend of mine who is doing real estate wholesaling, and it might have me second guessing my decision making. He owns a We Buy Houses company that buys homes in Cincinnati and Northern Kentucky.
It seems that while the television shows make it look easy to make $50k in a half an hour, the reality is not quite the same. To be a real estate investor, you have to be a massive problem solver. And, you need to have a think skin because until you get to that closing table, so many things can go wrong.
Here's an example.
My friend got a property under contract from a motivated seller. When the seller called, it was actually the sister of the owner who said that she was the power of attorney for her brother. He owned several properties, and they were looking to liquidate some of his assets for an unknown reason. Ok, sounds good, right? Well, that's the first step.
So, he gets a building under contract that seems like a good deal. Yes, the building has been abandoned and needs a LOT of work, but for $20k, there should be room for another investor to buy it, do the entire rehab, and still make profit for both the flipper and my friend, the wholesaler.
Once you get a property under contract, the next step is to market it to investors. My friend has a few buyers who he normally goes to, but since they do mostly residential, they didn't want to buy this property because it was a street retail commercial space with an apartment on top. So, he marketed it on other channels - Craigslist and Zillow.
Turns out, another buyer came into the picture, and it was an older couple. They were looking to retire and open up a little shop of their own. So, this space worked out great as they could do the rehab the way they wanted. After negotiating, my friend was then able to get it under contract with these new buyers and the spread would be his profit.
Everything is moving along nicely. He sends the contracts to a title company, and they come back with a clear title. The only thing left is an inspection from the new buyers. An inspector goes through and finds that there is structural damage due to a roof leak, but overall, the property is solid. Seems like everything is ok. But, then the buyer brings in a contractor and the contractor scares them off with his estimates.
No closing. Buyer backs out.
Well, that stinks. But then, he tries to market it again and finds another flipper interested. Turns out, they agree to a price even higher than the first buyer. However, the next day the second buyer calls and says that the property is condemned by the city and needs to be permitted for the fixes. This is too costly for him.
These are the ups and downs of wholesaling. Sold. Not sold. Sold. Not sold. You have to be able to whether the storm. And, you have to have enough leads coming in that you know not all properties will get to closing.
I'll keep monitoring how it goes for him. But for now, I'm staying back.