The headlines are all about real estate these days with journalists asking all the right questions. Have prices finally peaked? Are homes overvalued now? Are we going to have another housing bubble like in 2008? Or will home prices stabilize now that interest rates have gone up, reducing what buyers can afford?
As an investor, let me tell you what I’m seeing on the ground here in the Dallas-Fort Worth area. Houses that are in good condition and listed at reasonable prices continue to sell quickly. For those homes, I’m still seeing multiple offer situations, often from out of town buyers eager to get into a property before the next school year.
That said, homes that are not in good condition and/or overpriced are not selling. That’s leaving buyers left to reduce their expectations and/or improve their properties. This is often a difficult conversation for realtors to have with their clients who kept reading about this “hot market,” but haven’t done any of the work to prepare their home for sale, such as fixing everything, painting over those well-loved spots, cleaning up the yard, improving curb appeal, decluttering like crazy, and removing personal and religious items.
In those cases, I’m seeing many more “new price” listings and e-mails from realtors promoting “improved pricing.” I’m also seeing that buyers are acting a little more cautious toward the sales. While they may still be competing with other well-qualified buyers and paying over list price for a home, I’m seeing that more are insisting on doing their proper due diligence such as requiring a home inspection as a way to know what they’re getting into. Personally, I think this is good news. While buyers may want a home inspection waived for personal peace of mine, this inspection does help ensure buyers know what they’re getting into with a home. It will help the new owners be successful in their ownership as they can prepare for future big-ticket items (or drop out of the sale altogether) rather than having financial trouble down the road when they’re surprised by a bad roof or a failing foundation. It also prevents lawsuits should disgruntled buyers want to come back later and claim the sellers knew about defects and failed to disclose them.
Another thing I’m seeing a lot more now is homes for sale by wholesalers and often reasonable prices I haven’t seen in a few years. This tells me distressed buyers can no longer throw a sign up and make a sale. Rather, they now have to sell their home at a discount because it’s not able to sell through traditional channels.
Real estate wholesaling is when an individual or a company (a wholesaler) obtains a contract from a seller with the intent to resell that contract to an end buyer. In this instance, the wholesaler never takes ownership of the property. Rather, they have a temporary contract with the seller that gives the wholesaler the right to sell it on behalf of the owner. Wholesalers make their money through fees attached to the transaction.
The properties sold by wholesalers usually never make it on to the traditional multiple listing service. That’s usually because the sellers are in distress and need to sell quickly, lacking the the time or resources to make updates necessary for a traditional sale. Wholesale real estate is typically sold without a realtor who looks out for the interests of the buyer and the seller (thus avoiding the the 6% realtor costs). These deals are usually cash only and avoid some of the protections often required with traditional real estate deals like lead paint notices, bank appraisals, or surveys.
Deals from wholesalers can be great for investors like me as it cuts out some of the time spent negotiating with sellers. Plus, wholesalers are usually able to close the deal quickly. The downside, of course, is the risk of buying a property I know very little about.
One of the challenges I often see with wholesale real estate is that the seller has a tenant in the home currently who is unwilling to allow potential buyers to see the inside to inspect for a sale, meaning I will have to buy based on pictures and area comparable sales. More so that buying a house without a good walkthrough, this type of situation makes me wary as properties that come with a tenant attached often have very little legal documentation about the lease. Although it can seem nice to buy an income property with a tenant included, as the buyer, you know little about that person or their relationship with the current owner. Ideally as a landlord, you want to personally choose your tenants based on their financial and personal history.
We had one property where we bought the house with the tenants included. We agreed to continue to rent to the current tenants until their lease was up. However, as soon as the deal was done, the tenant stopped paying rent and had to be evicted. The legal process then took several months to finally get them out of the house. Then when the tenant finally left, they left a house full of junk that we had to pay to haul off. That’s why going forward, we try to only buy properties where they’re guaranteed to be empty when we take possession. While I got a great deal on the sale, we probably spent at least $5,000 on legal fees and junk haul off.
If you feel comfortable with the concept of wholesaling, I would recommend contacting a few local companies to get on their mailing list. Then you can see the types of properties they sell and can begin your process for evaluating such deals. You can also check your mailbox. If you’re like me, I get a letter, text, call, or e-mail practically every day from one of these folks offering to buy one of my properties “as is.”
A few local wholesalers:
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