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How to Decide Whether To Wholesale, Rehab, Owner-Finance, Subject-To, Sell or Rent

A lot of people wonder how, when and why people decide to do different things with each house flip.

I thought it was a great question and one that deserved a more thorough going over.

It’s not really a simple matter of buying, fixing and selling everything. There are a lot of factors that go into the decision on whether to work the lead and either wholesale the house or buy it and fix it, or whether to sell with owner financing or just rent the place.

Today, I’m going to talk about what affects my decisions and causes me to do one thing over the other. This is just how I operate and is in no way saying you should do the same. Everybody’s situation is different. So what may work for me, may not be something you would want to do.

No Matter What Buy Cheap

No matter what I might decide to do with a house, I have to buy it cheap. Cheap, cheap.

This is why I just like to keep things simple. Buy a house for super cheap and you will have a lot of options. You can even screw up big time and just not make as much as you’d hoped. This is not to say you can’t lose money – I’m sure someone somewhere has still managed to lose money on flip after buying for super cheap.

So, even if a seller is willing to sell to me ‘subject to’ their existing mortgage (meaning they will sell me the house and leave the loan in their name with me responsible for their payments) but the loan balance is more than I would want to pay, I won’t do it. It’s just not worth it. Just because I can save some money on holding costs, doesn’t warrant me paying a lot more for the house.

Property Location And Price Range Is A Huge Factor

My decision to wholesale a deal has everything to do with the location of the property. If it’s in an area I just don’t want to be in, I will wholesale to another investor.

If the seller is asking a crazy low price, I am much more likely to try to just contract the deal and either wholesale or joint venture it though. If they are asking a so-so price, it’s an immediate wholesale.

If the house is in a price range where my 65-70% percent of ARV means too big of a discount for the sellers but they are willing to accept a decent discount, I will typically birddog the lead.

An example would be a house that has an ARV (after repaired value) of $500k. At 65%, I would need to buy the house for $325k, minus whatever the cost of repairs would be. That’s hard to swallow for people that aren’t really motivated. If they would be willing to take something around $400k, there’s probably an investor willing to do the deal. It’s just not me.

When a house is in a lower price range area that is not real conducive to selling it on a new loan (buyer gets a bank loan to buy the house from you), I will consider buying it so that I can fix it and sell it with owner financing. This is one of our ‘retirement’ strategies.

We prefer owner financing over renting because the buyer owns the house and is therefore responsible for repairs, taxes, insurance, etc. We don’t get calls about broken toilets.

The only time I pick up rentals is when the house doesn’t need anything major fixed and there is a good tenant that has been there forever and wants to stay there.

My Workload Also Factors Into My Decision

If a deal might be decent, but I am swamped with rehabs and other things, I am often tempted to just wholesale the deal. If it seems like a good deal (seller seems motivated and what is owed is low enough to provide a good deal), I might look into a joint venture or just wholesale it out.

If I’m not busy, my intentions are usually to buy for rehabbing and re-selling. This is where we make the most money.

I do love wholesaling and would prefer to wholesale most of the time. I’ve talked about strictly wholesaling for years, but it’s been hard to limit myself to that. Rehabbing is just in my blood now.

Seller’s Circumstances Determine Purchase Strategy

We’ve always done purchases with cash, hard money/private money, or owner financing. There have been occasions when I could get a good deal AND the owner was willing to owner finance.

If you can get a seller to owner finance the house for you, you can usually get much better terms than you would from a hard money or private lender. I’ve heard of a lot of people getting 0% interest rates from sellers.

We have bought on “Subject-To” as well and it can provide a way to cut down holding costs. Depending on the seller and their bank you can try to do it either overt or covert. We prefer the overt option because then the seller signs documentation that states that they are still liable which can help if anything ends up going through the court system.

Changing Exit Strategy In the Middle of the Flip

As I mentioned, if you buy cheap enough, you have the flexibility to change your strategy at almost any point in the flip.

I try to buy at 65% of ARV minus the cost of repairs, OR LESS. This usually gives me the ability to wholesale the deal (before and after purchase) if I choose to do so. This is because most investors will buy at 70% of ARV minus the cost of repairs. You can even find a lot these days that will pay more than that.

Even after you’ve fixed up the house, you might want (or need) to change your strategy. You may have trouble selling the house and decide you need to rent it. Of course, if you have a short-term hard money loan, you would have to do something about that.

Depending on the price range and rents for the area, renting the house can be a good option if you bought it really cheap. The cashflow generated might be something you decide works for you at the moment.

It’s good to have options.

Save Yourself Some Grief, Buy It Cheap

I’m gonna say it again. Buy your houses as cheap as possible. Don’t go paying more for properties because you think you got some other kind of terms that sweetened the deal. If those terms don’t allow you to make a good profit, even if you have to change up your strategy or sell the house cheaper, don’t allow them to convince you to pay too much.

This all gets back into making sure that you are a marketing machine. You have to have a lot of leads coming in so that you don’t fall into the trap of paying too much because you finally find a marginal deal.

There are a lot of awesome deals out there, you just have to work hard enough to find them. If you don’t believe that, good luck to you.

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