How The Market Weeds Out The Uneducated Wholesalers!
As the market has declined, unfortunately, it has not filtered out some wholesalers who lack the ability to properly evaluate properties and are making offers to sellers that they cannot follow through on.
Probate Story
I know exactly the mistakes these uneducated wholesalers are making.
We went on an appointment on Monday regarding a probate lead—a lady from Alabama who inherited a property here in Atlanta. This property is located in DeKalb County, and it comes with a number of issues. It’s a hoarder house, filled with belongings, and was built in 1936. The property requires a significant amount of work but is situated in a fairly decent location. The reason I am sharing this is that we felt a bit uncertain about our offer. We initially offered her around $100,000 for the property.
It was around $90,000 to $100,000 that we discussed. We called her back to follow up regarding what we refer to as the “investor dog and pony show,” where a rotating door of investors comes through the house to make offers.
Honestly, we usually do not participate in those situations. We consistently tell these people that while we might not be their highest offer, but we will close on a property that we commit to buying. Unfortunately, many investors do not operate with the same level of ethics as we do.
The house required substantial work.
I’m not saying this to boast, but in this instance, we offered her about $100,000 for the house, which was built in the 1930s. The estimated rehabilitation cost was easily around $120,000. After running the numbers, I couldn’t determine an after-repaired value (ARV) of more than approximately $320,000 for the property once it was fixed up.
To give you an idea of the costs, just the clean-out of the house would be $10,000 because they wanted to sell it with everything still inside. We assessed the property, and given that it was a 1930s house, it required nearly everything to be replaced: HVAC, plumbing, electrical systems, and the roof—all the essential mechanicals. There were typically foundation issues, and in this case, the detached garage was beyond saving; it needed to be demolished completely.
The lot was overgrown, and the driveway was in disrepair; it needed a new driveway, porches, decks, and essentially everything. Inside, the flooring and walls needed extensive work, indicating that the property had retained its original condition for quite some time.
Location
I assessed its value at no more than $320,000. The property next door sold for $300,000 in 2020. This property was located on a main road and was zoned commercial, which was common for many houses in the area. Interestingly, this part of the road was right at the edge of East Lake, a prestigious neighborhood in Atlanta; having an East Lake address typically increases property values. However, this property was just outside of East Lake, which is important in real estate. Just to the north, behind this property, there was a neighborhood with a street leading to the City of Decatur. The houses in Decatur were valued higher because they were within city limits.
So to clarify, the property we evaluated was not in the City of Decatur or East Lake; it was located in unincorporated DeKalb County. Additionally, properties on busy main roads often experience a decrease in value. This further impacted our assessment of the property’s worth.
From my assessment, I concluded that the best use for this property would be to renovate it and transform it into a doctor’s office, a lawyer’s office, an insurance agency, or another type of small, single-tenant office.
You probably recognize the trend: many old houses along main roads have been repurposed into professional office spaces, which is the case here. The house we assessed was about 1,100 square feet, with either two or three bedrooms and one bathroom. Additionally, I noted that the property next door sold for $300,000, while another similar property just a few doors down sold for $320,000 last year. Both were functioning as businesses on the main road, making the one four doors down an excellent comparable property for our analysis. It’s also important to note that this property is neither located in East Lake nor in the city of Decatur.
You cannot use comparable properties from different areas when analyzing real estate.
Comparables
Appraisers take the neighborhood into account, and I reviewed the comparable properties (comps) in this situation to determine the value. The comps in the neighborhood behind this property show some houses sold for about $500,000 after being completely rehabbed, which is a significant difference when compared to another house that sold for $320,000. You could literally throw a rock between the two properties, but the one that sold for $500,000 is located in the City of Decatur, just over the line, and it’s in a nicer neighborhood. That property was built in the 1950s, making it a bit newer and larger; the one that sold for $500,000 was nearly 2,000 square feet. This means that to compete, we would need to consider an addition.
Currently, in Atlanta, construction costs are at least $150 per square foot for additions, making it quite expensive to increase the square footage. So, as I mentioned, we decided to make an offer of around $100,000.
While this may not seem like a huge payday, we estimated a net profit of about $45,000 at the end of the project. To the average person, $45,000 sounds like a lot, but in the context of large rehabs costing over a hundred thousand dollars, this project could take anywhere from six to nine months to complete. The market is currently very volatile and seems to be declining, which means that prices could drop even lower within that timeframe. Ultimately, no one can predict the market perfectly; anyone claiming they can is not being truthful.
This project will likely take me about nine months to complete. This is partly because it’s in DeKalb County and dealing with the permits and construction process there is a real hassle. It often takes months longer than expected. This is why we don’t do many projects in that area anymore; the time it takes to get building permits and deal with inspection departments is just not worth it. The red tape is frustrating, and I prefer to avoid the trouble if I can. However, this particular property caught my interest because it was a probate lead. The person who inherited it doesn’t even live in the state. It seemed like we could help her out because she didn’t want to deal with the property, and none of the heirs—who are older—had the physical ability to clean it out. So, we looked at it and decided to make her an offer anyway.
Inflated Offer
She mentions having two offers for $150,000 and another for $180,000 on the house from two wholesalers, which makes me doubt the market value. I call a trusted money partner I’ve known for years, who has a strong background in Atlanta real estate, including commercial developments and affordable housing projects. If anyone knows the market, it’s him. He’s been in the business for a long time and owns numerous rental, commercial, and investment properties. He also runs a lending business where he evaluates properties to determine if they’re good investments.
I called him for help with that property, hoping to confirm my concerns about its value. After reviewing the numbers, he agreed that the offer of $180,000 from those wholesalers was unrealistic. He estimated the property was worth only $300,000 to $320,000 and would rent for about $2,000 to $2,100 a month. With those figures, it clearly wasn’t a good investment. That’s not a good number to be at, so I second-guessed myself and called to confirm.
The uneducated wholesalers were offering $150,000 and $180,000, but after visiting the house, I realized it needed a lot of work and had hidden issues due to all the junk inside. My initial assessment was that it was worth easily $120,000 or more. Thankfully, he agreed with my evaluation and said those people wouldn’t close on the deal.
This situation happens often, especially in a declining market where inexperienced wholesalers make unrealistic offers. They likely misjudged the property’s value by comparing it to higher-priced homes in East Lake, which is nearby and has much higher values. A renovated house there could sell for high fours to low fives, while this property, not being in East Lake or a newer build, won’t reach those figures.
Inexperienced Wholesalers
In this market, inexperienced individuals—typically wholesalers—often try to put properties under contract. There’s nothing inherently wrong with wholesaling; we do it ourselves as well. However, these wholesalers are likely to contract a property for $180,000 and then start advertising it to their private buyer networks in hopes of receiving bids.
Unfortunately, the only buyers in this market are the savvy investors, like me, who understand the numbers well.
These inexperienced wholesalers miscalculate their property valuations. They will attempt to sell it to their investor network, but likely no one will be interested. As a result, they will lower the price slightly and try again, only to face the same outcome—no buyers. Eventually, they will continue to drop the price further in a bid to attract interest.
No one is going to buy it because it’s still way overpriced; it needs to be priced under $100,000 for the deal to make sense. Remember, they offered the seller $180,000, so they have to reduce their price. However, they can’t reach that point because the numbers simply don’t add up.
What’s going to happen is this poor little old lady from Alabama, who doesn’t even live in Georgia, will think her property has been sold. Meanwhile, this person will continue to keep her on hold, saying things like, “Give me two more weeks,” dragging the process out indefinitely. On the other hand, he is trying to sell his property but can’t, and the reason is clear: it’s overpriced. Investors care about one thing: does the math work or not?
If the math doesn’t work, I don’t buy it.
At 180 grand, it doesn’t work because he can’t use comps from East Lake or City of Decatur; he needs to rely on the $300,000 comps around it. His numbers are too high, making it impossible to sell.
This will waste the little old lady’s time for weeks, only for him to cancel the contract. She’ll likely return to the lower offer, but that buyer also won’t deliver because they can’t accurately assess the area. All they’ll do is raise false hopes for her and the heirs waiting for their promised money. I genuinely hope she sells for a hundred grand, but the chances of a successful deal at 180 grand are very low.
I know that the investor community in Atlanta is very small. We all know each other, and those who are actively doing deals are well acquainted. The lenders and those with capital are often the same individuals. It’s a tight-knit community where everyone is familiar with one another.
We often find humor in situations like the one involving wholesalers trying to sell a deal for $180,000. He’ll likely approach me again next week, perhaps with the same deal priced at $200,000 or $190,000, hoping to make a quick profit of $10,000 or $20,000. When I see that, I can’t help but laugh. I’ll think to myself, “Good luck with that, buddy. No one is buying at that price.”
My other investor friends feel the same way; they’ll look at the deal and say, “Yeah, good luck with that. Nobody’s going to buy it for that amount.” This individual will keep trying to sell the property, dropping the price gradually until it finally reaches $180,000. Eventually, he might even ask for a price reduction, only to try selling it again. Unless he gets a reduction of at least $100,000, he’s unlikely to sell that property.
Let’s Connect
I’m Brad from ProbateResource.com. We are a real estate solutions company located in metro Atlanta. We buy houses throughout the state of Georgia, specializing in probate and inheritance properties.
If you’re looking for a quick and easy cash offer, we can provide that. We’ll purchase your house and fulfill our commitments as promised.
If you prefer to take the traditional route, you can list your home with an agent. I am also a licensed agent with One Source in Woodstock, and I would be happy to discuss that option with you.