Buyer says he'll take 8 a year at 70% ARV minus repairs. What breaks first if I actually try to fill that?

Question

I fund deals rather than do them, and I want to understand this model from the buyer's chair before I ever write a check to someone running it.

A wholesaler I've been talking to has a written buy box from a small fund: single family, 1,100 to 1,900 sq ft, built 1965 or later, purchase at 70% of ARV less repair estimate, eight properties a year, assignment fee of 6k baked in above their number. He treats the eight as demand that exists.

My problem is that the fund's number moves. If their cost of capital shifts or their exit assumptions tighten, 70% becomes 66% and the wholesaler's whole pipeline is suddenly priced wrong. So how much of the dead-deal risk is actually removed here, versus moved from "no buyer" to "buyer at a price that no longer clears"? Has anyone seen a way to pin the price side down and not just the volume side?

Rena Expert · Accepted Answer

Pin the repair estimate and the ARV method, not the percentage. In practice most blown reverse wholesale matches don't fail because the buyer walked from 70%, they fail because the wholesaler's ARV was pulled from three comps the buyer wouldn't have used and the repair number was 22k against a buyer who scopes the same house at 41k. At 70% of a 300k ARV, an 19k swing in repairs eats three assignment fees. The price ceiling looks stable and the deal still dies.

So make the buyer's underwriting explicit: which comp radius and age, whether they use as-is or after-repair rent for the yield check, what contingency percent sits on top of the contractor number, and who they'll accept a scope from. Get that in an email, not a call. Then your 70% is a formula you can run rather than a figure you're quoting back at them.

On the moving number, you're right that volume and price are separate exposures, and the only real hedge is more than one buyer per box. Two funds with similar criteria and a landlord buyer who'll take a thinner spread gives you somewhere to put a property when the primary repricing hits mid-contract.

What you haven't raised is inspection period length. If your agreement gives you 10 days and the fund's committee meets every three weeks, you're structurally unable to get a yes inside your own out. That mismatch kills more of these than pricing does. Ask what their internal approval cadence actually is, and match your due diligence window to it or negotiate an extension right into the purchase agreement up front. Whether that window functions as a clean exit depends on how your state treats contingency terminations, so have your attorney read the clause once and reuse it.

stephen_ok9 · Answer

The eight is a forecast, not an order. I've looked at a few of these buy boxes from the allocation side and none of them carried a commitment to close, they carried a description of appetite. Which is fine, it's still better information than guessing, but you shouldn't model it as eight closings.

The 70% is the part I'd want dated. Ask him when the fund last restated it in writing. If the answer is "he told me on a call a while back," the pipeline is priced against a memory.

diane_kowalski · Answer

On the land side I see the same thing with buyers who quote a per acre ceiling and then move it once absorption slows. What helped was getting the buyer to state the input rather than the output, so instead of 70% of ARV they tell you the yield they need and the repair contingency they carry. Then when their capital cost changes you can recompute the number yourself instead of finding out after you've tied up a property.

carlos_nunez · Answer

The cadence point is the one that hurt me most. I've had a buyer who was genuinely enthusiastic and genuinely unable to sign inside two weeks because their asset manager was traveling. Nothing wrong with the deal, the clock just ran.

I now ask every new buyer one question before anything else: who signs, and how fast can that person sign. Sable, I'd add that to your list next to the 70%.

Buyer says he'll take 8 a year at 70% ARV minus repairs. What breaks first if I actually try to fill that?

4 replies