BiggerPockets

How To Wholesale Houses (Location, Location, Location!)

Get your mind out of the burbs and into the gutter! Many, if not most, new investors, who haven't spent much, if any, time in the hood, are the same way I was when I was just getting started, apprehensive, if not, fearful. (Apologies, if I'm not culturally licensed to use the term, hood. It's what I'm used to calling the older, inner-city neighborhoods.)

The natural tendency is to look for deals in the suburbs. It ain't gonna happen. When I talk with new investors who say, no war zones or not these zip codes, I say, call me back in a couple years when you've found your first deal. The "spreads" or profit margins simply aren't there. The deals in the burbs are usually proportionate to the repairs required, where the deals in the "rougher" areas have disproportionately higher profit margins.

For our puposes, the inner-cities or older, lower-end neighborhoods are where you wholesale. I have come to learn that whether or not a neighborhood or individual house is "nice" is all perception, anyway. I now see beauty in all structures. A good wholesaler looks beyond the filth, stench and decay. A good wholesaler sees a house just like a good rehabber, for what it could be, not for what it currently is.

Growing up in a small, all-white town in Ohio, the inner-city of Atlanta where I got started was culture shock to me. But I gotta say, living in the North Georgia Mountains when I first arrived, where every person I saw had some sort of camouflage clothing on and a bloody deer strapped to the hood of their car, was culture shock, too. Can anyone say, "Deliverance?" The fact is there are good people every where, just as there are bad people. The bad people are just better concealed in the burbs.

I'm not trying to suggest that some of these neighborhoods are not truly scary and dangerous. They can be. I sold a few houses in an area known as "The Bluff". It was only several blocks big, but accounted for the highest murders per capita in all of Atlanta. The thing to keep in mind is most of the crime takes place at night, against and among hooligans who live there. It's not like investors, delivery drivers, mail carriers, utility workers, service technicians, and other outsiders are being slaughtered by day!

What I'm trying to get across is you don't want to fear the place you work. Bad elements can smell fear like paint on a wall, and fear breeds vulnerability. I see it all the time, investors driving neighborhoods with their windows rolled up, doors locked, afraid to glance too far from their notebooks. I even know investors who won't go down to the hood unless they're packing heat. To each his own, but sometimes I think some issues run a little deeper than practical safety.

You don't want to be stupid either. I sometimes push the envelope here. Don't let yourself be drawn into what might become a precarious situation. If someone asks you for a ride, politely decline. You also might want to be selective when handing out your business cards, especially if they include your address. I once received a letter with the return address of a prison, somebody asking for a little money for razors, soap, toothpaste, etc. There's a fine line between good tips and bad characters, though. Many shady characters you run into on the streets know the people and neighborhoods like the back of their hands.

Be cautious, not nervous. Simple eye contact can go a long way in dissuading malicious intent. Just like the mighty lion in the savanna … whenever their prey looks away or looks down to eat, the lion creeps closer, and if the prey looks in the direction of the lion, the lion will cease its movement and remain still. Act like you are in control, like you belong there, and you will be fine.

Happy Wholesaling!

Comments

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  D Williams — almost 3 years ago

  Thanks for the article, but I have to say that it comes across more as a sermon than it does about actual wholesaling. Why do 'inner city' properties have a higher margin? It's not difficult to find a buyer in these neighborhoods?

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  John Lydic — almost 3 years ago

  Amen! Damon, sorry if I come across as pompous. I’m passionate about what I do and am often irreverent and blunt. This particular article is about one aspect of wholesaling, that is, location. If it comes across as sermonizing, it’s probably the frustration in watching aspiring wholesalers spin their wheels looking for deals in the wrong places. It’s completely natural, and I concede in the article that I too had the same mindset. Profit margins are higher in lower-end areas for a number of reasons. One, the demand in desirable locations, like the burbs, keeps prices high and tight. There is also a wider gap between the condition of houses in lower-end, older neighborhoods. Bubbles, too, in investor intensive areas are created because of quick turn-over and competition. As far as buyers go, the better the deal, the more buyers you’ll find. It’s my contention there are more deals to be found in the hood.

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  Account Closed — over 2 years ago

  Not sure that you are entirely right. I can buy homes in the suburbs, in "nice" areas, for less than $40k. Many need less than $10k in repairs and have an ARV of over $90k. I can buy properties in the hood for $10k less, that need the same amount of repairs, and they will never have the same equity spread. I think it depends on where you are investing. Charlotte is a good example of what you are talking about. Atlanta is a good example of what I am talking about.

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  Naj B. — over 2 years ago

  Being from Boston and investing in the inner city and suburban areas, I can attest to this article. You will find better deals in the city, as sub prime lending created a ripple of foreclosures in the inner city at a far great rate. I have seen it first hand. The question is how do I get in on the action?

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  Paul Miekczynski — over 2 years ago

  Great article, brings a sense of optomis on the one I'm tryijng to wholesale myself. Thanks again.

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  Duane Stephens — over 2 years ago

  Good article John. I am a wholesaler and I appreciate the effort you are making to help people understand a little about our business. In reference to the above comment from Michael Perry. Michael Perry sold mobil homes for a living just a few short years ago and he has been a licensed real estate agent for a little over three years. He likes to think of himself as a guru. He ain't squat. He has no articles on this website and just speaks in the forums. He is critical of almost everything he writes. Keep up the good work

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  Shane M — over 2 years ago

  What is your opinion on rural neighborhoods (a la deliverance style)? Or pockets of rural pocket neighborhoods between more populated cities.

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  John Lydic — over 2 years ago

  I’m not one to say you can wholesale anywhere, in any market. I mean, sure, you can, but at what volume? To make a living when you’re buying low and selling low, you need volume. The bigger the city, the more inventory, the larger the population, the more prospective buyers and the better the economy, the easier the financing will be. If I were in the boonies, I might look at rehabbing instead.

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  Susan McCormick — over 2 years ago

  Hey John. You make some good points. Where I live, I feel crippled-still wondering where and how to get that first deal! Downtown is the slum-ghetto for the majority here, some nice older Victorian homes-over priced by far, mostly due to the ISLAND realtors now coming here to the mainland with their outlandish prices! The slum areas are scarry, but I just want to know about them-who will buy them? As I see most are boarded up, and I do know outside investors like the lawyers from Macon and Atlanta are NOW starting to buy them and sit on them! SO, I may take a chance and just see about this and get over the FEAR in 2 ways and get paid too! LOL wow , I am feeling lucky today! Thanks for the inspiration! I can do this!!