The 9 Blunders of "9 Blunders Every Wholesaler Must Avoid (Or Else!)"

Re: In response to "The 9 Blunders Every Wholesaler Must Avoid (Or Else!)" - Blog Post

If you are like me, you find great enjoyment and value from reading the posts on bigger pockets and their informative blogs. It’s fun to be part of a community that encourages and educates each other. The one time I do have to speak up though is when non wholesalers tell wholesalers how to do their job.

Okay, the input is important. We should know how to better serve our customers (flippers & landlords) but playing arm chair wholesaler will put you at risk of providing false, misleading and or discouraging information to eager newbies. So, let's just clear this up a little.

1. You Pay Now 

"If for some reason you cannot find a buyer, you will be responsible for paying for the property. Moreover, you’ll have to pay for things like bandit signs and any marketing you use."

FALSE

The entire point of wholesaling is to limit risk and exposure through the proper inspection periods and contingencies. If you cannot sell a deal, you cancel the contract and move on without having any financial commitment to purchase a property.

2. The Buyers List

"A mistake that some wholesalers make is that they wait until after they’ve put a property under contract to assemble this buyer’s list. If you wait too long, you might have to be willing to (yet again) negotiate down and settle for a lower offer.Or, in a worst case scenario, you’d have to close instead if the buyer, and pay out of your own pocket."

FALSE

Again, you are using a standard wholesalers purchase contract you do not have any commitment to purchase a property, you exercise your right to cancel the contract and walk away. I do agree a strong buyers list is important although a solid deal will sell itself regardless of your list.

3. Inspections

“Make sure to always get the house inspected, just in case there is trouble lurking in the shadows like a gas leak or a mold problem. If you don’t get the house inspected, just know that the investors will. Don’t put a house under contract that no one will want to buy.”

FALSE

The type of deal will dictate the level of inspections needed and in most cases an inspection is unnecessary. A qualified buyer is going to inspect REGARDLESS of what documents you send to them. You are paying for a service they will be doing themselves as they cannot take your word on a purchase of this scale.

Should a property have unusual traits such as signs of mold, cracked slab or other unusual issues a specialist inspection might be needed but a standard inspection will be ignored by most buyers who will rely on their trusted inspector or contractor. Would you buy a home with an inspection provided by a stranger? Not without doing your own.

4. Paying Too Much

“This might seem obvious, yet it’s something that many wholesalers don’t pay enough attention to. If you pay too much, you will not profit. It’s that simple. It doesn’t matter how good the property is.”

Sort of…

I agree paying too much isn’t going to work. BUT… and this is a $10,000 but in my case you never know until you try. If we only took on deals we were 100% certain were deals we would be leaving a lot of money on the table. Not all flips sell at their initial list price but they do start there, why? Because you just never know.

Sometimes you just have to take on a deal you are a little uncertain about; it pays off in the long run.

5. Not Crunching The Numbers

“You must always remember to get a reliable ARV, or “after repair value”from a real estate broker first and foremost.”

FALSE

A second opinion never hurts, but there are numerous ways to find a qualified person to run a deal by. There is no way that a real estate broker is the only choice. Some options include appraisers, agents, investors and my favorite… other wholesalers.

6. The 70% Rule

“Then, you will need to calculate 70% of the ARV and subtract your wholesaler’s fee (usually a few thousand dollars).”

FALSE

Simply put the 70% rule is a horrible formula that costs investors deals every day. You must know your market and at what price range buyers are buying deals. Currently in Southern California anything in the 82-84% ARV less repairs range will sell quickly. Suggesting using the 70% rule here would price you out of every deal you ever looked at and leave you wondering why you cannot succeed. Pay close attention to your specific market and learn your buyers, this is your best chance for success.

7. Foreclosure Auctions, A Prominent Investment For Wholesalers

“Since the economic recession in the United States, foreclosures have been one of the most prominent investments for wholesalers.”

FALSE

Wholesalers do not buy at foreclosure sales and this has NOT been a prominent investment for wholesalers. It goes against the very definition of wholesaling to suggest one would pay cash for a home and then sell it. We secure the right to purchase through a contract that allows us to assign that right to purchase for a fee. We never take ownership or use our own money to fund a deal.

8. Poor Marketing

“If you fail to market yourself, you will most likely struggle in this business. Even if you are able to find a good deal on a property, chances are, you won’t be able to keep getting lucky.”

I CONCUR

This is very true, but let’s share a little insight on how to correct this instead of just shooting down a motivated newbie from the get go. A few things I would suggest from the very start.

Get yourself out to the local real estate investment clubs, be friendly, professional and genuinely interested in who you meet. Listen to their stories and learn from them, some of these people could turn into your closest allies and oldest friends in the business. If a local club is too far away, start participating in the forum right now and don’t be afraid to press that “connect” button and introduce yourself.

9. Do Your Homework

While I do not doubt the author is an accomplished investor there are many parts of the wholesale deal he does not understand fully. Let’s help clear it up.

• -You NEVER have to buy a deal you cannot find a buyer for. There are contingencies that allow you to pull the chute before you hit the ground and escape without any commitment to purchase.
• -Wholesalers NEVER fund deals with their own money.

And most importantly… You CAN start with low funds. Will it be harder? Oh you bet. Will you fail? Probably. Should that stop you from getting back up? NEVER!

Real estate isn’t easy, you will make mistakes and find moments where that bank account balance will make you sweat and we’ve all been there. While it is true you will find success sooner with more funding to support you please don’t ever count yourself out simply because you are low on cash. If you want to make this happen you can and I’ve seen it firsthand.

Make it happen!