So you think you're a wholesaler?

[Mark Gallagher]

I had to post about this experience because I'm half confused and half mad!

I had been bidding and watching a HUD property for a few months, waiting for the right price. Finally it had been lowered to where I needed it to be. After a few days of bidding, another bidder got it. OK, no big deal.

I'm cruising Craigslist a few days later, and there's the house! Someone is trying to sell it! 

HUD's list price was $49,000. Assuming he's under agreement for ~$40,000, his all-in will be $42,000 give or take.

I emailed him and asked what his price was, and that I had been bidding on it. I figure if he's trying to tack a few thousand on it and turn it, it might be worth it. His asking price... $64,900!!! So it was on the MLS for $49,000 3 days ago (and actually still shows as active), you don't even own it, and you're trying to make $20K+? Who's going to go for this? At his asking price the numbers don't really work as the ARV is $95K. Is he trying to get a retail buyer paying cash since the house isn't able to be financed as-is? I told him I wasn't interested at $64,900 and I'm not sure what he's trying to accomplish trying to make a $20K margin. He told me that it was a HUD house and not everyone could bid, which I'm not sure if he thinks I'm stupid or he doesn't understand, but that's obviously not true. I told him the numbers don't make sense for an investor and the odds of a cash retail buyer coming along are slim, but best of luck. He asked if I would like to be added to his buyer's list but I politely passed telling him I need REAL deals!

What is this guy trying to accomplish? Is he new and thinks this is a viable strategy? I certainly don't think it's a viable strategy. Do you think he has this deal tied up for $500 and doesn't even have the money to close it? I'm hoping it becomes available again, but we'll see. 

[Shaun Reilly]

Originally posted by @Jay Hinrichs:

@Shaun Reilly  thanks it seems like that would be a good place for those with the means to be looking for deals.. you start putting up 5 to 20k in EM and that will separate the newbie no money folks from those in the business with funds.

Well I see both sides of the story here. First if one of these new guys fresh off a guru webinar doesn't have money they usually REALLY don't have any money and can't even come up with the $500-1000 to tie up a HUD. Even if they do they definitely can't afford to lose it by putting in a bad offer, at least not twice...

Personally don't like to tie up a large amount of capital is I don't have to. I should add that with the little story I told above with that HUD wholesale I did if I got something like that now I would do it since deals are hard to find, but at the time it was actually the 2nd HUD house I got accepted THAT DAY and the 3rd in 3 days (along with another non-HUD I had scheduled to close and multiple active projects going) so that was another reason I went to sell it rather than do it. However if I needed to put like over $20K down on those 3 instead of $2.5K total I would not have had the funds to actually close on the one I sold. If I needed transactional funding I would have lost money on it for what I eventually sold it for.

[Jay Hinrichs]

@Shaun Reilly  well my point is if you have capital to deploy and EM deposits were much higher it would weed out those that in my mind are undercapitalized in the first place.

[Mark Gallagher]

@Jay Hinrichs

The same could be said of Realtors.. if they would increase the barrier of entry, that would in theory increase the quality. But then I wouldn't have dopey agents who make me look so good!! 

[Wendell De Guzman]

Originally posted by @Greg H.:

@Mark Gallagher

I almost exclusively purchase HUD properties and I am starting to see this more and more. Most of the HUD asset managers have relaxed any enforcement of their long standing policy of not allowing any marketing of the property while you have it under contract. This along with an easy POF policy and no recourse other than loss of EM has brought more wholesalers attempting to do a double close without the ability to close on them

Saying all this, those of us who flip houses for a living have to make adjustments and turn a "negative" into a positive.  Many of these properties do not close and return to the market therefore have been in HUDs inventory a significant amount of time.  This can mean that others interested in the property have moved on and the possibility of getting a lower offer accepted.   

 I agree with Greg. 

Mark, This newbie wholesaler you encountered will not be in business very long. The way I wholesale HUD deals is as follows:

- HUD List Price: $100,000

 - I get it for $65,000

 - I market it to my cash buyers for $75,000

The property is now $25K below HUD list (and MLS list) price. (Sometimes, depending on the deal, I sometimes have to sell the house for $15K below list). There's a good reason for the rehabber-investor to buy the deal from me since he is buying it below MLS list price.

And before you think this is NOT possible or a theory, here's the screenshot of my accepted HUD bid on a property:

Address: 8735 S Kenneth Ave, Hometown IL

HUD List Price: $90,900

Accepted Bid Price: $59,085.90

I sold it to my buyer for $70,000 ($20K below HUD list). Here's the PROOF.

I am sure my buyer does not mind because the property can be rented for $1400/month. In addition by renovating the property (spending probably around $30K-$35K to rehab it), the property will be worth $140,000.

That's how a HUD deal should be wholesaled.

[Josh Justiniano]

This actually angers me. I have "wholesalers" claim great deals all the time. Sending me properties listed on Redfin for 80 days then send me 10k above list price. Then, I politely ask to remove me from their "buyer list" (who is buying these?!!) and of course I get the same email from some other clown at +1%. 

FASTEST WAY TO LOOSE CREDIBILITY.

[Wendell De Guzman]

Originally posted by @Jay Hinrichs:

@Greg H.  recently I have been required to pay 10% of offer price as EM  what government agency requires that... happened on 2 or 3 I funded in June.

I would love to the HUD up the EM deposit to 10% with 50% non refundable.. this would keep the deals for those who can actually close .. :) and create yet more opportunites for transactional funding LOL little self serving I know

 Jay, that's HOMEPATH. Almost bought one a few months ago - lined up the cash and about to send the 10% EM check but we found the property is in a flood zone (and it needed more repairs than we initially estimated) so we didn't go through with it.

[David Tyrell]

@Jerry Puckett you just made my day!

[Jay Hinrichs]

@Wendell De Guzman  I know I have been funding deals lately that require larger EM deposits.. I for one would love to see 10% deposits so that only those who actually have the funds to close can get in the game.. and or they find money partners .  I know this is probably not popular on the no money no credit BP newbie.. but I feel that real estate is an industry and a profession and investing is the same.. I feel there is really no place for those with no capital.. they just waste time tie up properties with no ability to close unless they can hawk there deals.. just does not feel right to me.. .If you want to be an investor or reseller get you money together either with investors or peronsally and get in the big boy game.. not this game of tieing up props with a few hundred bucks.. I mean get real.

[Neil J.]

Originally posted by @Jay Hinrichs:

@Bill Gulley  not sure about each market but the last thing most people are going to do in hot and competitive markets is create competition for themselves.

I know when I used to buy court house steps and newbies would watch me buy 3 home in one hour they would walk up and start to ask me questions.. I would politely tell them they need to go learn it like I did... not going to create my own competition.

Same I think with successful wholesalers I would think the last thing on there agenda is to train all these newbies so they are direct competition..

now its one thing if your market is anywhere mid west or bigger rust belt city and its urban core props.. which there are thousands to be bought at anyone time

but again if your working a very hot market.. why would anyone do this seem like business suicide to me.

 The sad truth.

[Mark Gallagher]

@Wendell De Guzman

How are you closing the deal, with the end buyer's funds? 

Why would any investor not have HUD properties on their radar? I mean I get an update every second a HUD property comes on the market or changes price! In your case the property already dropped in price so it wasn't like it has just came on the market and someone missed it, that I could possibly understand.

[Robert R.]

Unfortunately, snooze you lose. You waited too long and another investor purchased the property and can now wholesale it or do what he wants. I bet you won't wait too long on the next one. I would take this as a learning experience and move on. 

Best of luck on future deals. 

[Alex G.]

That wholesale deal you spoke of is EXACTLY what this guy should be doing. I encourage people to wholesale when it makes sense. But those are people who might have scooped something up at Sheriff sale and actually closed it "traditionally." I think a lot of new wholesalers try to get fancy and think you make millions on every deal. But who wouldn't like to make $2K for signing some paper?! 

I'm not sure why you are so preoccupied with things like what he should be doing, how much money he has at risk with HUD, whether he is making a killing when he should only be making $2K, and he only just signing some papers, etc, etc.

It's really nobody's business how much effort or time he has put in a deal, how much money he has at risk, what he should be asking for the property or what profit he should be making.

There is absolutely nothing wrong with spending 10 min of one's time to tie up a property on a contract at a great below market price with as little as $10, then turn around and flip that contract for $50K, $100K or even more.... As long as the market supports that price.

Market is the only true equalizer that will either make him money or teach him a lesson. There are 3 scenarios possible for him:

1) He sells the property before he has to close with HUD. The market could be hot enough to produce a buyer willing to pay what he asks. Or as it gets closer to the deadline he might adjust his demands down to under $50k or other price where it might be attractive enough for a buyer.

2) He doesn't want to negotiate much. He wants to try waters at a high price. But he has the money to close and that's what he intends to do.

3) He can't sell, he doesn't have the money to close.... He loses the deal and his EM.

There are a lot of people who call themselves wholesalers but don't understand the price points the market will buy at. We can huff and puff about it, but the only way they'll learn is - when the market teaches them.

The good ones will learn to find, contract and deliver properties to cash buyers at prices that generate real excitement and competition from buyers. The ones that don't learn, won't stay in the business long.

[Adrien S.]

Originally posted by @Bill Gulley:

I don't understand why the good wholesalers don't take the newbies in with much better guidance, they are out there screwing things up for all the good ones. :) 

The problem with newbies is they don't learn how to do it before doing it. I tagged "wholesaling" a week ago because I want to learn the proper way to do it. I can't tell you how many times new post with a title like "help, have contract- now what" or something along those lines. No buyers, no cash, and no exit strategy but hey, at least they have a seller. They think it's an easy way to make money and get into REI. But it's not and next month they're chasing the next rainbow while serious wholesalers have to deal with their manure.

Put your ducks in a row. Learn how to do it. Get your paperwork in place (contracts, PAs, etc). Have a title company set up to close. Have a freaking buyers list. ETC. ETC.  Do your due diligence before you even talk with a seller. 

Rants over- back to learning. 

[Bill Gulley]

Actually, gurus are the ones responsible for the junk they put out. I can see a day when giving professional instruction will be a licensed matter in real estate, as it should be! 

If they label their information as fiction, okay, if it implies instruction on how to, then be qualified to teach it. I don't think you can teach engineering or surgical techniques without meeting standards. 

The CPFB has an education department for public education, perhaps they should consider rounding up some regulatory policy to get these menaces to the public off the streets! If they did, I'm pretty sure I could qualify for teaching.

It's also the naive, greedy or desperate immature public that takes junk hook line and sinker, sometimes you just have to shank your head and say "they deserve what they got".    :)

[Account Closed]

this is a fairly simple sceanrio. The property was on hud for a long time and is in the investor stage. The guy won the bid for over your 40k

He is simply trying to have an end buyer lined up after he closes. He may or may not be trying to market the property without the funds to close,but my guess he has the funds to close

 Hud has a current repair list for the property and an apprsisal.There is nothing wrong trying to make a profit on a property