BiggerPockets

I was considering buying from a wholesaler as one avenue in buying a property.

I've seen some posts on here to avoid the ones are that bad, that some "sell junk". My question is, how do they manage to do this in a relatively small local community of investors, since their bad reputation would get around? Don't they need a stable list of buyers for their deals? Or do they only sell to newbies?

Many wholesaler are real estate newbies. The good ones have a buyers list and usually the truly good deals go down before you'd hear about them.

The bad investors get an option contract on an average deal, try to add 5-10k and make a average deal a bad one.

Wholesalers who don't know what they are doing, don't know they are building a bad reputation.

Eddie, do you ever find good deals on the MLS, or do you use "we buy houses" type marketing to find deals on your own, if you don't mind me asking?

Originally posted by Eddie Ziv

I'm a buy and holdr, RE investor so I don't wholesale. Not to clump all the wholesalers together, but I yet to find a really good deal from a wholesaler. Most of the properties that were offered to me were in areas that I either wouldn't buy or the deals were no better (And most of the time worse) then the one I found on the MLS. That why I stay clear of them.

Originally posted by Eddie Ziv

I'm a buy and holdr, RE investor so I don't wholesale. Not to clump all the wholesalers together, but I yet to find a really good deal from a wholesaler. Most of the properties that were offered to me were in areas that I either wouldn't buy or the deals were no better (And most of the time worse) then the one I found on the MLS. That why I stay clear of them.

Originally posted by Bienes Raices

Eddie, do you ever find good deals on the MLS, or do you use "we buy houses" type marketing to find deals on your own, if you don't mind me asking?

I find great deals on the MLS, but you really have to be familiar with the area of investing and the internet sites that represent an accurate inventory of that market. Needless to say almost hundred percent of the time those deals are either HUD or REOs

Originally posted by DemosL

As Steph said, the buyer needs to do their own due diligence. Caveat Emptor (let the buyer beware). Good deals or bad deals are all subjective. What one investor thinks is a bad deal, may be a great deal for the next investor.

I completely disagree with this assertion. A bad deal is a bad deal and good one is good. You may argue that some would see a great deal as other would only rank it as good. Same thing with bad and "terrible".
The only instance where I would agree with this assertion is when purposing a deal. For example. I own a property near Austin, TX which I bought about a year ago. The house barely breaks even in rent and under certain calculation it even looses money. From a pure cash flow POV, it's a bad deal because it doesn't produce income, however I didn't buy it to enjoy income today. I bought it so I can enjoy that income 10-15 years from now when I retire while the house gain some equity. Since I have other means of income today, I don't mind if I have to round the number by adding another $60 a month.

Originally posted by Eddie Ziv

Originally posted by DemosL

As Steph said, the buyer needs to do their own due diligence. Caveat Emptor (let the buyer beware). Good deals or bad deals are all subjective. What one investor thinks is a bad deal, may be a great deal for the next investor.

I completely disagree with this assertion. A bad deal is a bad deal and good one is good. You may argue that some would see a great deal as other would only rank it as good. Same thing with bad and "terrible".
The only instance where I would agree with this assertion is when purposing a deal. For example. I own a property near Austin, TX which I bought about a year ago. The house barely breaks even in rent and under certain calculation it even looses money. From a pure cash flow POV, it's a bad deal because it doesn't produce income, however I didn't buy it to enjoy income today. I bought it so I can enjoy that income 10-15 years from now when I retire while the house gain some equity. Since I have other means of income today, I don't mind if I have to round the number by adding another $60 a month.

It seems like for cash flow investing, at least, there are some pretty objective criteria on whether the deal is good or bad.

When it comes to investing in SFR, one way of looking at range of prices when evaluating a property (Or properties) is to look at the average household income in the targeted geographical area. The idea is that a third of that income is going for housing (PITI). Based on that assumption, you can figure out the price of a property by calculating what price an average family can afford . For example: Let say an average household income in a given place is $2,600 a month. 33% of that ($860) is what the average family can afford for (PITI) house payment. That would translate into about $100,000-$120,000 depends on the down payment, interest rate and tax level, etc. That becomes the GOLDEN HOUSE PRICE for that area.
From that level, the higher the price gets, the smaller the market becomes. The lower the price gets the slowest appreciation you'll see since the quality of the neighbourhood deteriorates as the price lowers. Now having said that, this is not necessarily means that this is the formula for any cash flow idle, but for a long term investment, future appreciation, potential and possibly future cash flow, it would work.

Originally posted by Eddie Ziv

Originally posted by DemosL

As Steph said, the buyer needs to do their own due diligence. Caveat Emptor (let the buyer beware). Good deals or bad deals are all subjective. What one investor thinks is a bad deal, may be a great deal for the next investor.

I completely disagree with this assertion. A bad deal is a bad deal and good one is good. You may argue that some would see a great deal as other would only rank it as good. Same thing with bad and "terrible".
The only instance where I would agree with this assertion is when purposing a deal. For example. I own a property near Austin, TX which I bought about a year ago. The house barely breaks even in rent and under certain calculation it even looses money. From a pure cash flow POV, it's a bad deal because it doesn't produce income, however I didn't buy it to enjoy income today. I bought it so I can enjoy that income 10-15 years from now when I retire while the house gain some equity. Since I have other means of income today, I don't mind if I have to round the number by adding another $60 a month.

You kind of proved Steph's point. Was your deal a bad deal according to normal cash flow numbers? Yes. But to you, was it still an okay enough deal to purchase because of your investment goals and financial situation? Yes.

Rehab deals are black and white, you will either make money or you will not. The only factor to consider is what percentage or profit margin you are willing to take for the risk involved. Rental properties or other long term holds are a different story. One property for one person's investment goals is a good deal while for another investor its a total bomb.

Now I personally am very conservative on my long term holds and more than 95% of what I see other investors buying I wouldn't even think of touching. Many times I see these investors flounder because of their liberalness with some of the numbers on these properties, but if they have a solid enough investment plan that is in line with their finances then it can still be a good deal for them.

I know doctors, attorneys, and accountants that invest solely for long term equity and appreciation as they pay off their properties on a 10 or 15 year note. To them its a retirement account. They don't care if it cash flows at all. They don't need the income to live on or to survive and are looking for something to invest their money in that will beat the stock market.

Is it unwise or is it a bad deal if they buy something that doesn't cash flow and is merely paying down equity on a 10 year note? My answer would be if that fits into their investment goals and they can financially sustain the properties if they needed to because of vacancies or maintenance, then, yes, its a good deal for them.

Could they find better deals if they were willing to invest more time? Absolutely. Is it always worth it to them to trade their time to find the better deals? Absolutely not.

Isn't it unethical that you are trying to use POF letters to banks that are truly not yours. For example, in some courses it states you can go to site to use their sample PoF and give the bank this letter. Sounds unethical and advice or thoughts would be appreciated.

Bienes,
Wholesalers are just one of many different resources that can be used to find a good deal. There are wholesalers who understand how to analyse a real estate opportunity while others have no clue. A truely dedicated real estate investor should look at as many deals as possible in their targeted areas. The more wholesalers you network with, the more properties you are able to see.

To say that wholesalers only have bad deals is unfair. Anybody in the game is capable of pitching a bad deal wether it be a wholesaler, realtor, fsbo, investor, rehabber, bank, ect... It is entirely up to the investor to make the final analysis and decide if its a good deal. Set a criteria and apply the formula to as many opportunities as possible. Wholesalers are a great source to find those opportunities. You were correct in assuming that many wholesalers only sell to newbie's due to the lack of knowledge on the investors end and lack of good deals on the wholesalers end.

In order to take full advantage of a wholesaler and minimize the bs, i suggest you lay down the specifics on what you want (location, price, purpose, size, ect.). They will start looking specifically for you based on your criteria and contact you as soon as they come across a deal that would work for you. As time goes by you will learn which wholesalers are worth staying in touch with. You definetly want to be on that stable list of buyers you mentioned if you are dealing with a wholesaler that is any good.

Wholesalers are like free employees... if their numbers work... why wouldn't you use em'?!

Sean