BiggerPockets

Lets be honest here. I don't like the wholesaling business. At least a certain segment of that business. There is nothing productive, or creative about taking a property, turning it around and selling it as it is for a profit. Having said that, I'm not completely against it either. In the land of "making a buck" it is understandable. We are,after all, a nation of cottage industries.

A recent even just cemented my opnion on wholesaling. Since I'm not here to ruin anybody's business, I will keep the names and addresses concealed.

I recently announced going to Birmingham, AL for another properties expedition (Formal announcement to come soon...) and I called all wholesaler who have properties in Birmingham to send me their list for consideration. I have buyers who could be interested.

I was contacted by one person who did send me a list, so I went over it and one property in particular caught my eye. Its address seemed really familiar. The asking price was closed to $40,000 which is way higher that what REOs or HUD is selling in that area. Much higher.

I went back and realize why this address was so familiar. Several months ago, that property was on the MLS and I actually made an offer on it. It was listed at first at $17,000. I made an offer on it for $12,000 which was rejected. Two weeks later, I noticed that the price had dropped to $10,500. I called my agent and asked him to put an offer for the asking price. He dug further and found out that the property was put up with a known internet auction house. I asked him to bid on it for that amount. He did and the bid was accepted. Contract was sent, which I signed it and then.... Silence. I didn't hear anything. My agent could not get the selling agent at all. Suddenly he gets an e-mail from the auction house telling him that the seller pulled the property out of the auction to bulk it with other properties and to be sold to a wholesaler.
They claimed that the biding was not binding.

Now, this property was not changed or improved since transacting to the wholesaler (In a matter of fact, every time I drive by it, I see a hand-written sign on it saying: "Rent this property with option to buy" ). I have no idea how they even get to that number that is closed to $40,000.

I don't mind wholesalers making a buck and some of you may say, Hey, this is a free market, nobody force you to buy it. True. However, the only thing that bugs me is, that this is preying on the innocents and those who are not really familiar with that particular market. Since it is not advertised to the public (It is not listed with any agent) I assume that this is aimed at other wholesaler or people like me.

In the product world, wholesaling is buying in large quantities then retailing in small quantities. The closest thing in real estate would be someone who buys in bulk (builder closeouts, condo projects, bulk REO) and then sells individual properties.

Most wholesaling, though, refers to someone who buys an individual property then resells it. In reality, its no different than brokering. You find a property for sale, find a buyer and connect the two, taking a fee. Brokering, plain and simple. Yes, I know the mechanics are different, but that's mostly to deal with the fact its unlicensed brokering. I don't mean that in a pejoritive way, just a fact. If you're licensed, you have one method for collecting a fee for connecting a buyer and a seller. If you unlicensed, you have another set of methods, and those methods are collectively called wholesaling.

If the deal is OK, I don't have a problem.

I do think its pretty silly that some would be wholesalers offer a property that's on the MLS at a price higher than its listed on the MLS. Duh? Or, offer another wholesalers deal at a marked up price.

I'm a Wholesaler and I agree with Eddie...What that guy is doing is not Wholesaling. The value of a good Wholesaler is his ability to find properties that other people are not aware of and present those deals to someone at a fair price.

Like Nick said, there are too many people looking at the home as their next goldmine...not exactly a smart way to build rapport and establish yourself as a go-to guy for discounted properties.

Jeff

I sense and have experienced some of Eddie's frustrations in trying to buy REO properties - and I think most REO buyers at some point encounter the same things. The listing on auction sites so that they can come back at you with the "multiple offer - give your highest and best" crap is just another of the games that banks will play. Packaging it into bulk is another. But I don't know what role the wholesaler played in causing that frustration.

I agree with this part completely:

The property that Eddie is telling us about certainly seems to fit with this snippet.

I'm not here to defend wholesalers, because what all others have posted here is dead on with my experiences with wholesalers as well. I'm just trying to make certain we're aiming at the proper culprit for the case that Eddie has identified.

Well, if it makes anyone feel better, my thought is that the true wholesalers will create good buyer lists and stay in the game.

If you are a good buyer, then you'll stick around, too. Long enough to see the pseudo-wholesalers go back to finding a day job.

I would advise if you get a "deal" sent to you that is clearly not a deal to let them know that it is NOT a deal and explain why...who knows, maybe you'll be the guy that kicks them in the butt and forces them to actually learn the business.

Jeff

The key to being a good wholesaler is knowing how to analyze a deal so that there is plenty of profit for the end buyer with all fees included.

The thing is that a whole lot of newbies jump right into wholesaling without knowing what they are doing. They don't know how to analyze a deal because they assume they have a good deal just because they are getting $25K less from FMV or the ARV they don't understand the repair costs,holding costs(if any)closing costs,etc.

Another thing a lot of wholesalers lack is negotiation skills. That's another key aspect in wholesaling. If you can't negotiate a good deal with the seller than you are in the wrong business plain and simple.

Learn how to analyze and negotiate and you'll do good in this business otherwise you are setting up for failure which is what you don't want.

I'm going to be play devils advocate.

The wholesalers in my area are making a killing right now because investors have lowered their profit margins. The wholesaling model seems to be best model for generating profits.

A wholesaler who I spoke with yesterday is moving properties at 80% of ARV without repair for cosmetic rehabs. He is moving them around 70-75% of ARV with more work than cosmetic rehabs. I have spoken with several buyers and they are only looking to make 10% of ARV right now.

It appears that investors are more concerned with using their money regardless of the lower return versus just sitting in the bank waiting on the 70% minus repairs property that only comes across once in a blue moon (from a wholesaler, they are easier to get by yourself).

So if I can pick up a property and move them and make $5-7K in a week, versus buying rehabbing and only making $20K in three months. Why would I not want to be a "wholesaler"?

Doesn't the saying go "When everyone is buying you should be selling, and when everyone is selling you should be buying?" Well, everyone is buying right now.

IMO, there is a new definition for wholesaling in this market. Till it corrects itself, I do not think the 70% minus repairs are coming from anyone but your own hard work. The investor needs to adapt. This is how I see it in my market.

Okay, now you guys can tear my post apart.

Good for you.

Jeff

Justin,

Are you sure these guys are not flipping these to retail buyers? If not send them my way...I could use some buyers like that.

Jeff

I can only confirm they are cash buyers. Lots of cash going around in AZ right now for properties under $200K. Retail and investors.