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Why I Stopped Listening To Wholesalers

by Tracy Royce on July 4, 2013 · 34 comments

  
House

“Buyers are liars and sellers are worse.” Pretty harsh statement to insult the clients in a real estate transaction, isn’t it? The phrase bore from the measurement of trust each party has in the other, though, so should it be any different in an off-MLS transaction?

Wholesaling isn’t a bad word. In fact, people love the idea of buying below cost. Big box stores do exceptionally well in this arena because they buy in such quantity, they can cut out the retailer and offer savings to the end customer. And it doesn’t just apply when you need a 5 gallon drum of peanut butter. It can apply to diamonds, electronics, cars….and real estate.

Who’s Hustling Here?

So when someone proclaims, “I wholesale properties”, the natural assumption is that you’re going to be buying below the cost than if you’d purchased the home through an agent/MLS. The discount comes into play because the wholesaler has purchased a bulk tape of homes at a reduced price, or the deal was acquired substantially below market value and there is room for the dealer to make money, and the end user to still purchase the property cheaper than they could through a Realtor.

The difference is, when buying a wholesale widget, the cost comparison is pretty simple. Heck, I’ll stand in the isle somewhere and look it up on Amazon or Google and see if I can buy it online for cheaper and avoid sales tax. If it’s near the same price and I can buy it now, the convenience is worth it. Point is, it’s easy to do “price checks” when buying electronics, household items, etc at a perceived discount price.

With real estate, the value is somewhat subjective. Are you purchasing to re-sale quickly? Will this be a long-term rental? How much will repairs actually cost? This will obviously influence your purchasing decision.

So, how do you know if/when you’re really getting a good deal? In my experience, wholesalers purchase 70-ish% or below market value and can sell to Fix & Flippers around 72-76% of full market value. If it’s a house that is nearly or rent –ready, they can sell up to 82-90%.

The Real Deal

Here’s where the numbers can get sticky and where you could wind up paying retail for a “wholesale” property:

1) Condition

Depending on who you’re purchasing from, they may or may not give you any sort of dollar figure for amount of repairs that need to be done. Most will outline repairs that will need to be addressed. For example “Place needs carpet, paint, and new A/C to make rent-ready”. This leaves the cost estimate to your discretion. It also leaves the opinion of what the property “needs” up to the source, though. Although I take into consideration what they may say it needs, I always do a site inspection and itemize what I know will need to be done to get the property retail or rent ready. What was advertised as “needs paint and carpet” could/does well end up being “needs paint, carpet, roof, major stucco work…”(…and that 3rd bedroom we advertised isn’t permitted and is barely standing.)

So, what’s advertised as needing to be done vs what the home will require may be vastly different. As well, be wary of anyone else’s soft bid of how much the repairs/updating will cost. Again, although I can appreciate their attempt to be more thorough, it’s up to you to know the numbers, not rely on a guess or someone else’s knowledge. Always do a thorough inspection before agreeing to purchase.

2) Full Market Value

Most wholesalers are not licensed, and may or may not have access to the MLS. More importantly, if they have no formal training in pulling comps an appraiser may use, the information they send can be incorrect or inadvertently misleading.

Which is why I stopped listening to wholesalers opinions of what the house is worth. Now, the question is, what is the house worth to ME? That could be a different number then the next person, depending of course on our end goal with the property. Just like an appraisal, it’s an opinion. But, I’ve found many wholesalers use outdated information, comps from too far away, don’t take amenities or differentiating neighborhoods into consideration, to name a few.

In a market like Phoenix where there is limited inventory and prices are rising, people are over-paying for properties. But, they may have a long-term strategy and are banking on powerful appreciation during their ownership. But, they may not. It’s not for me to judge, I just personally can’t and won’t pay retail for a property that will then require more funds to make rental/retail ready, plus holding costs, etc. I rather stick to my “juicy” deals and avoid the night-terrors that I overpaid for a property.

I’ve worked with wholesalers from around my area, and some won’t provide comps; it’s just up to you to do the due diligence and decide. I agree! I know how to pull thorough, useable, viable, real-time comps, and would not rely solely on someone else’s insight. Heck, with dealing with short sales, appraisals, BPO’s in an ever-changing market, I know it’s an art and a science, and so should you. Crunch your own numbers.

The Wholesaling Credo

I feel like with the amount of push for people to start wholesaling, this will strike some cords with both newbies (trying to wholesale) and seasoned vets (buying deals).

It can really be a win-win proposition pairing an exclusive property with the right buyer for an all-cash, quick close. The takeaway is, wholesalers, after you’ve tied up the property, send a concise breakdown of the property address, condition, price, terms, access details, link to pictures, and any other pertinent details. If you’re not sure, reach out to some bigger wholesalers or retailers in your area as you are getting started. They may at least give you feedback on what they will buy and help you improve your criteria, and may even buy the deal from you.

Buyers, be quick to perform your due diligence behind the desk, preview the property, estimate your costs and close on time. (And no, what the wholesaler makes on the deal is not of consequence if you are happy with the price.)

Buying from wholesalers and wholesaling properties can be a nice stream to add to your acquisition channels. Done right, it could be a happy relationship, instead of one of adversity.

What do you think?

Photo: Keith Daly

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{ 34 comments… read them below or add one }

Dennis July 4, 2013 at 11:11 am

There is a time and place for everything under the sun. A statement of biblical proportions.

I have used Realtors for many transactions, but all of the interesting transactions (those that make REI fun, and sometimes not so much) have come outside of the MLS and the services of Realtors.

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Tracy Royce July 5, 2013 at 5:29 pm

Certainly true Dennis! Wholesaling (or at least the concept) seems to be quite popular now and a deal is a deal, wherever is comes from.

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Jaz cook July 4, 2013 at 11:53 am

“Buyers are liars and sellers are worse.” Pretty harsh statement to insult the clients in a real estate transaction, isn’t it? The phrase bore from the measurement of trust each party has in the other, though, so should it be any different in an off-MLS transaction?

First paragraph got my attention, lol! Just Say It As It Is?
Always enjoy reading your blog.
Great article!!
Jaz

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Tracy Royce July 5, 2013 at 5:30 pm

That’s how we do, Jaz ;) No fluff here! Glad you enjoyed and thanks for commenting.

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john milliken July 4, 2013 at 2:57 pm

nice article Tracy.
wholesaling is like any other field out there. Out of 100 wholesalers, only about 5 or less are good at what they do. sharon vornholt, and danny johnson are examples of good wholesalers. most guru’s out there are hacks. when you find a good wholesaler, hold on to him/her, and enjoy the rewards.

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Tracy Royce July 5, 2013 at 5:31 pm

Couldn’t agree more John. Same rings true for agents, if I might say. But probably more like 1-2 out of a 100!! Sharon and Danny are wonderful examples.

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Lakeysha Adams July 4, 2013 at 4:19 pm

Well, I will be beginning wholesaling soon. I am grateful for the advice that you all are giving. I truly am out to make it a win win for everybody involved. Please continue to express concerns and ways that one can be a good and valuable wholesaler.

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Tracy Royce July 5, 2013 at 5:32 pm

Great, Lakeysha! Glad you got something out of it. Do take it to heart and negotiate hard on your acquisition prices :)

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Wayne Woodson July 5, 2013 at 9:34 am

This is great advice on what not to do as a wholesaler

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Tracy Royce July 5, 2013 at 5:33 pm

Thanks Wayne, it’s always great to feel like I’m helping build an informed audience. Cheers -

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Bruce May July 7, 2013 at 2:27 pm

Good article Tracy. Having a wife who’s a Realtor and a former BPO agent really helps me get the best comps available. When I’m struggling with a comp I rely on her expertise. That said, I feel it’s still the end buyer’s responsibility to determine the value of the property based on their needs, not mine. My comps should help guide the buyer but shouldn’t be what they rely on to make their buying decision.

I believe in providing the best comps I can find. It adds credibility and trust to the fragile seller/buyer relationship that I have with my local investors.

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Tracy Royce July 22, 2013 at 12:50 pm

I would agree Bruce, and you certainly know the ropes. I’m sure that helps your buyers.

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David Driscoll July 7, 2013 at 3:46 pm

My first thought is, have someone in your family, friends or associates get a RE license, it’s not that difficult. Pay for their board dues and mls fees if any. This way you have access to all the info appraisers have. If you close your transactions through a title company they can provide you with comps too, what you don’t get from title is pictures. Lawyers Title is who I use. I use only one wholesaler, he guarantees to buy the property back at what I paid for it if it doesn’t live up to what he tells me. So far, I’ve done 13 deals with him and he’s not had to buy one back.

When I commit to buy from my wholesaler, I drive by the property and then do the comps. I am a Realtor so I do have access to the mls data. You could also get your RE license. With a RE license I can’t sell my properties, my E&O insurance won’t cover me. I pay an agent friend of mine a flat $1,000 to list these for me. I’ll do the work an he meets with the buyers to sign the contracts.

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Tracy Royce July 22, 2013 at 12:51 pm

Sounds like you’ve worked out the kinks David for a win-win. Thanks for sharing your set up David, I’m sure it will be helpful to others reading this blog.

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Joe Locklear July 7, 2013 at 4:31 pm

Tracy,

I wholesaled my first deal Lin 1982 and have been a full-time wholesaler and real estate entrepreneur since 2001. I average 50 wholesale deals a year. One Important aspect that you did not mention is the massive amount of time and expertise that it takes to dig-up a deal that you can buy low enough, mark it up and then still sell it at a true wholesale price. I average about 50 offers to buy a house. I tell my students to imagine trying to buy cars at a price so low that you can sell them to DEALERS at a profit. Wholesaling is HARD. Many “gurus” over-simplify the process. Most long-term successful WHOLESALERS offer what I like to call “added value”. Our small company has evolved to offer valuation, renovation, property management and education. Added-value builds successful repeat customers.

For those new to wholesaling, you don’t have to possess added-value, you can locate it and make it available to your customers. MLS is absolutely essential, so become or hook-up with a Realtor. Same with a renovation contractor and property manager. Don’t try to profit from these assets, just provide them to your customers.

Again, I enjoyed the article and this entire blog. This is my first post!

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Tracy Royce July 22, 2013 at 12:53 pm

Hi Joe, thanks for posting!! It’s great to get insight from those like you that are usually too busy to join in the conversation, but there’s a lot of valuable insight in your reply. I like how you spelled it out and showed the pro’s and con’s, so to all you newbies out there, listen up! To your success -

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Danny July 8, 2013 at 12:14 am

This Post def got my attention. At my local reia, when it’s “deal presentation” time, we are forbidden from presenting anything on the MLS. Investors in my area do not want MLS property. They feel everyone has seen it and think that if the deal is too good, it will get bid up or if its too good and sat on the MLS for long, there’s def something wrong with it! that’s just the reality of the biz, so as a wholesaler, or to remain relevant in the game, you have to work HARD to find and contract non MLS deals.

Off course I give my buyers the list of work that needs to be done, BUT All my buyers always come to physically see the property, in fact I encourage them to. That way if my estimates are way off, they let me know, thus more education for me and I learn what to look for when bringing them deals

The serious cash buyers are upfront and credible, that way they build good reputations. I have a small group of prime buyers who I talk to even when in the process of negotiating. I interview an screen all my buyers coz I do not want tire kickers or time wasters

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David Driscoll July 8, 2013 at 12:22 pm

Hi Danny, what areas do you cover. I’m looking for someone like you in CO. thank you

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Danny July 8, 2013 at 8:35 pm

Hi David!

I’m in New England, MA to be specific. unfortunately I do not “virtual” wholesale lol so at the moment just seeking out deals here locally. are you a rehabber trying to scout non MLS deals in the CO market?

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Shaun July 13, 2013 at 9:24 am

Hi Danny
Where in MA?
I’m in Newton but will look ay deals as far west as the Springfield area.

Always on the lookout for good wholesalers.

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Jerry Zhao July 10, 2013 at 12:11 am

This is a great article! My wife and I are building our portfolio of properties over the last 3 years in Phoenix. All of our deals are done through a Realtor.

As the price is coming up recently, it is getting very hard to get good deals. We love to have some good wholesalers to work with us.

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Tracy Royce July 22, 2013 at 12:54 pm

Hi Jerry,

There’s a lot of them in Phoenix. Just google phoenix wholesalers, etc, or email me and I would be happy to connect you with some.

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Jack July 12, 2013 at 5:25 am

Good information, I just posted a story about “What is the difference between a Real Estate Agent and a Realtor” on my facebook page. Interesting to know that people cannot differentiate the difference. It comes down to the agent to make the difference.

Good info here too, I had a wholesaler wanting to tie up a property for 30 days, give me 1k down and say he would look for a buyer for me. Look? You mean you don’t already have one? Most wholesalers are tire kickers and time wasters. The good ones bring buyers to you, so beware of the wasters and work with the credible partners.

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LaKeysha Adams July 12, 2013 at 8:34 am

So, Jack. I am wondering exactly how long would you expect a person to “tie up” a property considering most wholesalers on BP say they use 30-60 days in their contracts. For a newbie, exactly what do you suggest? Do you suggest they work on their buyer’s list first? Well, from what I read most buyers want properties lined up. Most sellers want buyer’s lined up. I guess what I’m trying to say is, since you have to start somewhere, where do you start. You will make mistakes as an investor no matter what approach you take. You still have to start and start somewhere. I would rather someone teach me than to talk about me.

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Danny July 12, 2013 at 11:44 am

@Jack,

I’m just curious as to why you were looking to work with a wholesaler? Coz most wholesalers work with homeowners / property owners who need to sell a home quick without using agents and without paying commissions or doing fix ups. were you an investor or homeowner trying to get rid of a property?

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Joe Locklear July 12, 2013 at 4:40 pm

There are as many types of WHOLESALERS as there are methods to buy and sell property. Whatever the method, ,the wholesaler just has to be good enough to buy BELOW the wholesale value and that sell at the wholesale value. If you want to be a wholesaler – this is the ONLY rule you must follow. You need to obey the law and practice ethically, but be as creative as you can. There is no “magic bullet” for wholesaling. Just get the best education you can, try and locate an experienced wholesaler you can trade splitting deals with in exchange for personal mentoring. JOIN your local investors association and find out who the successful WHOLESALERS are. Again, just learn to buy BELOW the wholesale value. if you have a good deal and expose it to local investors and it will sell.

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Danny July 12, 2013 at 7:06 pm

@ Joe Locklear

“…………buy BELOW the wholesale value and that sell at the wholesale value….” that pretty much sums it.

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Joe Locklear July 12, 2013 at 8:09 pm

Danny,

Referring back to your earlier post, I have wholesaled hundreds of MLS deals, but I have never presented a deal at an investors assoc meeting. Use the meeting to help others and demonstrate your expertise and experience. When others ask what you do, let them know you are a wholesaler and tell them to go to your website and join your email list. You can carry a business card with NOTHING on it but your landing page address. If you can provide some education and motivation along with deals to those on your email list – you are well on your way to becoming the #1 wholesaler in your area. Best wishes!

When you have an available property, email details to your email list.

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Danny July 15, 2013 at 6:48 pm

@ JOE,

Thanks for the tips. the people on ur email list, are they cash buyers or fellow wholesalers?

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Joe Locklear July 15, 2013 at 7:06 pm

Danny,

Since i am Pres (and co-owner) of the Professional Real Estate Investors Association here in Jacksonville, Fl, my email list includes all of our members plus all of my wholesale customers, plus a lot of people that just like to get my updates and education class invitations. I would say that abound 5% are cash buyers, another 5% my refinance/turn-key customers and the rest association members, Investors that I have not met, wholesalers, realtors etc.

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Tracy Royce July 22, 2013 at 12:56 pm

Good email thread, guys! Just as much info from the comments as there was in the blog post.

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Danny July 22, 2013 at 1:32 pm
vuyisile January 17, 2014 at 3:55 pm

I am currently looking to start up a wholesale,I have two questions to ask,#1 When is a deal described as a good deal focused on Buyer,seller and you the wholesaler?#2 Can one start the practice before registering a company or with the relevant associations,let’s say maybe you want to make capital to establish the business and get necessary tools to start?

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Joe Locklear January 17, 2014 at 4:45 pm

Vuyisile,

In order to become an effective wholesaler, you need a really good overall RE education. From the questionable you asked – you are not the yet. Here are a few tips for preparing yourself to learn wholesaling…

1. Join your local Real Estate Investors Association. If there is no association in your area, email me and I can send you a link to an online REIA with good education.

2. Try to find a successful local wholesaler and offer to help them for free. Learn how they make money in exchange for sending postcards, answering the phone, scheduling appointments, scanning MLS etc.

3. Once you know what you are looking for, bust your but until you have a really good deal.

4. Sell that deal to a local wholesaler, even if you only make a couple of thousand.

5. Now the wholesaler you helped knows you can offer REAL value, offer to “apprentice” for a profit share.

6. You can step out on your own after you really know the business.

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