The Unsustainable Wholesaling Business Model
It all started with a simple question. BiggerPockets.com founder Joshua Dorkin sent me an email with a link to the BiggerPockets property directory. It contained several wholesale listings in Phoenix. Joshua asked, “can you check them for me?”
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After searching the Arizona Regional Multiple Listing Service and tax records I didn’t find anything out of the ordinary. The person that posted these listings didn’t own any of the properties, but that’s not unusual. He probably had them under contract and was looking to assign the deals to a wholesaler buyer. Of all the listings, just one was on the MLS and it was a HUD home showing pending.
None of the owners of record lived in Arizona, but that’s not unusual either. Obviously, the guy listing these deals on BiggerPockets was marketing to out of state buyers. Not a bad strategy given the all the competition for good deals here in Phoenix.
Still, something smelled fishy.
The following day I got an email from a Phoenix wholesaler. His website contained many of the same listings that were on the BiggerPockets property directory. I called this wholesaler and asked him if he was advertising on BiggerPockets. He said no. I asked him if he had hired someone to post his properties on the BiggerPockets property directory. Again, he said no.
As it turns out the person posting these listings neither owned nor controlled the properties. Worse, he didn’t have permission from the wholesaler that did have controlling interest to advertise these deals on BiggerPockets, or anywhere else. This phony was just trying to build a buyer’s list using someone else’s inventory.
That, my friends, is an unsustainable wholesaling business model.
The funny thing is none of these listings, the ones on BiggerPockets or on the actual wholesaler’s website, were very good deals. The after repair values were overinflated and the repair estimates were underestimated.
That, my friends, is also an unsustainable wholesaling business model.
If you have to lie about the houses you have, or don’t have, in your pipeline then you won’t be in business for long. Likewise, if you’re fudging on comps and repairs you won’t get many repeat buyers. You’ll constantly be marketing to the next sucker, err, buyer to come along. Eventually word will get out that your deals stink and you’ll have to move into your Mom’s basement.
Don’t move into your Mom’s basement.
Sell good deals with decent profit margins and the buyers will beat down your door. No phony BiggerPockets listings or fancy websites will be necessary.
Note from Josh Dorkin, BiggerPockets CEO: I noticed that the user described above had been posting dozens of properties on our site in a very short period, which seemed unusual given that the poster appeared to be an average investor. I don’t know many investors or even small investment companies that can manage that kind of deal-flow. Since I knew that Marty could help trace these properties, I turned to him for help.
When we learned from Marty that at least several of the posted listings were posted without permission from their owners, we immediately removed them from our website and banned the poster’s account here. Unfortunately, this is something that is prevalent across the web and is unfortunately something that site’s like ours MUST stand against. We at BiggerPockets believe that the tactics described by Marty in this post are deplorable and agree that they are not only unsustainable, but also completely unethical. We won’t have that nonsense here, and ask anyone who comes across someone that is using these kinds of tactics to make sure they know that other investors will NOT support them. Don’t do it. There are other ways to build your business.