Wholesale Hacking: How to Find Monster Off-Market Deals Before Anyone Else

by | BiggerPockets.com

Remember the 3D investor?

No, I’m not talking three dimensional. I’m talking the 3D equation—death, divorces, defaults—three instances in which an investor sees opportunity.

Well, there’s actually a fourth: distress.

Distress makes for great opportunity, for wholesalers specifically—especially if you know where to find distress before distress becomes known.

Well, there’s a source for that. And no, it’s not bandit signs, brokers, or knocking on doors like a creep. In fact, it’s such an obvious source it leaves you wondering why you never thought of it yourself. 

But let’s backtrack a bit.

What Is Wholesaling Real Estate?

I know a lot of readers here are intrigued by wholesaling, have heard of wholesaling, are curious about it. Heck, they may even have tried their luck at it.

What’s not to like, right? Invest in real estate without spending a dime.

Outside of the appeal it holds in theory, I personally don’t think it’s the best place for someone new to start (for a bunch of reasons).

I honestly think it sucks, period. However, sometimes, serendipitously, a wholesaling scenario presents itself. 

Related: The Ultimate Beginner’s Guide to Real Estate Wholesaling

When Is Wholesaling a Good Idea?

Personal feelings aside, I’ve learned (completely and randomly through happenstance) that there is actually a fantastic source for deals that are best left—gasp—wholesaled!

In order to find exclusive deals worth even trying to wholesale, you’ve gotta make sure they’re juicy. And to that, you have to have a lead source.

And no, those bullshit notes about, “I want to buy your house,” aren’t lead generators—they’re nuisances.

I get them all the time at my smaller properties. Rather than persuade me to sell, whoever sends these simply annoys me. No one wants unsolicited physical mail (#stoneage).

Anyway, the key to juicy exclusive deals isn’t just to get them off-market. You’ve gotta get them before the seller knows they have to sell.

Once they talk to a broker, it’s too late. The margins are already getting trimmed.

So here’s how you can get them.

wholesalers-tasks

Related: I (Almost) NEVER Wholesale Real Estate: Here’s Why

Finding Real Estate Wholesale Deals

We’ve had really strong deal flow in Q1—probably the best we’ve ever had.

Some were unlisted, some bankruptcy sales, some from government. Some were even joint venture offers.

Naturally, you can’t—and shouldn’t—jump on every single opportunity. Some you pass on.

Some you pass on to a better fit. And some just aren’t in your wheelhouse or within your strategic focus.

But sometimes you get no-brainer deals that just make too much sense to not put under contract and immediately sell to someone else. I reckon I get around seven of these per month.

Here’s a real example that just happened.

Recent Real-Life Example

My finance guy constantly gets requests for refinancing, funding, whatever. Some deals just aren’t financeable, for whatever reason.

If the owner can’t pull money out of the property, guess what liquidation option remains. Yup. Selling the property.

In other words, you now have a seller that’s extremely motivated. And guess who hears about it way before a broker has a chance to even know what’s happening?

Bingo! The same people the lender’s already doing business with.

Following is a real conversation, verbatim, with myself and my de facto EVP of Capital Markets, who also arranges financing independently. (I’ve changed his name for the sake of the story.)

“Philip!”

“Damon! What’s up?”

“I have this deal in Washington. Can’t get it refinanced. Seller needs to refinance to pay off an existing loan, plus another deal he needs to close by this date.”

“What is it?”

“It’s a renovated, cash-flowing, single-tenant commercial property. It’s worth $1.3MM at a 6 cap.”

“Sounds nice, but you know I only really do Jersey and Philly.”

“Yes, but hear me out, Philip. Seller cannot refinance this deal. We’ve tried everything. He just needs $1MM, then he can clear his mortgage, close this other deal, and walk away with a hundred grand.”

“What do you wanna do?”

“I put it under contract for $1MM. We can sell it for $1.1MM, $1.2MM. It’s still a great deal for an investor. Can you help me?”

That’s a $300K spread.

The lease? Seven years.

Tenant? Investment grade.

This ended up going to a buyer at a 7 percent cap rate (around $1.1MM). It took about five texts and an email intro.

wholesale-buyers-list

How You Can Apply This to You

Who’s the closest to potential sellers? Lenders.

And no, you don’t have to have a J.P. Morgan VP to feed you deals. Mortgage brokers, solopreneurs, easily accessible people—they’re in the trenches of people asking for cash.

You don’t have to be well connected either. They’re all over the place in your area. 

The more I think about it, this is where I’ve gotten the best, most useless deals I can remember.

And when I say useless, it’s because they’re so good on paper, but soooo not in my wheelhouse that it’s unfortunate.

I get at least two of these calls weekly. Around three to four a month are home run deals.

Goes without saying, they’re not sexy Midtown Manhattan office buildings.

We’re talking random situations like five self-storage facilities in Iowa cash flowing a strong 8 percent a year or a 12-unit mixed-use in South Carolina.

All of them have solid operations, along with some unconducive backstory that makes the dynamic of the deal exist in a vacuum outside the confines of market economics.

“I just need to sell for this much so I can buy out my ex-husband for $300K and walk away with $200K myself.”

For us, we’re not set up right now to just jump on random individual deals as they appear. Plus, I don’t love the idea of having assets scattered across the country, knowing I’d never go there in person.

But if you’re a cash flow investor, part of a smaller investment group, or just someone with a great network, these deals are literally perfect.

It’s funny, I never ever expected to write about this. I didn’t realize how big of a potential opportunity this was until I experienced it.

(And if I’m not capitalizing on it myself, I thought the very least I could is share these tips.)

Based on my experience, the best source of deals can’t possibly come from some silly bandit sign or spammy letters. It doesn’t even come from realtors.

It comes from the ones who really control the controlling party’s destiny. And that’s the lender. 

Does this make sense? Would you like additional pointers or recommendations?

Let me know in the comments!

 

About Author

Philip Michael

A native of Denmark, Philip came to New York in 2014 with $79 in his PayPal account. In 2015, he joined Bisnow Media (the largest commercial real estate news source in North America) and helped lead them to a $50M sale as National Editor and Director of Content Strategy. Founder of NYEG, a real estate & VC company with $80M in the development pipeline, Philip and his team are currently developing a series of historic projects, including the first black-owned high rise in Jersey City, the first smart home development in Jersey City's McGinley Square, and the first voice-controlled student housing building in Philadelphia. Philip is the best-selling author of Real Estate Wealth Hacking: How To 10x Your Net Worth In 18 Months and an expert columnist for Forbes, Black Enterprise, Entrepreneur and others.

9 Comments

  1. Anna Frey

    Hi Philip, thank you for the awesome article! Do you have any tips for establishing connections with lenders for newbies? Also, how does pay out work in these sort of circumstances? When the lender informs you of the deal, do you pay them like a birddog or do they usually want to do a joint venture?

    Thank you in advance for any tips!

    • Philip Michael

      Hi Anna. There’s not really any rocket science to it. Just network. Off the top of my head as I type this, FHA is a superb way to start, if you’re new.

      Reach out through your network, shoot a Facebook message “Hey, does anyone know a lender, mortgage broker or a contact at a bank? Getting into real estate and looking to get pre-qualified for an FHA loan.” Good place to start IMO! ?

      I wouldn’t just come out and say “Hey! Wanna wholesale some deals, what do you have??” Build a relationship first. I have a “mantra” I use that says “give, give, receive.” Never “take.”

      Once you do a deal, maybe make a few referrals, you’ll see stuff coming your way in no time…

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