Real Estate Wholesaling

The #1 Reason Wholesalers Get a Terrible Reputation (& How to Change That!)

Expertise: Real Estate Wholesaling, Business Management, Personal Development
59 Articles Written
wholesaler-reputation

The No. 1 reason wholesalers have such a terrible reputation in the real estate industry is because they never have good deals. The most common complaint I hear is that wholesalers aren’t leaving enough profit margin for investor-buyers to make any money deals.  

So what’s considered a good deal anyway?

That would be a property that is going to bring our investor-buyers a nice return on their money after flipping. The biggest problem is that there’s a lot of wholesalers out there who don’t know how properly analyze deals!

It’s critical as a wholesaler that we analyze deals from a fix-and-flipper or buy-and-hold investor’s perspective because they are our primary customer. And what may look like a good deal for us wholesalers may not be a good deal for our investor-buyers.

First Thing’s First…

Learning how to run comps and analyze deals is the lifeline of your business. Once you’ve created lead generation, you’re literally going to sit and analyze deals day in and day out. That’s why learning how to properly analyze deals should be the first thing you learn before entering into the wholesale business. If you don’t know how to analyze deals, then you don’t have a business!

And you don’t want to become known as the wholesaler with bad deals because that is the quickest way to ruin your reputation as a real estate investor. I understand that analyzing deals can be challenging for beginners, but if you practice and follow these steps, you’ll learn how to properly analyze deals in no time.

I want to encourage anyone out there who is aspiring to become a real estate wholesaler, so here is a step-by-step guide on how to properly analyze flip deals.

Step 1: The 65 Percent Rule

working at desk

The 65 percent rule is what is commonly known as the “70 percent rule” fix and flippers use, with 5 percent reduced so that wholesalers can build in a profit margin while still leaving the investor-buyers with a nice return.

This is the only equation you’ll need to know when analyzing flip deals, and you’ll want to use this equation when screening every lead that comes in:

Purchase Price = ARV (After Repair Value) x 0.65 – Rehab

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Now, as wholesalers, our job is to take the load off of our investor-buyers by helping them find discounted properties. Investor-buyers are the lifeblood of our business as wholesalers, and if they aren’t pleased with the deals you send them, trust me, you’ll be out of business sooner than you know.

Following the the 65 percent rule will prevent you from chewing away at your investor-buyer’s profit margins, which will make everyone happy, including yourself!

Related: The 6 Most Common Newbie Wholesaling Questions, Answered!

Calculating the After Repair Value

The after repair value (ARV) is the cost you could sell the property for at retail price if the property was in retail condition. Think of the ARV as the cost of a property after it has been fully remodeled and is on the market with a real estate agent.

Now, the biggest factor in determining the ARV is running comparables. This is where you research the purchase price of similar properties to help you determine how much your property is worth at retail.

Running Comps

Find three to five properties on the MLS that are in close proximity to the subject property (typically within a .25 to .5 mile radius) that have been sold within the last six months. Locate properties that are similar in design, house type, square footage, bed-to-bathroom ratio, etc., the most important being location, time sold, house type, and square footage.

It’s vital to compare your property to similar house types. If you’re running comps on a townhouse, compare it with other townhouses. If you have a duplex, compare it with other duplexes. If it’s a single-family home, compare it to other single-family homes.

Once you’ve found the purchase price of similar properties, you’ll get a solid idea on the retail price of the property. Now that you have your ARV, you must determine the rehab costs, which can be one of the most challenging steps if you don’t have any experience in construction.

Step 2: Determining Rehab Costs

estimating-rehab-costs

One of the biggest mistakes wholesalers make is trying to determine the exact rehab cost, which isn’t quite possible because rehab costs are subjective to the contractor. For example, someone may replace a brand new bathtub for $500, and another contractor may replace the same exact bathtub for $700.

That’s why as a wholesaler it’s good to work with price ranges, which will give your investor-buyers a good idea of how much rehab is going to cost. Then during the inspection period, the investor-buyer can determine the rehab costs based off their own business model, network, and experience.

Now, if you don’t have any construction experience, I would recommend using contractor bids to help calculate rehab costs. During the inspection period, ask three to five contractors to bid on the scope of work of the property. Then take the lowest and the highest bid provided by the contractors and make that your rehab cost range.

It’s that simple!

Related: Wholesalers, Having Trouble Estimating Rehab Costs? Try This!

Step 3: Purchase Price

Now that you know how much the property is worth at retail and the cost to rehab, let’s revisit the 65 percent rule by multiplying your ARV by 65 percent and then subtracting the estimated rehab cost.

Now you have your purchase price!

Submitting an Offer

Since you’re comfortable with your purchase price, you’ll want to sharpen your negotiation skills as well. If you submit your offer first, I highly recommend starting $10,000 lower than your ideal purchase price. This allows you a little to negotiate if the seller pushes back on your initial offer.

Before submitting your offer, make sure you get the seller to make an offer first. This allows you to get a feel for how much they want for the property. Once they throw out their number first, ask them, “If I were to buy your house right now with all cash, what’s the lowest that you could go?”

You’d be amazed at the response you’ll receive. I’ve had people literally drop their asking price significantly—by $20,000-$30,000, just by asking that simple question!

Now, if the seller doesn’t accept your initial offer, be sure to follow up with them. Following up is crucial to making deals, and I’ll be the first to tell you that a lot of our deals have come from simply following up!

Conclusion

I hope this post cleared up some of the confusion that comes along with analyzing deals. We have to work on cleaning the tainted reputation that’s out there about wholesalers, and it starts by learning how to analyze deals the right way.

Analyzing deals is the single most important aspect in real estate wholesaling, and once you master this, investor-buyers will come knocking at your door.

What are some methods you use to analyze deals?

Share with a comment below!

Brett Snodgrass is CEO of Simple Wholesaling and has been a full-time real estate investor for 10+ years. He specializes in wholesaling, wholetailin...
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    David Krulac from Mechanicsburg, Pennsylvania
    Replied about 3 years ago
    Agree, one time went to a REIA meeting and this wholesaler said that he had all these deals. I’ve bought and sold over 900 properties so I’m always a buyer. He showed me every deal he had, and zero were deals.
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Yea, definitely seen that myself. Hoping to see it shift more as there’s no reason for it and wholesalers need to see that to build a business you want buyers who will buy from you repeatedly and you can’t do that without actual deals.
    Greg Stubbs from Houston, Texas
    Replied about 3 years ago
    Great information to work with. Will pass on this knowledge. Thanks.
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Glad to hear Greg
    Jeric L. Investor from Rancho Cucamonga, CA
    Replied about 3 years ago
    Brett, thank you for making this wholesaling simplified in layman terms. It is very helpful and to the point. It is great to have people like you making it a mission in helping others, which is very much appreciated. More power to you! By the way, I also follow your SimpleWholesaling.com which is another great platform in educating yourself.
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Thanks again Jeric. Appreciate the comments.
    Susan Maneck Investor from Jackson, Mississippi
    Replied about 3 years ago
    I find wholesalers typically way underestimate the amount it will cost to rehab a property. I have bought one property from a wholesaler.
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Ya, there are definitely ones out there who don’t know or misrepresent, but hopefully investors will find the good ones before writing it off.
    James Green Wholesaler from Waldorf, Maryland
    Replied about 3 years ago
    @BRETT SNODGRASS great article as always. Do you pay for your contractor quotes?
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    We have established relationships with contractors that don’t require it but if you’re just starting out, it’s not a bad idea.
    Zahrah McFadgen Investor from Menands, New York
    Replied about 3 years ago
    Thank you for this article! It was very helpful to a newbie like me learning to become a great wholesaler. 🙂
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Thanks Zahrah.
    Kenshon Gipson from Detroit, Michigan
    Replied about 3 years ago
    Great article. One of my issues was trying to figure out what would make a good deal & this just really simplified things for me. This will definitely be beneficial as I work on putting together my first deal.
    Joe McCarthy from Chicago, IL
    Replied about 3 years ago
    Brett, this is perfect for me as I get started. Thanks for the great info and making it easy to understand!
    Marques Johnson from Ellenwood, Georgia
    Replied about 3 years ago
    How do you learn to estimate what the rehabbing would cost without having done one or without knowing the construction business cost of materials etc?
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Sorry Marques, I missed this question. Honestly, the best way to do this is by bringing in 3-5 contractors to give you bids on the project. Rehab costs are just as much of an art as they are a science.
    Cody Evans Wholesaler from Fairfield, California
    Replied over 2 years ago
    How much does it cost to get contractors to bid? Also are these general contractors or must I call 5 electricians, 5 drywalls, 5 etc?
    Brett Snodgrass Investor from Indianapolis, IN
    Replied over 2 years ago
    Bids are different for every area. The better relationship you have with them, the more likely they are to waive a bid fee. Ask around your area and find some trusted contractors, build a reputation with 2 or 3 of them and as long as you are throwing them business they will help you as well. We try to find contractors that do a little bit of everything so we are not hiring out for every separate job.
    Seth Taylor Investor from Denver, Colorado
    Replied about 3 years ago
    Thanks Brent, For the great post. I can unfortunately say that I made all the rookie mistakes you spoke about. Initially I was so hungry to get a deal done I was locking up properties that clearly not deals may be 90% of the ARV, it was brutal. I wish I had access to this information then.
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Thanks Seth. Glad to hear that you’ve learned even if it was the harder way:)
    John Mathewson from Schererville, Indiana
    Replied about 3 years ago
    Great article. Numbers that is what it all comes down to right? Too many wholesalers don’t put the time into looking at the numbers or use a realtors comps and not what they searched on their own.
    Brett Snodgrass Investor from Indianapolis, IN
    Replied about 3 years ago
    Thanks John.
    Inetta Bell from Charlotte, North Carolina
    Replied over 2 years ago
    Thanks for this information. I am a newbie Wholesaler and wasn’t going to start Wholesaling until I had the numbers correct. This is one of the most, if not the most important aspect of wholesaling. It will make or break your Wholesale business. My plan was to get a contractor to assist initially so that my numbers would be close to accurate but this information has helped me tremendously.
    Mark Elkins from Schaumburg, Illinois
    Replied about 2 years ago
    Your article is dead on correct! I have been explaining this for years to “wholesalers” who won’t listen. The other issue besides not using your 65% rule is when the seller doesn’t really have a contract and tries to sell me at a price that includes their fee as a percentage of the purchase price when the fee might be the only thing killing the deal! Tip: get a contract in place and ask me to pay you for the contract. That way you can’t lose the deal, I know all the terms and the only thing we have to talk about is the price of the contract. Keep up the good work Brett!
    Nika Wilson from Houston, Texas
    Replied almost 2 years ago
    Thank you so much. Very helpful. Very Clear. God Bless.
    Nika Wilson from Houston, Texas
    Replied almost 2 years ago
    Thank you so much. Very helpful. Very Clear. God Bless.
    Ross Wygmans from Gainesville, FL
    Replied almost 2 years ago
    I’m a total newbie, so bear with me. Brett suggests having 3-5 contractors bid on the rehab costs during the inspection period to get an accurate cost range. Doesn’t the inspection period kick in after the contract has already been signed, hence an offer has already been made?
    Robert Shorey Wholesaler from Gwynn Oak, Maryland
    Replied almost 2 years ago
    Aren’t there two different formulas, one to flip to a rehab investor and another for a buy and hold investor?
    Kevin Bryant from Newark, New Jersey
    Replied almost 2 years ago
    Great information. Thank you
    Trina Butler Specialist from Akron, OH
    Replied over 1 year ago
    Thanks Brett, Great read, this helps out a lot, good advice is always better from someone that is God fearing !
    Herbert Bradford Homeowner from Houston, Texas
    Replied over 1 year ago
    Thanks Brett! This was a great article for me. I am a newbie and have not done any deals as of yet, I want to make sure that I bring value to the investor-buyers. I really appreciate it.
    Leroy Feireira-shearin New to Real Estate from Temple, PA
    Replied over 1 year ago
    Great article , I am a new kid on the block so far so good,I am loving everything about wholesaling.
    Joseph Henderson from Jacksonville, FL
    Replied about 1 year ago
    Great Information thank you for this article. Being to this definitely going to be apply the steps in this article
    Pinny Lubinsky Flipper/Rehabber from Union County New Jersey
    Replied about 1 year ago
    Hello Brett, Thank you for simplifying the concepts of wholesaling. I am a new member on BP and really appreciate your post. One question I had was how can one get comps without access to the MLS?
    Javier Rosales from Los Angeles Ca
    Replied 3 months ago
    this was great. very informational. I would like to know to pull up duplexes on zillow or redfin. the step by step is really good way to explain this part of RE. would it be easier to pull duplexes off of the MLS?. or could i just match the room/bath sqft etc using a sfh? thanks Brett
    Brandon Moore from Central Arkanas
    Replied 3 months ago
    This provided a ton of information for me to take into account as I move forward with my wholesaling business. Great post!
    Iris Lali from Omaha, NE
    Replied 2 months ago
    Great information! I am a newbie, and trying to absorbe as much information I can about wholesaling to start. Thank you for this article.