\u201cBuyers are liars and sellers are worse.\u201d Pretty harsh statement to insult the clients in a real estate transaction, isn\u2019t 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?<\/p>\n
Wholesaling isn\u2019t 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\u2019t just apply when you need a 5 gallon drum of peanut butter. It can apply to diamonds, electronics, cars\u2026.and real estate.<\/p>\n
So when someone proclaims, \u201cI wholesale properties\u201d, the natural assumption is that you\u2019re going to be buying below the cost than if you\u2019d 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.<\/p>\n
The difference is, when buying a wholesale widget, the cost comparison is pretty simple. Heck, I\u2019ll 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\u2019s near the same price and I can buy it now, the convenience is worth it. Point is, it\u2019s easy to do \u201cprice checks\u201d when buying electronics, household items, etc at a perceived discount price.<\/p>\n
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.<\/p>\n
So, how do you know if\/when you\u2019re really getting a good deal? In my experience, wholesalers<\/a> purchase 70-ish% or below market value and can sell to Fix & Flippers around 72-76% of full market value. If it\u2019s a house that is nearly or rent \u2013ready, they can sell up to 82-90%.<\/p>\n Here\u2019s where the numbers can get sticky and where you could wind up paying retail for a \u201cwholesale\u201d property:<\/p>\n Depending on who you\u2019re 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 \u201cPlace needs carpet, paint, and new A\/C to make rent-ready\u201d. This leaves the cost estimate to your discretion. It also leaves the opinion of what the property \u201cneeds\u201d 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 \u201cneeds paint and carpet\u201d could\/does well end up being \u201cneeds paint, carpet, roof, major stucco work\u2026\u201d(\u2026and that 3rd bedroom we advertised isn\u2019t permitted and is barely standing.)<\/p>\n So, what\u2019s advertised as needing to be done vs what the home will require may be vastly different. As well, be wary of anyone else\u2019s soft bid of how much the repairs\/updating will cost. Again, although I can appreciate their attempt to be more thorough, it\u2019s up to you to know the numbers, not rely on a guess or someone else\u2019s knowledge. Always do a thorough inspection before agreeing to purchase.<\/p>\n 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.<\/p>\n 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\u2019s an opinion. But, I\u2019ve found many wholesalers use outdated information, comps from too far away, don\u2019t take amenities or differentiating neighborhoods into consideration, to name a few.<\/p>\n 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\u2019s not for me to judge, I just personally can\u2019t and won\u2019t 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 \u201cjuicy\u201d deals and avoid the night-terrors that I overpaid for a property.<\/p>\nThe Real Deal<\/h2>\n
1) Condition<\/h3>\n
2) Full Market Value<\/h3>\n