{"id":83852,"date":"2019-11-06T05:00:51","date_gmt":"2019-11-06T12:00:51","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=83852"},"modified":"2023-08-10T13:14:07","modified_gmt":"2023-08-10T19:14:07","slug":"why-wholesalers-get-a-bad-rap","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/why-wholesalers-get-a-bad-rap","title":{"rendered":"The #1 Reason Wholesalers Get a Terrible Reputation (&#038; How to Change That!)"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC2097459349\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n<p><span style=\"font-weight: 400;\">The No. 1 reason <a href=\"https:\/\/www.biggerpockets.com\/blog\/ultimate-beginners-guide-real-estate-wholesaling\" target=\"_blank\">wholesalers<\/a> have such a terrible reputation in the real estate industry is because they never have good deals. <\/span><span style=\"font-weight: 400;\">The most common complaint I hear is that wholesalers aren\u2019t leaving enough profit margin for investor-buyers to make any money deals. &nbsp;<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So what\u2019s considered a good deal anyway?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That would be a property that is going to bring our investor-buyers a nice return on their money after <a href=\"\/renewsblog\/2014\/01\/07\/flipping-houses\/\" target=\"_blank\">flipping<\/a>. <\/span><span style=\"font-weight: 400;\">The biggest problem is that there\u2019s a lot of wholesalers out there who don\u2019t know how properly <a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-investment-analysis\" target=\"_blank\">analyze deals<\/a>!<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s critical as a wholesaler that we analyze deals from a fix-and-flipper or <a href=\"https:\/\/www.biggerpockets.com\/blog\/apartment-buy-hold-real-estate-strategy\" target=\"_blank\">buy-and-hold<\/a> investor\u2019s 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.<\/span><\/p>\n<h2>First Thing&#8217;s First&#8230;<\/h2>\n<p><span style=\"font-weight: 400;\">Learning how to run comps and analyze deals is the lifeline of your business. Once you\u2019ve created lead generation, you\u2019re literally going to sit and analyze deals day in and day out. That\u2019s why learning how to properly analyze deals should be the first thing you learn before entering into the wholesale business. If you don\u2019t know how to analyze deals, then you don\u2019t have a business!<\/span><\/p>\n<p><span style=\"font-weight: 400;\">And you don\u2019t 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. <\/span><span style=\"font-weight: 400;\">I understand that analyzing deals can be challenging for beginners, but if you practice and follow these steps, you\u2019ll learn how to properly analyze deals in no time.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">I want to encourage anyone out there who is aspiring to become a <a href=\"https:\/\/www.biggerpockets.com\/blog\/wholesaling-strategy\" target=\"_blank\" rel=\"noopener\">real estate wholesaler<\/a>, so here is a step-by-step guide on how to properly analyze flip deals.<\/span><\/p>\n<h2>Step 1: The 65 Percent Rule<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-main-slider wp-image-93590\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/10\/computerglobe-702x336.jpg\" alt=\"working at desk\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<p><span style=\"font-weight: 400;\">The 65 percent rule is what is commonly known as the \u201c<a href=\"https:\/\/www.biggerpockets.com\/blog\/2014-02-14-70-rule-bible\" target=\"_blank\">70 percent rule<\/a>\u201d 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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is the only equation you\u2019ll need to know when analyzing flip deals, and you\u2019ll want to use this equation when screening every lead that comes in:<\/span><\/p>\n<blockquote>\n<p><em><b>Purchase Price = ARV (After Repair Value) x 0.65 &#8211; Rehab<\/b><\/em><\/p>\n<\/blockquote>\n<p><span style=\"font-weight: 400;\">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\u2019t pleased with the deals you send them, trust me, you\u2019ll be out of business sooner than you know. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Following the the 65 percent rule will prevent you from chewing away at your investor-buyer\u2019s profit margins, which will make everyone happy, including yourself!<\/span><\/p>\n<p><em><strong>Related<\/strong><\/em>: <em><a href=\"https:\/\/www.biggerpockets.com\/blog\/wholesaling-questions-answered\" target=\"_blank\">The 6 Most Common Newbie Wholesaling Questions, Answered!<\/a><\/em><\/p>\n<h3>Calculating the After Repair Value<\/h3>\n<p><span style=\"font-weight: 400;\">The <a href=\"https:\/\/www.biggerpockets.com\/blog\/estimate-arv\" target=\"_blank\">after repair value<\/a> (ARV) is the cost you could sell the property for at retail price if the property was in retail condition. <\/span><span style=\"font-weight: 400;\">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. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">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. <\/span><\/p>\n<h3>Running Comps<\/h3>\n<p><span style=\"font-weight: 400;\">Find three to five properties on the <a href=\"http:\/\/www.mls.com\/?gclid=Cj0KCQiA2ITuBRDkARIsAMK9Q7NcTBq6fON70IYQBD1cqnqR7-n6rnMPHkFjhIYt0umS6ByeyYxg_9IaAkimEALw_wcB\" target=\"_blank\" rel=\"noopener\">MLS<\/a> 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. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s vital to compare your property to similar house types. If you\u2019re running comps on a townhouse, compare it with other townhouses. If you have a duplex, compare it with other duplexes. If it\u2019s a single-family home, compare it to other single-family homes.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Once you\u2019ve found the purchase price of similar properties, you\u2019ll get a solid idea on the retail price of the property. <\/span><span style=\"font-weight: 400;\">Now that you have your ARV, you must determine the rehab costs, which can be one of the most challenging steps if you don\u2019t have any experience in construction.<\/span><\/p>\n<h2>Step 2: Determining Rehab Costs<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-75090\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/09\/fix-and-flip-tips.jpg\" alt=\"estimating-rehab-costs\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/09\/fix-and-flip-tips.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/09\/fix-and-flip-tips-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">One of the biggest mistakes wholesalers make is trying to determine the exact rehab cost, which isn\u2019t quite possible because rehab costs are subjective to the contractor. <\/span><span style=\"font-weight: 400;\">For example, someone may replace a brand new bathtub for $500, and another contractor may replace the same exact bathtub for $700.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That\u2019s why as a wholesaler it\u2019s 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.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now, if you don\u2019t have any construction experience, I would recommend using contractor bids to help calculate rehab costs. <\/span><span style=\"font-weight: 400;\">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. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s that simple!<\/span><\/p>\n<p><em><strong>Related<\/strong><\/em>: <em><a href=\"https:\/\/www.biggerpockets.com\/blog\/estimate-rehab-costs-wholesaling\" target=\"_blank\">Wholesalers, Having Trouble Estimating Rehab Costs? Try This!<\/a><\/em><\/p>\n<h2>Step 3: Purchase Price<\/h2>\n<p><span style=\"font-weight: 400;\">Now that you know how much the property is worth at retail and the cost to rehab, let\u2019s revisit the 65 percent rule by multiplying your ARV by 65 percent and then subtracting the estimated rehab cost. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now you have your purchase price! <\/span><\/p>\n<h3>Submitting an Offer<\/h3>\n<p><span style=\"font-weight: 400;\">Since you\u2019re comfortable with your purchase price, you\u2019ll want to sharpen your negotiation skills as well. <\/span><span style=\"font-weight: 400;\">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. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">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. <\/span><span style=\"font-weight: 400;\">Once they throw out their number first, ask them, <\/span><span style=\"font-weight: 400;\">\u201cIf I were to buy your house right now with all cash, what\u2019s the lowest that you could go?\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You\u2019d be amazed at the response you\u2019ll receive. <\/span><span style=\"font-weight: 400;\">I\u2019ve had people literally drop their asking price significantly\u2014by $20,000-$30,000, just by asking that simple question! <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now, if the seller doesn\u2019t accept your initial offer, be sure to follow up with them. <\/span><span style=\"font-weight: 400;\">Following up is crucial to making deals, and I\u2019ll be the first to tell you that a lot of our deals have come from simply following up! <\/span><\/p>\n<h2>Conclusion<\/h2>\n<p><span style=\"font-weight: 400;\">I hope this post cleared up some of the confusion that comes along with analyzing deals. <\/span><span style=\"font-weight: 400;\">We have to work on cleaning the tainted reputation that\u2019s out there about wholesalers, and it starts by learning how to analyze deals the right way. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">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.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-main-slider wp-image-117195\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/Signup_3-702x90.jpg\" alt=\"\" width=\"702\" height=\"90\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/Signup_3-702x90.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/10\/Signup_3-300x37.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p><em><span style=\"font-weight: 400;\">What are some methods you use to analyze deals?<\/span><\/em><\/p>\n<p><strong>Share with a comment below!<\/strong><\/p>","protected":false},"excerpt":{"rendered":"<p>Wholesaling can be a great way to build wealth\u2014but only if you do it right. Avoid the bad rap of &#8220;wholesaler&#8221; by doing this one thing better, and earn the trust (and business!) of investor-buyers.<\/p>\n","protected":false},"author":12142,"featured_media":118768,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5526,7119],"tags":[],"class_list":["post-83852","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-wholesaling","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/83852","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/12142"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=83852"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/83852\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/118768"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=83852"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=83852"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=83852"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}