Skip to content

Posted about 8 years ago

"Wholesalers"

nbnmI know the topic of wholesaling has been beaten to death on BP but I need to get a few things off my chest.  Let me first say that I do some wholesaling myself in specific situations when it is the best case scenario for a seller so I am not against wholesaling per se.  What I am against is the influx of new "wholesalers" who just attended their first investing seminar and think they know what they're doing. 

Case-in-point, I received a "wholesale" deal this morning from a BP member (I will not use specific names because I really don't think this person is trying to do anything wrong).  When I asked for more details and the address I immediately recognized the property.   Why?  Because it had recently expired on the MLS and I had shown a client the property before.  Nothing wrong with that you say?  Of course not except that the property was priced the same as it was when it listed (technically $100 more than the list price)!  

Now, why do you think it didn't sell in the first place?  Ding-ding-ding!  It was over-priced for the condition of the property.  What do you think is going to happen now?  

Scenario 1:

Several buyers on the list go out and see the property but, since they are experienced investors, realize it is very over-priced.  As the due diligence period nears the end our wholesaler is forced to go back to the Seller and ask if he will take less (probably significantly less but it's in a hot market so who knows.)  This annoys the Seller and probably annoys our investors as well since they wasted their time.  They will now be less likely to do business with the wholesaler in the future.

Scenario 2:

A "green" investor actually thinks it's a deal and purchases it.  The investor soon realizes that at the purchase price and rents it can't possibly cash-flow and if he were to actually rehab it any profit would get eaten up in holding and rehab costs (the estimated rehab budget given by the wholesaler was also woefully low but that's a topic for another day!)  Our new investor, having gotten burnt on his first deal, is out of the game or, at the very least, is significantly deterred from investing in the future.  

This post really is not a call-out.  But look at the ramifications of doing something like this for the wholesaler.  Buyers, having seen this non-deal, will be much less likely to take him seriously, even if his next one is an actual deal!  Maybe our inexperienced investor decides to do a real call-out on BP or someplace else or worse, file a claim with the BBB.  This is an unnecessary headache for the wholesaler.  

I wrote this to help the wholesaler in question but I also have a personal stake.  This is what gives wholesalers in general a bad name.  This is why experienced investors roll their eyes when someone they have never met introduces themselves at a REIA and says they are a newbie wholesaler because "it's cheap to get started" (another fallacy for another post!). I don't want to be ashamed to tell people I wholesale properties or have them not take me seriously.  So to all the "wholesalers" out there, please cut it out!


Comments