New investor client is adamant about buying things that will lose money

Real Estate Agent

New investor client is adamant about buying things that will lose money

Real Estate Agent · Tampa, FL · Member since 2015 · 467 posts · 57 votes

So here is the story-

There is a REI guru who does training and refers his local students to me. He's a great guy and his students know a lot about how to run numbers and are pretty good at estimating rehab by the time they are done. He also does basically unlimited follow up calls. Anyway...

That being said they waited about 3 months from taking his class until they wanted to put in an offer, and that was early this year so in that time the banks stopped releasing the foreclosures. Now here we are and we haven't bought anything at all. Why? Because I just can't let them lose money. I feel like I'm obliged to help them make good investment choices. I veto things they want to look at because I know the margin is non existant. That and the market they want to invest in is nuts. We offer 61k on a 49k asking price and were outbid last week! Which was fine by me I didn't like the profit margin bidding over 55k...

Oddly that particular market has nothing by way of wholesalers. I've discussed becoming wholesalers with them before and I think they just aren't 'getting it' as far as why they would want to. I think the 'dream' of fixing up nice houses is sort of ephemeral for them.

What can I do to help them out as wholesalers? I've put them together with a direct mail guy that is great, and I've told them I'd go with them to everyone they get in to speak too.

How can I help these guys? I can't door knock this market for them because there are other communities I can do it in more profitably. THoughts?

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes

As their agent, you have a fiduciary responsibility to them. In my opinion, that means doing everything you can not to let them make bad purchase decisions. Ultimately, the decision is in their court, but you shouldn't hesitate to be completely blunt about a deal not being worth pursuing if you believe that to be true.

Ultimately, it may hurt you short term (fewer deals get done), but long-term, those investors will trust you and the good will will come back to you in spades...

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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
11y
What is your relationship to them?
Are you their agent? Coach? Mortgage broker? Something else?
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Devon Garbus
OP
Real Estate Agent · Tampa, FL · Member since 2015 · 467 posts · 57 votes
11y
Sorry- I'm a real estate agent. I also consider myself a psuedo mentor/coach. I want to grow their business so that mine goes up along side it.
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Brian Gibbons
Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
11y
There are certain markets don't have great wholesaling opportunities
-The margins may not be there
-There may not be enough cash buyers is buying in the area
-it may be a war zone
@Devon Garbus
It's my humble opinion not to specialize in Wholesaling when you get started
Instead you should be a problem solver looking to be able to help people solve problems
Low equity deals that are pretty houses in good neighborhoods with good schools are easier than wholesaling
Minor rehabs offer a possible joint venture with the seller
Free and clear houses offer the potential of an installment sale, with a low monthly payment and no banks
"Wholesaling only" is a terrible business plan in many areas
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Devon Garbus
OP
Real Estate Agent · Tampa, FL · Member since 2015 · 467 posts · 57 votes
11y
Where we are looking at isn't war zone territory. First time homebuyer and move up area.
Avg price of rehabbed home is 180k with anything built after 1990 being 220+. Their target acquisition is between 70-120k depending on how much work it needs. Finding that right now via MLS or even fsbo/craigslist is not feasible. The hard money lenders I know need 65% max LTV so low equity 'easy' deals aren't doable as they only have about 50k in cash
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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
11y
As their agent, you have a fiduciary responsibility to them. In my opinion, that means doing everything you can not to let them make bad purchase decisions. Ultimately, the decision is in their court, but you shouldn't hesitate to be completely blunt about a deal not being worth pursuing if you believe that to be true.
Ultimately, it may hurt you short term (fewer deals get done), but long-term, those investors will trust you and the good will will come back to you in spades...
Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
3 Reply
Lee S.
Northern, CA · Member since 2014 · 674 posts · 444 votes
11y
Maybe put down some rough numbers on paper quickly for them including all costs so they can see you know what you are talking about? I'm new to the game, I would definitely appreciate this kind of help from someone with more experience.
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Devon Garbus
OP
Real Estate Agent · Tampa, FL · Member since 2015 · 467 posts · 57 votes
11y
@j scott that's how I see it too. The guru they use uses a spreadsheet (a really nice one) to calculate costs etc. I always use that to show them why this isn't a great idea.
How do I educate them (podcasts and articles would help) about the perks to wholesaling/walking for dollars etc?
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Scott Schuetz
Real Estate Broker · Indialantic, FL · Member since 2014 · 145 posts · 71 votes
11y
@Devon Garbus is there an opportunity for them to flip in another nearby area or price point? Sometimes the deals just aren't there but can be found in another segment. In my market, I'm seeing lots of investors going after the same area and price point. I'm modifying my strategy to flip in a higher price point, avoiding some of the competition.
1 Reply
Devon Garbus
OP
Real Estate Agent · Tampa, FL · Member since 2015 · 467 posts · 57 votes
11y
Unfortunately they don't want to go to another area. It's a conversation i've had with them several times.
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Jesse T.
Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
11y
Originally posted by @Devon Garbus:

Unfortunately they don't want to go to another area. It's a conversation i've had with them several times.
Is buy and hold profitable in their target area/price range?
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
11y
@Devon Garbus, how about, YOU be the one who finds them wholesale deals, rather than perhaps only waiting for (non-hurried, top-dollar-hunter) Sellers to come to you?
There is bound to be many untapped potential (hurried, get-out-at-any-cost) Sellers in your/their area that would respond to Bandit Signs and Yellow Letters and such like, but are you Agents finding them too?
[No offence intended; I know nought of your strategies]. Cheers...
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Devon Garbus
OP
Real Estate Agent · Tampa, FL · Member since 2015 · 467 posts · 57 votes
11y
Hi Brent,
The market this particular investor is in they are the only person I have who wants to be in. If I put in the effort I'm sure I could find more investor buyers for the area since it's a quickly growing market. However Most of my investor clients prefer an area that is A-more lucrative for all of us and B- on the other side of town. So when I'm spending my marketing budget(both time and dollars) that is where they go. I've had this conversation with them about switching their focus area, but they are again being stubborn.
I've reached out to other successful wholesalers to see if they would be interested in doing this area and bringing us properties. Nothing so far.
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Account Closed
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
11y
I would point them to some of the educational blogs here on BP. I just read one that lines out how to get the best responses from a direct mail campaign. Then explain to them why in your market, mls deals are non existent right now and they'll have to dig up their own leads, be it DM or bandit signs or whatever. There are tons of great materials for beginning Wholesalers here on BP.
1 Reply
Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
11y
@Devon Garbus, what Chelsea said.
If your client is so adamant about their area and strategy, how about you ask them to justify their thoughts here too?...
0 Reply
David Roberts
Brownstown, MI · Member since 2014 · 344 posts · 98 votes
11y
OP, you sound like a fantastic realtor. You are protecting your client. Id work with you any day as an investor.
1 Reply
Devon Garbus
OP
Real Estate Agent · Tampa, FL · Member since 2015 · 467 posts · 57 votes
11y
@david roberts THank you!
@brent coombs 'closer to home, we know the area, want to be able to supervise' are the biggest responses to those questions.
0 Reply
NA Jones
Flipper · Port Deposit, MD · Member since 2014 · 280 posts · 171 votes
11y
I think you are fantastic for being honest about what you think regarding their profitability from certain deals.
I think I'm in the minority here when I say this though - at some point you may just have to let them make their own mistakes. You can lead a horse to water and all. I mean, you are asking for advice on how to push them to do something they are not interested in. It sounds like they want to flip. I personally would never in a million years want to wholesale no matter how profitable it is. If someone had aspirations to be a teacher, would you tell them to apply for a lunch lady position because jobs at a school are all the same? At the end of the day real estate is a broad scope with lots of available ways to make money. You can't force someone to be successful. While I understand and agree with you trying to protect them from themselves, you run the risk of them someday turning around and blaming you for the fact they haven't gotten started yet. Teach mentor advise yes. Show them how to run numbers yes. Push and pressure them into something they clearly have no interest in? Not your place :)
0 Reply
David Nolan
Professional Property Investor · Brisbane, Queensland · Member since 2015 · 165 posts · 160 votes
11y
@Devon Garbus it appears that your clients may have been taught how to calculate costs, but what about market cycles? All real estate markets operate in cycles and if they are in an area that is experiencing rapid growth in the upswing part of the cycle then perhaps you might be able to show them this information. Likewise you could show them areas that are at the bottom of their cycle and perhaps offer less potential risk to them. Then comparing the risk profile of the two types of markets.
Investors who buy into rapidly rising markets take on more inherent risk than those who buy into markets that are at the bottom of their cycle. The reason being is that the top of any market cannot be clearly defined until it has passed and prices start to fall. Only in hindsight can we see the top or bottom of a market cycle. We can however clearly see the overview of where in a cycle an individual market lies. Perhaps as an experienced real estate agent in your area you can show your client where in the cycle your market currently sits. This might help them more clearly see the risk that you are trying to help them avoid...at least I imagine that is your intention.
In my experience most new investors fail to spend the time it takes to understand market dynamics and to discover which markets are best to invest in at any given time. In general terms this is fundamental to property investing. It is of great value to an investor not to get caught up in market hype and end up paying too much for a deal that is not viable. Moving markets, especially fast moving markets are difficult to read and follow, even for experienced investors.
It may be possible that your clients, seeing a fast moving market, feel that they may be missing out on the opportunity and as a consequence are not looking at the down side risk of these market types. Showing them the risk in terms of market cycles may help your situation.
Hope this helps.
Happy investing!
1 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
11y
@Devon Garbus It is awesome that you are an agent who advises your clients NOT to buy a certain property. I am also an agent, and I always get referrals from a client I advised not to buy a property.
One thing you do need to be careful about though is advising them on a property where there is an opportunity to make a profit. Even if the numbers are completely right, there are many ways that they can screw up the flip....and if they do, you do not want them blaming you for advising them to buy the property. This is a very tight rope that you have to walk between performing your fiduciary duty, but also insulating yourself from liability if they screw things up.
As an agent, I have no problem talking in detail to experienced flippers.....but I am a little hesitant to get into too much detail with a newbie client. I have to keep in mind with someone I do not have much of a relationship with that I am licensed to help them buy and sell property. I am not licensed to give investment advice, or legal advice, or tax advice etc. So it is great you are steering them away from the bad deals, as you should, but be careful about what you say when you are helping them buy a good deal.
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