Wholesalers With Good Conscience?

16 Replies

First of all, let me say I am not picking on, or pointing out anyone here, just pointing out some observations.

How can a wholesaler from Georgia (or wherever) who has never seen a house in TX or CA, or know those markets, possibly have a clue what the house is worth or how much it will cost to get it to some ARV?

Any wholesalers care to share?

My thoughts on that would be by them looking at houses and their values in the surrounding areas.  You can view a house virtually with Google street views and even get repair estimates from people in that area.   Now, that being said, I have never attempted to evaluate a property long-distance so I can't answer the question from personal knowledge or experience.  

Wholesellers can easily look at comps and get the ARV right/close. Rehab costs require far more expertise. Not likely that an out of state wholesaler can or will do a good job with this estimate.

You shouldn't be relying on their estimate whatsoever.  It reminds me of a joke.  "There's only one thing certain about a forecast ... it's wrong."  Same joke, but insert "seller's rehab estimate".  

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Shhhh, don't confuse them, it's all included in the handy dandy "You Can Make Ten Million A Year Wholesaling Long Distance" and on the computer sitting in their under ware.

They can't value a property without local knowledge.

If they make money, I'd say they are lucky.

Now, if you're working rural properties, you might get close with comps, all being along Highway 7 east of town. But not in neighborhoods in mid or higher end homes. A post with a neighborhood sign can meant 10K or more from a home 200' away! That's local knowledge.

Someday, when folks start learning real estate instead of how to market it, they'll learn how to make money. :) 

The idea is to have partners with "boots on the ground."  Then again how do you know your partners really know how to evaluate deals themselves.  I personally think it is a silly strategy for most people especially beginners. It is just  more Guru gobbledygook. 

Many wholesalers use other wholesalers inventory to sell in their local market.  I've had many others mark up my stuff and sell it to their local folks.  I usually pay them a fee and whatever the mark up was.  I've even tried selling stuff from other places, Atlanta and Phoenix, but didn't care for it because I like to be hands on for my clients and they expect that from me.  But yeah, people from all over the world sell my stuff all the time.  

@Ron Drake Great question. We purchase for our own portfolio and we also sell or wholesale. This includes properties that may not be in our back yard. Determining the potential ARV is actually fairly easy. We have lots of tools to do that & it only takes a phone call to a local agent to help or leveraging networks like BP. The real challenge is estimating the renovation costs. We'll only buy a deal or wholesale one if there's someone local w/ expertise that we can trust to verify all the numbers. We have however purchased out of town deals from wholesalers that have overwhelmed us w/ verifiable due diligence data (comps, inspection reports, GC bids....)

@John Skaggs  I have several websites and sides to our businesses. Anyway I had a guy call me about a deal I had for sale. I was only asking 20k was worth about 40k as it sit but we were busy and looking to move it, anyhow this guy calls me ask about details, he then calls another number (of ours but sure he didnt know) to try and sell this for 60k so I played along and asked if he would finance it he said sure, so he calls the original number back and says he thought about it and would send over a contract for 20k with me financing it. (Btw with 1k down, and he wanted 25k down on the other side) I not only laughed, but explained that if he tried anything like that again he would be having legal issues. Wholesaling is legal IF YOU HAVE A CONTRACT, he was trying to sell it before even having a contract, and no he wasnt an agent. I think he fled the area after getting into legal troubles.

@Crystal Smith  Sounds like you have a handle on this. 

I too have been almost overwhelmed in the past with wholesale offerings. Unfortunately A LOT of the numbers being used in these reports and spreadsheets aren't even close to reality. From ARV to rehab costs. Way off. So somebody spent a lot of time and either did an incredibly bad job or trusted someone else with misinformation or skewed the numbers on purpose.

I am not always right when it comes to value but often am, but it is really annoying when deal after deal the rehab cost is "projected" to be $40k, when I know I can't even come close for $80,000. Doesn't matter if the house is 1200 sq ft or 2800 sq ft. $40k rehab. So if I were to bite on this offering, all the meat will be taken off the bone when rehab reality sets in.

@Jeremy Tillotson  I had a good laugh when I read you post.  It reminded me of getting a list from a wholesaler & on that list were properties that we owned or had under contract.  So I had fun w/ it & called to discuss the deals on his list.  @ the end of the call I asked why the properties we owned but weren't selling were on his list.  All I heard was crickets on the other end.  Then I pointed out the properties we had under contract that were on his list.  Again crickets on the other end.  It was a friendly call & I told him that I had no problem if he found a buyer for a property we were trying to sell & I'd pay him a fee if the deal closed.  That person became a property finder for us.

I don't see this as being any different than local "wholesalers" who contract to buy a property that has been on the MLS for 9 months, contracting for a mere $8K less than what the home was listed for and then the wholesaler advertises the property as a wholesale deal.

You know how the saying goes...you can put a kitten in the oven and call it a biscuit, but that doesn't make it so.

On a side note, it's really not that hard to get valuations in any town where there are agents/brokers working...just pay a minimal fee for a BPO from an agent in that local area, a BPO that includes a bunch of photos and also includes plenty of hard sales data.

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Hey Guy, thanks for chiming in.

The problem with any valuation is knowledge. I have seen lots of people use property in a neighboring zip code for comps. It may be relevant, may not.

In San Diego county to use a comp just over the zip code border in Bonita for a property in National City is not even close to being relevant. Same with using comps in North Park or Burlingame for properties in City Heights or Golden Hills. Only by having experience and knowledge in these areas can you make an accurate determination of value.

@Ron Drake , I think you know the answer to your question and everyone so far is supporting you, so thanks for asking us. Having local knowledge is priceless, and I have a quick example to that end.

I'm helping a couple friends with their first deal. They live in Oceanside and found a house on Craigslist in Dessert Hot Springs that they got under contract. I'm somewhat familiar with the city and have access to the MLS for that area so I ran comps and found several supporting a sale price at $125,000 and above. I then contacted a friend who works that city and lives nearby. He said the house is worth no more than $105,000 because of the neighborhood. That's what local knowledge can do for you. Needless to say, that $20,000 difference was worth 20% of the value and greatly affected this transaction and therefore made it "No Deal" at all.

This is also the main reason I shy away from virtual wholesaling and buying in areas I don't know or can't get to in a reasonable amount of time.

Hi @Ron Drake  - great question. I'm one of those people who only believes in conducting business as ethically and soundly as possible. After all, life is too short - I want to sleep soundly at night knowing that I've done right by the people I do business with. 

Here's my take since I just started doing remote wholesaling in an area that I've never even seen with my own two eyes.

First, I researched the area extensively. Initially, I did this as part of the process of buying an investment property in the area. But aside from my own research, I have about four experts in the area that I've all met through BiggerPockets who live in various parts of the city. All of them have given me great feedback on the real estate "micromarkets" of the area I'm targetting so that I can have a thorough high-level view of the market.

Second, I have arranged a relationship with two of those members to aid me in my estimation of repairs and ARV. That is to say, they are willing to either visit the property themselves or put me in touch with a trusted contractor who will not only take photos of the entire property but also deliver a detailed itemized estimate of repairs.

Because I'm not looking to "get rich quick" and want to provide real value in the marketplace, I'm determined to only find and market deals that I can stand behind. And the only way I'm going to develop that degree of confidence is by doing as much due diligence using a diversified toolset of information.

Who is the greater fool? The Dude who misleads someone (intentional or not) or those who blindly listen to that guy? 

My answer is that it doesn't matter who the greater fool is, because the consequences will almost always impact the blind-followers, especially in dealing with wholesalers and fixers. 

Great example is the Donner Party and their dealings with various advisers along their route who sold them secret maps, told them about shortcuts, and gave them all kinds of advice from far away. We all know what happened to the Donner Party. 

That being said, I look at these "remote wholesalers" just like any other source of deals... I appreciate the notification of an interesting project, but I'm going to run my own numbers just the same. In the end, they're selling you something - buyer beware... always.