Why not always buy wholesale?

28 Replies

There is a lot of information out here on how to become a wholesaler, but I can't see as much for people who want to buy and hold properties at the best price. Would I be correct in saying the following?

A wholesaler will find properties which are undervalued and get them under contract to be sold to an investor or a rehabber. They want to maintain good relationships since buyers often come back to them, so they might "buy" a property thats 70% below market, and "sell" it to the investor at say 85%. Then both parties are better off.

Whilst this is similar to a realtor, a wholesaler isn't as constrained about what they can say about the property.

1) If this is true, why would anyone who is in the property investment business buy from a realtor?

2) Can landlord investors profit from wholesale purchases or is it only those who rehab and resell?

3) I'm sure wholesalers can be found at REIAs, but what's the best way to determine who is worth doing business with? (Note - For anyone who wants to give referrals, I'm in the Metro Detroit area)

@James De Silva  well put a good wholesaler is worth gold. I said a good one, alot of people try to get into RE using this idea, while not to knock them for trying, but there numbers are often way off. If your ever interested in IN markets let me know. 

@James De Silva  Hi James. Keep in mind that a person who wholesales property is actually selling the contract they have with the seller of a property.  It is the job of the wholesaler to contract with a seller for an under market price and then sell sell the contract to a buyer. When executed properly, the deals can be wonderful. 

The mechanics of the process are easy to understand, however it takes time to find sellers in situations where they want to sell below market value versus opting to work with an agent.  Both the wholesaler and the agent are valuable in the overall real estate arena. There is enough business for everyone and it is fantastic to have so many options. 

Depending on the focus of the investor, profits from individual activities are possible in all scenarios, i.e. buy and hold, fix and flip, rehab and sell or hold, etc.  The beauty of real estate investing are the choices and options.  Choose the area of real estate that is of  interest  to you and focus on doing the best job you can to deliver your service to others. That is the real winning formula in all business endeavors. 

Hi James,

Personally, I'd love to use wholesalers.  I'd like to have pretty much anybody bring me deals.  Unfortunately, the handful of wholesalers I've talked to haven't had a good grasp on what a good deal is for a flipper.  And, now that I think about it, after I explained to them what I was looking for, I never heard from them again.  lol

Anyway, to use your example:  85% of market is typically only a bargain for us if:  the property is in a higher price point location; it will sell quickly; and it doesn't need any work (or very little).  Obviously, these properties are not easy to find.

One of the reasons we need to buy so low is that there are more costs associated with flipping than just the rehab.  For instance, there are also transactional and holding costs - especially when hard money is used.  

Now, if I was buying and holding, I imagine that 85% of market would probably a good deal.  Because in that case, I'd be more worried about cash flow, and the price would only factor into my exit strategy; not so much my business operations.

So, if you know anybody in the east Tampa area who is really good at finding flipper-friendly deals, feel free to send 'em my way!

I wouldn't mind using wholesalers.  Over my time investing, I've been contacted by several wholesalers.  I've given them specs on exactly what I'm looking for.  Over time, only *one* has found a property I would consider buying at a price I would pay.

I've had wholesalers try to pitch me stuff off the MLS, I've had people pitch me places in areas I didn't want to invest, and I've had people pitch me things that were WAY overpriced. Then I never hear from them again.

Originally posted by @James De Silva :

There is a lot of information out here on how to become a wholesaler, but I can't see as much for people who want to buy and hold properties at the best price. Would I be correct in saying the following?

A wholesaler will find properties which are undervalued and get them under contract to be sold to an investor or a rehabber. They want to maintain good relationships since buyers often come back to them, so they might "buy" a property thats 70% below market, and "sell" it to the investor at say 85%. Then both parties are better off.

Whilst this is similar to a realtor, a wholesaler isn't as constrained about what they can say about the property.

1) If this is true, why would anyone who is in the property investment business buy from a realtor?

2) Can landlord investors profit from wholesale purchases or is it only those who rehab and resell?

3) I'm sure wholesalers can be found at REIAs, but what's the best way to determine who is worth doing business with? (Note - For anyone who wants to give referrals, I'm in the Metro Detroit area)

HAHAHAHAHA good luck finding a good wholesaler in Michigan.  Like others have said they are clueless of what they are doing.  No matter the property it only seems to always need 5k in rehab.  These people are jokes.  They watched a video telling them this is the way to get rich with other people's money.

  Just read the craigslist adds.  Its always the same garbage.  I am convinced that wholesalers in Michigan are idiots.  Have never done any rehab or just thinks everyone is as dumb as they are.

Or its in the hood of Detroit.  Yeah geez thanks for that deal.  LOL only 3 properties will even be on the block.

Like said above you tell them what you are looking for and you are all the sudden off their list. 

IDIOTS

@James De Silva:

1) There are discounted properties on the MLS too - fixer uppers, pre-foreclosures etc. I bought several properties off HUD (www.hudhomestore.com), and to make a bid on the web site you need a realtor. Same for Hubzu (www.hubzu.com). 

2) @Jennifer Talcott is right on about buy and hold investors. I am one, and I purchased a couple of properties over the past two years from a wholesaler that probably would not make sense as flips but make great sense as rentals.

3) REIA meetings are a great start. I also respond to yellow letters, saying that I am not interested in selling at this time, but I would be interested in buying for the right price. Word of mouth is a great way to find out who is good - ask fellow investors about their experiences with wholesalers.

That's unfortunate that wholesalers have that reputation.  I can definitely see how it happens though.  The problem is that some people don't understand the life time value of a customer.  

Customer service is #1 in a business like this.  Pigs get fat and hogs get slaughtered.  Some people just can't help but run their business like a hog. 

I'm in Metro-Detroit and currently have seller leads coming in.  Yet to do my first deal, but you better believe the end buyer is getting a solid deal when I finally get a contract. My aim is to create a long term sustainable business.  This can only be done by providing value time and time again.  

I hope I can change the perception of Metro-Detroit wholesalers, even if it's one deal at a time. 

@James De Silva  PM me to let me know what you're looking for.  Happy to add you as a buyer.  Can also give you a referral to another high quality wholesaler in the area. 

@Scott K. http://kentuckybasketballforum.com/uploads/images/LOL-UMAD-BRO1gqf.jpg

(Good one, Jason)!  James, my take is that any deal that is good for a Wholesaler to take up is ALSO good for the person who wants to buy-and-hold (otherwise, who is the Wholesaler going to sell it to anyway)?

I think the main reason why Wholesalers don't buy from Realtors is that Realtors are ALREADY do the same function as Wholesalers and SHOULD be able to find Buyers for the same level of price (otherwise, once the word got out, those Realtors would/should be out of a job)!

Of course landlord investors can profit from (good) wholesale deals, but my advice to those landlords is:- try to find the deals YOURSELF (using Wholesalers techniques).  Cheers...

Originally posted by @James De Silva :

There is a lot of information out here on how to become a wholesaler, but I can't see as much for people who want to buy and hold properties at the best price. Would I be correct in saying the following?

A wholesaler will find properties which are undervalued and get them under contract to be sold to an investor or a rehabber. They want to maintain good relationships since buyers often come back to them, so they might "buy" a property thats 70% below market, and "sell" it to the investor at say 85%. Then both parties are better off.

Whilst this is similar to a realtor, a wholesaler isn't as constrained about what they can say about the property.

1) If this is true, why would anyone who is in the property investment business buy from a realtor?

2) Can landlord investors profit from wholesale purchases or is it only those who rehab and resell?

3) I'm sure wholesalers can be found at REIAs, but what's the best way to determine who is worth doing business with? (Note - For anyone who wants to give referrals, I'm in the Metro Detroit area)

1. Inventory would be the main reason for preferring to use a realtor. Even if a wholesaler got a house under contract every week, they would likely only have 4 or 5 under contract at one time. You can look at the MLS and see 100s of potential properties. It also depends on the investment strategy. MLS homes generally will be in close to at least "rentable" condition. Homes from a wholesaler will generally be "rough".

2. Wholesalers do seem to focus on "flippable" properties.  The key is the need for a deep discount in addition to repair costs, to allow for transaction costs, carrying costs and profit for the investor.

Buy and hold is a different strategy, but it could work with similar properties. For buy and hold the focus is on getting a good ratio of rent after expenses vs. price of the home. In some markets(high value, low rents) the rental numbers may not work with 25-30% discount - even if significant repairs aren't needed. In more favorable rental markets, it may not be worth the work on a fixer-upper since with a little negotiation the numbers may work on MLS properties. That being said a property that doesn't need as much work from a wholesaler could be an option.

3. I would start with talking to investors at an REIA, ask them who they use as wholesalers. Ideally you would hear a couple names repeatedly. They might keep their best wholesaler private, but they probably can share a couple names of some solid ones. Or they may share recommendations for ones that work in different areas.

realtors have a fiduciary responsibility to their client to sell their house at the most money possible. I wholesaler does not have that obligation- rather the opposite. They want to purchase as cheap as possible. the problem is some are greedy and do not understand that their needs to be meat on the bone to make the deal worth while to their buyers. Successful wholesalers understand this and have a loyal buyers list. I suggest finding a good wholesaler for your team as well as a investment minded realtor. both have their advantages.

There can definitely be some benefits to buying from a Wholesaler. I would also disagree with the notion that there are no good Wholesalers in Michigan. In 2014, I purchased 3 properties off Wholesalers. Two I kept for rentals and one for a Fix & Flip. I am a Realtor and watch the MLS every day. All 3 deals were better than what I would typically see on the MLS. Had they been listed on the MLS, it is likely I would have been bidding in a H&B with 10 other people. Sometimes a better deal comes up outside of the MLS and sometimes it is through a Wholesaler. That being said, some may not know rehab costs real well or even ARV. Always be sure that you are confident with the numbers.

the wholesalers I've worked with in Indy are knowledgeable, hardworking and resourceful for deals. They are worth what they make on every deal. Of course, they keep the very good ones for themselves but generate more deals thn they can absorb. 

@James De Silva  

I have recently met a wholesaler that while new has brought me one deal and hopefully more.  That said....85% of value....that's way too much for a property.  And I am a buy and hold investor.  80% is absolute tops for the best of the best properties and i haven't seen anything yet that meets that criteria.  My threshold is closer to 70%.

  

Originally posted by @Don Harris :

the wholesalers I've worked with in Indy are knowledgeable, hardworking and resourceful for deals. They are worth what they make on every deal. Of course, they keep the very good ones for themselves but generate more deals thn they can absorb. 

 Don,

Glad you had good experiences but if your wholesalers kept most of the good deals for themselves, they aren't wholesalers.  They are investors who just had too many deals and off loaded some of them.  They may have been wholesaling that property but they are not "wholesalers" in the sense of this thread and the typical issues people have with wholesalers.

I know two REAL wholesalers in SE Michigan one used to flip homes and now is wholsaling and the other has been wholesaling full time for a few years. These guys have a hand full of loyal buyers so they don't have to "advertise" like people on craigslist. I would be more than happy to put you in contact with them. They get the job done. Please PM me for their contact information. FYI one of the guys was featured on the BP Podcast episode 50.

@James De Silva  

1) If this is true, why would anyone who is in the property investment business buy from a realtor?

Investors can still find good deals via realtors aka the MLS. Everyone that lists their property on the MLS is motivated to sell, some more than others. Buying property through a realtor is easier & less expensive because they don't have spend time & money on marketing to find these "extra motivated sellers". Banks also use realtors to sell their foreclosures- investors want to buy foreclosures. The same applies with a short sale.

2) Can landlord investors profit from wholesale purchases or is it only those who rehab and resell?

Yes, landlord investors can profit from wholesale deals. Wholesalers market properties as rehabs as well as cash flowing buy/holds.

3) I'm sure wholesalers can be found at REIAs, but what's the best way to determine who is worth doing business with? (Note - For anyone who wants to give referrals, I'm in the Metro Detroit area)

I find the best way to find good wholesalers is by being patient & building relationships. The best wholesalers who have the best deals only really market to the same few people. Find an ambitious up & comer & be by their side as they grow. 

I had a wholesaler offer me a 'deal' a couple of weeks ago. I pulled it up first on Zillow, and found the house next door, with the same size and room count, basically the same house, was for sale on the MLS for 5k LESS than his price! I told him, "I'm not sure how good of a deal you've got there, bud." He offered to match the price of the house next door.

I had to pass on this 'deal.'

If I could find a wholesaler to bring me good deals, well then I'm all in. I've joined scores of "lists", because somewhere I think they train wannabees to just go create investor lists. These people never once have responded with a lead. So far, REOs on the MLS are the cheapest option I have available. I know my strengths and weaknesses. Doing direct sales, cold calling, investing many months pounding the door down for people to sell...not my thing. I certainly wish someone would do it for me and I'd happily pay them for their service. But so far, my experience seems to be that wholesalers tend to be a flaky bunch of dreamers.

Originally posted by @Eric Michaels :
Originally posted by @Don Harris  s  Harris  Harris:

the wholesalers I've worked with in Indy are knowledgeable, hardworking and resourceful for deals. They are worth what they make on every deal. Of course, they keep the very good ones for themselves but generate more deals thn they can absorb. 

 Don,

Glad you had good experiences but if your wholesalers kept most of the good deals for themselves, they aren't wholesalers.  They are investors who just had too many deals and off loaded some of them.  They may have been wholesaling that property but they are not "wholesalers" in the sense of this thread and the typical issues people have with wholesalers.

 Eric, I'm not sure why you would say a person that keeps a few deals for themselves while selling everything else is not a wholesaler?  IMHO - an "investor" may [and usually does] where many hats.  I actively peruse properties that I know I can resell to people like @Don Harris.  Yes, I do [on occasion] cherry pick some for my own portfolio for the occasional flip.  My first goal is to "wholesale" any property that I can get my hands on.  Then, if it's a fit, I will keep it myself as a distant second place.

To me, any "good" wholesaler should be an "investor".  Unlike these "Craigs List Whores" that give our industry a black eye...

@Shawn Holsapple  you are among the quality wholesalers/investors  I had in mind when I wrote the post.   By Eric's own logic, if he ever purchased an investment property then he would no longer be a lendor.  Every deal creates its own opportunity for the person who develops it. Persevere!

I'd love to be added to any Indianapolis wholesalers lists. Over the years I've asked to be added to a variety of so called investors lists...but often never hear from them again. Some of the few I've seen haven't been anything that interests me for either flip or rental. I've bought off the mls exclusively so far.

So, any Indy wholesalers...please include me!

@James De Silva  I would encourage you to use a wholesaler if the deal is right.  I have a little over a decade of experience wholesaling houses and have had a handful of customers for nearly that entire time.  

This is a relationship business from top to bottom. A wholesaler will have relationships with many buyers, but will also have relationships with many real estate agents as well. As a licensed real estate broker I buy multiple properties off the MLS that are really good deals (65% of market value) and never have submitted an offer, they are brought to me by other agents because they know if I give them a price and they get it to me at that price, the deal will close.

The fact is that wholesalers may only have 4 or 5 deals to pick from at a given time, but if the wholesaler is good, then the deals they have will be solid.  The benefit to buying from a wholesaler is that the price should be set and ready to go, if you like the house, you give them downpayment and sign the contract, you are done if you agree to the terms.   

Real estate agents can be a great source of properties and certainly can put you in front of more houses than a wholesaler can.  But you will need to do the narrowing and start the negotiations with the seller through your agent. 

At the end of the day @Stanley Okazaki  is right, be patient and try to build a relationship with a wholesaler.  

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