Seven Questions Inexperienced Wholesalers Hate

23 Replies

Are you going to risk thousands of dollars buying a property from a wholesaler? You better make sure they know what they’re doing, or you can lose every single penny.

By asking seven simple questions, you can separate want-to-be wholesales from the professionals before they separate you from your money forever.

If you're a wholesaler starting out, you should expect these questions. If it sounds like I’m being hard on rookie (and flat out shady wholesalers) I am, but for good reasons.

Investors like you are entrusting them with their retirement money or life savings, so its well worth the time to either water-board them, or at the very least, ask them some tough questions.

So here’s the questions, and some tips on how to spot a B.S, answer.

Question # 1

How many houses have you personally bought, rehabbed, and successfully sold for a profit?

If they’ve never done a rehab themselves, I’d look for another wholesaler.
Many gurus and books teach that wholesaling (assigning contracts) is the easiest way to become a real estate investor. Maybe so, but do you want to risk eighty, ninety, or one-hundred thousand dollars with someone who is learning the business?

Spend an hour reading through wholesaling posts on any real estate investing forum, and you’ll read posts from want-to-be wholesales titled, “How do I figure out how much a house is worth?” or “How much does it cost to rehab a kitchen?”
Personally I like, “Help! I have a house under contract. Now what do I do?” the best.

I’d follow up with, “How many wholesale deals have you done?”

A want-to-be will mutter something like, “Um, I’ve done several.”

A professional wholesaler’s answer will be, “This week, or last month?”

You should ask for proof or documentation from past deals. Don’t be shy. Don’t accept, “Oh, I keep that confidential,” for an answer. Its public record, and is available on your county’s website for Pete’s sake.

We love showing our potential buyers our past deals, because they're always frickin' awesome.

Question # 2

“If this house is such a good deal why don’t you flip it yourself?”
A want-to-be wholesaler will answer somewhere along the lines of, “I flip several properties per year and don’t have time to flip them all.”
Be on the lookout for this answer because it’s taught by most of the gurus, and it’s in most of the how-to books.

Professional’s Answer: “Because that’s not what I do.” (Better yet, “It’s not what we do” – more on why you want to deal with a wholesale company instead of single person later.)

I rehabbed plenty of houses before I decided to work for a company I used to buy houses from. I like the finding, analyzing, and negotiating much more than picking paint colors, swinging hammers, and waiting three to six months to get paid.

Question # 3

“Where do you get your comps?”
A want-to-be will answer along the lines of, “Um, what are comps” or “From Zillow.”
If a wholesaler does not have the money to subscribe to a professional comping website, I would not do business with them. Better yet, find a wholesaler that has a real estate license and has access to the MLS.

A professional wholesaler should be more than happy to explain to you how they came up with their comps. We also send out a package on our properties that have three sold and three active comps close in location, size, and condition to the subject property.

Question # 4

“How did you come up with the rehab estimate?”
If all the wholesaler did was walk through the house and guessed based on prices at their local home improvement mega-store, their rehab guess is going to be way off? Who knows what they missed?

Question # 5

“How much is your assignment fee, and is it refundable?”
Bob might be the nicest guy in the world, but if your assignment fee is not refundable and a code enforcement lien is discovered at closing, Bob may have already jammed your assignment fee into a slot machine in Las Vegas one dollar at a time.

Question # 6

“What type of deed or property conveyance will I get at closing, and who pays the closing costs?”

If your wholesaler can’t answer these basic questions, you need to pass on the deal. This is basic real estate 101, yet the wholesaling forums are packed with questions from want-to-be wholesalers asking about this.

Question # 7

“When can I meet you at your office to look at the contract, and what type of contract is being used?”

The easiest way to spot a want-to-be wholesaler is when they insist on meeting you at a coffee shop because they don’t have an office.

We require our potential buyers to meet us at our office so we can prove to them we’re not one-course-wonders and are in business to establish long-term relationships. You should insist on this with the wholesalers you buy from.

Most of us wouldn’t buy electronics from some guy selling them out of the trunk of his car, so why in the world you risk buying a house that way?

Hopefully you’ll be buying from a licensed and professionally managed company. The more people they have looking for deals, the better off you’ll be. If they’re licensed, they’re not going to risk losing their licensed to screw you over on one deal.

Lastly, if your would-be-wholesaler is using a generic contract he or she downloaded from the internet or bought at the local office supply store, I’d really think twice before risking a bunch of money with this corner cutting wholesaler. You’re much safer buying through a licensed real estate professional with access to your state’s real estate contracts.

Summary

Asking not rushing into deals and asking seven simple questions, you can avoid losing hundreds of thousands of dollars and wasting several months on a bad deal from an inexperienced or bogus wholesaler.

Author’s Bio

Jeff Morelock began his real estate career by buying and rehabbing houses. Jeff discovered that he enjoyed finding, analyzing, and negotiating real estate deals much more than rehabbing houses.

He is now a licensed Florida real estate agent working for a company specializing in finding and analyzing properties for real estate investors, and usually has properties available in the Tampa Bay Area for investors just like you.

@Jeff Morelock , I think this is a great post. I am new to the real estate investment world and have chosen the path of a wholesaler.  I haven't done my first deal yet. However, I understand the importance of knowing what you're doing and being professional about it. I also understand that knowledge comes through education and doing. 

As a new wholesers with no experience, I would love to be able to answer the questions you presented in the manner that you outlined above.  Unfortunately, I don't have the experience.  What would you suggest someone who is new and who does not work with a major company do? 

I'm sure none of us who are new to the game want to be completely cut out of the experience.  So, please provide some advice on what we can do to do the job well and get investors to trust us. Thanks in advance for your response.

Ashley J.

@Jeff Morelock - You realize you're advocating shutting out any wholesaler that (a) doesn't have a real estate license; (b) isn't part of a big company AND (c) is new to the business. I understand being cautious in regards to dealing with that much money but at some point the investor has to take responsibility for their own due-diligence when purchasing a property. Most people in REI start out as a one-man shop and many start out as wholesalers. Yes, many of them wash out...but some go on to be quite successful in their field and get to be quite good at locating great deals, estimating rehab costs and passing that deal on to other investors with plenty of meat on the bone...even without a license and while still operating primarily as an individual. So to call for putting those strictures on all new wholesalers is overly burdensome. It's like saying "Don't get your car serviced by anyone except the dealer." yeah...you've got a car worth $20,000 but that doesn't mean the guy up the street working out of his garage behind his house isn't capable of keeping it in top running condition...even if he's NOT ASE certified.

I feel like questions 2-6 are fair and legitimate questions that any wholesaler should be able to answer before they even attempt a contract.

However, I feel like questions 1 and 7 are designed specifically to shut out a majority of the competition because most did not impose those barriers on you when you first started out.  Much like increased regulations, these questions seek little more than to increase the  barriers to entry for the wholesaler.  If the wholesaler knows his/her stats cold on a property, why should I CARE if s/he's done 100s of deals before or if this is their first?

For the record, I am NOT a wholesaler, and have very little ambition to be a wholesaler as a primary, or even secondary source of real estate income.

I think the largest hurdle to jump is understanding the margins and what a good deal actually looks like.

If you can turn up good solid deals the rest will fall into place.

@Jeff Morelock

Hi Jeff,

I quite like what you've stated here: Investors like you are entrusting them with their retirement money or life savings, so its well worth the time to either water-board them, or at the very least, ask them some tough questions.

It's the absolute truth - whomever I do business with, I'm putting alot of my savings and trust in you, and I worked my tail off to get that money. I'm a big fan of transparency - if you're new, or don't have the answers: just tell me that, and let me make an educated decision based on my own understanding/expertise about whether I want to move forward or not (for investors who are very experienced, and you're bringing a good deal, being new or not knowing all the answers shouldn't be a show stopper; for new investors, they may prefer a pass - but wouldn't you rather build a reputation as an honest keen provider who will get many referrals, even if that investor passed?)

@Jeff Morelock I think these are great questions to ask but like others have stated I don't think they are deal stoppers.  You're saying everyone should shop corporate America and not small business.  It also comes off as the wholesaler is 100% responsible for all the  due diligence which I think would make for very irresponsible buyers; buyers should double check all information given by any wholesaler.

I totally understand the spirit of this post I just couldn't disagree more. First, if you're counting on a wholesaler for anything other than the address you're asking for trouble. 

Overall what you're saying is buy from the big boy wholesale companies. The problem is they have large marketing budgets and lots of overhead so they push the prices up and need to make a much larger spread than a one person operation. 

Although new wholesalers may make mistakes on pricing, sometimes that mistake is pricing the property too low, so it goes both ways. If a wholesaler presents a terrific deal that you can make money on, it doesn't matter if their comps are from a drunk neighbor and they want to meet behind a dumpster. Buy the deal.

Nick C., Circuitous Realty | [email protected] | 7274750107

Great replies everyone - even the ones that disagree with my post. We have to remember that this is a business and not personal. 

Like Nick said, "If you're counting on a wholesaler for anything other than the address you're asking for trouble." I agree, but many new investors rely on wholesalers for just about everything from comps to contracts.

New wholesalers find great deals, and experienced ones make mistakes. My point is, don't be afraid to ask questions that may make someone uncomfortable. There's a lot of money at risk, so don't be afraid to ruffle feathers.

All I want out of a wholesaler is an address and I would assume since they are calling me a price it can be bought at. But "all" is a poor word for that since that can be worth a lot.

Again it ain't rocket science. All you need is a good deal and a thick skin. Find me a nice building lot in Milford for $50k, I'll flip any wholesaler $10k on close for that. The deals are the hard part, the rest are just details.

I would say that these tough questions should go both ways. We  as wholesalers not only market for sellers, figure out the numbers, negotiate price and set up the contract but we also deal with our end buyers and cultivate relationships. I personally like to know that the person I am assigning a contract to, or doing a double close with has the funds to follow through. I like to know what area they prefer and see some of the rehab work they have been invlolved with. I have heard stories of buyers not performing as well.  If an end buyer cannot follow through then I, as the wholesaler, will be left holding that contract and will be liable for it. I can assure you, I do a lot more than provide an address. I think the term for that would be a bird dog. Now, I have not done one single wholesale deal. I have, however, talked in length with several buyers about what they are looking for, what their particular margins and needs are and how  I can better work with them. I have a couple of agents who run comps for me, and I took the course to get my real estate license because I am serious--just because I have not yet gotten a deal does not mean I wont get many deals in the future. Everyone of us has been new. Everyone has fudged deals and made mistakes .Even the best and most highly skilled wholesalers had to start somewehere--many of whom were never first involved in flipping houses. I think advising buyers to steer clear of new wholesalers is doing everyone a disservice. How am I to gain experience if I already need experience to gain it? I agree asking questions is critical. Knowing your business is critical and doing your due diligence is as well. But shunning a person for having a home office or not already having 100 deals under their belt both stifens growth, and keeps people who could be game changers out of the game all together.  I don't think that is what this business, or BP is all about.

Originally posted by @Ashley Guzman :

I would say that these tough questions should go both ways. We  as wholesalers not only market for sellers, figure out the numbers, negotiate price and set up the contract but we also deal with our end buyers and cultivate relationships. I personally like to know that the person I am assigning a contract to, or doing a double close with has the funds to follow through. I like to know what area they prefer and see some of the rehab work they have been invlolved with. I have heard stories of buyers not performing as well.  If an end buyer cannot follow through then I, as the wholesaler, will be left holding that contract and will be liable for it. I can assure you, I do a lot more than provide an address. I think the term for that would be a bird dog. Now, I have not done one single wholesale deal. I have, however, talked in length with several buyers about what they are looking for, what their particular margins and needs are and how  I can better work with them. I have a couple of agents who run comps for me, and I took the course to get my real estate license because I am serious--just because I have not yet gotten a deal does not mean I wont get many deals in the future. Everyone of us has been new. Everyone has fudged deals and made mistakes .Even the best and most highly skilled wholesalers had to start somewehere--many of whom were never first involved in flipping houses. I think advising buyers to steer clear of new wholesalers is doing everyone a disservice. How am I to gain experience if I already need experience to gain it? I agree asking questions is critical. Knowing your business is critical and doing your due diligence is as well. But shunning a person for having a home office or not already having 100 deals under their belt both stifens growth, and keeps people who could be game changers out of the game all together.  I don't think that is what this business, or BP is all about.

I agree 100% with you, Ashley. I was going to say about 90% of what you said. Although, I understand what, Jeff, is saying. We do need to have solid numbers when we present a deal but, any good buyer is going to do their own due diligence. 

Originally posted by @Nick C. :

I totally understand the spirit of this post I just couldn't disagree more. First, if you're counting on a wholesaler for anything other than the address you're asking for trouble. 

Overall what you're saying is buy from the big boy wholesale companies. The problem is they have large marketing budgets and lots of overhead so they push the prices up and need to make a much larger spread than a one person operation. 

Although new wholesalers may make mistakes on pricing, sometimes that mistake is pricing the property too low, so it goes both ways. If a wholesaler presents a terrific deal that you can make money on, it doesn't matter if their comps are from a drunk neighbor and they want to meet behind a dumpster. Buy the deal.

I love the last paragraph, Nick! That's right, if the deal is right I'll sign the contract in a dark, dead-end, alley at 3am in a war zone while the police are on lunch break!

Thank you very much Jay! I agreed with what Jeff said as well, I just felt like he was lumping all wholesaler together-- which really hit a nerve. :) Not everyone is looking for quick and easy. There are those of us out there who relish education, growth, honesty and hard work as a means to making money . :)

Originally posted by @Jim Viens :

@Jeff Morelock - You realize you're advocating shutting out any wholesaler that (a) doesn't have a real estate license; (b) isn't part of a big company AND (c) is new to the business. I understand being cautious in regards to dealing with that much money but at some point the investor has to take responsibility for their own due-diligence when purchasing a property. 

Yes, I agree!  A dumbest rookie wholesaler can bring me a deal and I'll gladly buy if the deal is a good one.  I'm ultimately not relying on his valuation.

Ashley

Thanks for your reply. Hopefully I didn't discourage you from getting into the business. Some people took the post personally lol. You're on the right track with asking questions and reading.

I think the first step is to figure out what you want to get from real estate and what time of investor you want to be. I guess you can say that's goal setting, but it beats running around like a chicken without a head.

Wholesaling is a way into the business, but just be honest with people and don't pretend to be something you're not.

Jeff

You are very right Jeff! I totally agree that a person really needs to know what they are getting themselves into when they think about becoming a wholesaler--you should write a blog about what we should ask gurus...haha Those guys are for the birds. Thanks for the encouragement! I look forward to reading more from you.

I feel like you were in my mind just now. Wow. I work for New Western, we're a large wholesale firm in Houston and that is an incredibly accurate description of the day to day things I hear.

I especially like #7 where you mentioned that you should insist on meeting your potential wholesaler at their office- We require investors come to our office first at our firm. This is one of the biggest rejections that our sales team gets is people not wanting to meet at our office. It is true that if a wholesaler doesn't insist on having you come to their office, you will probably never do a deal with them. The same is true if someone who claims to be an investor refuses to come to your office, they probably are not worth your time.

Great post.

Medium nwgold01Trey Watson, New Western Acquisitions | [email protected] | 7132080560 | https://www.facebook.com/DenverHomeAcquisition

@Jeff Morelock

  as a fairly active buyer of these types of assets in 12 states I see wholesale fee's on my huds quite commonly.

I think your points about people getting into wholesaling in areas its legal ( many states its not but people disregard the laws) any way for anyone getting into this industry which is usually dealing with substantial investments.. then post something like Help what do I do now.. those people are the one's that need to get educated FIRST before they just try to wing it.. Those are the one's who wash out big time.. I suspect the failure rate of a wholesaler starting out is probably 99 out of a hundred that try it won't be in it a year later.

So for those were this is legal and they want to try this the key is get educated before you do your deals so you don't sound like the OP  1.  paragraph.. you just look silly when you do that in my mind.

and yes buyers are liars too... again a rookie in the business is going to soon figure this out.. Especially those that say I can buy everything you got... blah blah blah... granted there are great buyers out there but a lot of tire kickers who could give a rip if they cost you a deal.  And its for all those wanna be buyers out there is the reason I am in business !!!

Medium ksqoekox 400x400Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222

So, the take-away here is to get to know as much as you can about the other party, whether you're a buyer or seller. Then the property, which is the most important, as a buyer. 

Just because someone doesn't have the actual experience doesn't mean they couldn't provide great deals or get the cash to close fast. That one deal could lead to many more for either party, so do your own homework and be diligent enough to close or walk away. There are risks on both sides of the fence, though the wholesaler, not bird-dog, is the one taking on the first risk. 

Number one in my book is a personal relationship. Even if it's just for the one deal. Meeting face to face is imperative, to me before signing anything or giving money to anyone. Trust is a two way street and our "word" is everything when it comes to our reputation, personally or as a business. Integrity, ethics, hard work, knowledge, along with wisdom, are values that we all should exhibit and strive for.

Originally posted by @Jeff Morelock :

Saw your post & examined each question based on my experience as both a buyer & a seller.  

Question # 1

How many houses have you personally bought, rehabbed, and successfully sold for a profit?

As a buyer I've never asked the wholesaler/seller how many houses they've personally bought, rehabbed....  I understand the question but it's kind of irrelevant.  I'm the one buying.  

IQuestion # 2

“If this house is such a good deal why don’t you flip it yourself?” 

This also seems irrelevant, so we've never asked it as buyers.  As a buyer I'm assessing if it's a good deal for our portfolio.  W/ that said we sometimes get asked this question when selling.   Our answer has been simple- We have a nice balanced portfolio.  Some deals we keep for ourselves for return later, others we turn around for cash now.  

Question # 3

“Where do you get your comps?”

Years ago as a buyer I may ask this question.  Now a days we rarely ask.  I wouldn't pass on a deal because the seller doesn't subscribe to a professional comping website.  I'm the buyer;  I run my own assessment using the wholesaler's info as part of the evaluation.  If my analysis supports buying the deal then we try & buy.  

When we sell we do the same as you; provide comps from the MLS or some other verifiable source.  

Question # 4

“How did you come up with the rehab estimate?”

This is the toughest area.  When purchasing in our backyard we ran our own assessment.  When purchasing outside of our backyard we'd use a wholesaler's GC estimate as a gauge, but even GC estimates are wrong.  So the question for us as buyer- Is there enough margin in the deal to withstand a $10K error and still make some $.  

Question # 5

“How much is your assignment fee, and is it refundable?”
As a buyer I have no problem w/ non refundable fees if we fail to close, but they should be refunded if a clear Title can't be delivered.  Same thing when we sell.  

Question # 6

“What type of deed or property conveyance will I get at closing, and who pays the closing costs?”

Full agreement with you here.  

Question # 7

“When can I meet you at your office to look at the contract, and what type of contract is being used?”

Let's see.  Over the years we've purchased dozens of deals from wholesalers.   Some were large operations like New Western.  Never met them @ their office.  Always met them someplace & made them pay for lunch.  We have a cool office in downtown Chicago, yet I spent all day working @ a coffee shop meeting w/ clients, some established, some new.  In this day & age my office goes w/ me.

Regarding only buying from a licensed agent- Honestly if our analysis shows a deal is worth it, we're not going to pass on it.  If the unlicensed person doesn't control the property or the contract w/ the seller in the proper way, we will let them know what we need to make the deal work.

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Great replies... this is what BP is all about. We don't have to agree, because that's how everyone learns. 

The day you think you know everything there is to know is the day you should get out of this business.

I'm in agreement with your questions in principle. Sounded more like an advertisement for your experience/service than anything. 

Ultimately I doubt if most investors would pass on a solid deal even if from a new investor like myself. I don't have an office. I don't have a real estate license yet. But I may have other skills that aren't listed on your list. Isn't negotiating and finding great off-market properties a key skill for a wholesaler? If any wholesaler brings me a great deal in my market, I'd be happy to pay them for the opportunity to do business on that great deal.... even if we met at a local shop or in spite of some of the other deal breakers you mentioned.

I'm getting a little tired reading all the posts using terminology such as "would-be-wholesalers" and "wanna-be-wholesalers". Don't all individuals have an opportunity to take a run at real estate or any other endeavor?

Yes, there are probably some shady folks out there. Watch out for them. Listen to your gut. 

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