Seven Questions Inexperienced Wholesalers Hate
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.