Wholesaling Caution Not The Great Deal You Thought

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Originally posted by @Bill Gulley :
Sorry about your misspent vote, I can't give it back to you. How you can get it back in a way is the next time you see one of my informative posts, don't vote for it! If you'd like to take back another one, don't vote for two of my posts, then you can feel like it's even again. :) 

 LOL. That actually made me laugh out loud. 

I've said this before, in that I don't really think much of the idea of wholesaling. That said, and despite my socialist bent (Go Bernie!), every "investor" who bites on a bad deal is one less competitor that I have to compete with when a good deal is on the market, and for me that can't be a bad thing. I feel as bad for new investors as I feel for people buying cars $5 grand over the MSRP off of new car lots. Meaning I don't care at all how someone else spends their money as long as it doesn't generally harm me or the greater good. Some of the people who get burned will learn from it - it may be expensive, but hey, education usually is - and get better, and the others will just be Darwinized and thinned from the herd. It works out either way.  

@Account Closed I agree with you about MLS and agents! I worked as a Realtor for 15 years, am still a RE broker and work w agents and in MLS every day in my investing... and there are some seriously bad apples!

My frustration, is in the area of pretending to have an expertise in an area you don't. As I mentioned, I see many wholesalers give information they know is false, and act as if they are knowledgeable in how the information was obtained. Yes, I do get hundreds of deals sent to me by wholesalers and this is the first time I have posted anything negative or cautionary about wholesalers. I am going ater wholesalers and not Realtors, because one requires a license and one does not. The unethical Realtor can be sued easily, and their company can be sued, and they probably have E&O insurance. In other words, the person who is burned, has a somewhat good chance of getting their money back.

I posted today because of a specific incident with a wholesaler recently. They contacted me with an "amazing deal" on a home that would have an easy $200K in profit after rehab. I knew the area, so I comped the home in MLS, and quickly determined that their comps were inflated by 200K, meaning there was no profit at all, or a potential loss of capital. When i asked the wholesaler for their "proof" of value, I received 3 comps in a much nicer area, miles away, and homes that were superior to the subject. I laughed and said these aren't comps! However, the wholesaler just goes down the list and keeps marketing the property with the same numbers, until they find someone to bite.

If all the investors out there were people like me, I wouldn't care at all.  However, recently I became aware of an 83 year old woman, in my area, who used her retirement dollars to invest in one of these deals, and she may lose a good portion of her money.  The wholesaler has no money, so going after them is of no value.  I just feel it is important for people coming to this site to understand that not everyone here has experience, and everyone should be very careful when dealing with people who bring you deals.  Did this site need another post about wholesalers... I really don't know?  I felt it was an important point, and so created the post :-)

@Gordon Cuffe Hi, I just saw your post! You are so right about low-ball offers in MLS, and then suddenly they are a wholesale deal ! If a home has been in MLS for 60 days and no investor has purchased it, it is not a deal ! Simply lowering the price by $10,000 and calling it a wholesale deal does not make it a great deal. I can get those deals by just offering cash on my own. If finding good margin flips were that easy, I would be buying properties almost every day :-) I hope you are planning a great Thanksgiving!

Haha - there is a license - it's called RE Sales license. But, does this really solve anything..?

Most deals aren't worth owning - period. That includes those deals the wholesalers bring you, and the deals licensed agents bring you :)

@David Oldenburg

You said:

"If all the investors out there were people like me, I wouldn't care at all. However, recently I became aware of an 83 year old woman, in my area, who used her retirement dollars to invest in one of these deals, and she may lose a good portion of her money. The wholesaler has no money, so going after them is of no value. I just feel it is important for people coming to this site to understand that not everyone here has experience, and everyone should be very careful when dealing with people who bring you deals. Did this site need another post about wholesalers... I really don't know? I felt it was an important point, and so created the post "

It's why we have "Elder Laws" David, they often go to jail and get out, paying restitution under probation, which can be much different than wages being garnished!

Messing with the elderly can get messy quickly, wait till family finds out what happened. If they have no family, put a bug in an elder law attorney's ear!

There is a reason good Realtors turn in bad Realtors, it's not to thin the competition. I'm not riding through cutting heads off with my battle ax, but in order to protect a profession the public served must be protected from the bad professionals in all industries, that or we can go back to the 12th century.  

I have a saying too, guard the King, the King is your money guy, guard him before your first born!

Since many newbies don't do much searching on BP, those generally inclined to wholesale, we probably need a post like this about every month. I think the longest post on BP is The Truth About Wholesaling, obviously newbies aren't going to read about 300 posts! 

Originally posted by @David Oldenburg :

@K. Marie P. I agree with you about MLS and agents! I worked as a Realtor for 15 years, am still a RE broker and work w agents and in MLS every day in my investing... and there are some seriously bad apples!

My frustration, is in the area of pretending to have an expertise in an area you don't. As I mentioned, I see many wholesalers give information they know is false, and act as if they are knowledgeable in how the information was obtained. Yes, I do get hundreds of deals sent to me by wholesalers and this is the first time I have posted anything negative or cautionary about wholesalers. I am going ater wholesalers and not Realtors, because one requires a license and one does not. The unethical Realtor can be sued easily, and their company can be sued, and they probably have E&O insurance. In other words, the person who is burned, has a somewhat good chance of getting their money back.

I posted today because of a specific incident with a wholesaler recently. They contacted me with an "amazing deal" on a home that would have an easy $200K in profit after rehab. I knew the area, so I comped the home in MLS, and quickly determined that their comps were inflated by 200K, meaning there was no profit at all, or a potential loss of capital. When i asked the wholesaler for their "proof" of value, I received 3 comps in a much nicer area, miles away, and homes that were superior to the subject. I laughed and said these aren't comps! However, the wholesaler just goes down the list and keeps marketing the property with the same numbers, until they find someone to bite.

If all the investors out there were people like me, I wouldn't care at all.  However, recently I became aware of an 83 year old woman, in my area, who used her retirement dollars to invest in one of these deals, and she may lose a good portion of her money.  The wholesaler has no money, so going after them is of no value.  I just feel it is important for people coming to this site to understand that not everyone here has experience, and everyone should be very careful when dealing with people who bring you deals.  Did this site need another post about wholesalers... I really don't know?  I felt it was an important point, and so created the post :-)

In the example you use: What do you think would have protected this buyer? Regs that prohibit FSBO? Regs that prohibit as-is sales? Regs that prohibit consumers from working with non-agents? Regs requiring consumer education before investing in RE? Regs that prohibit spending/investing of retirement funds? Do you not see tons of examples of people, many of whom are seniors, making bad investments, even when they are cautioned by friends, family and legal and financial professionals? Maybe that's just a Santa Barbara thing. :)

In other worlds, say car buying, you wouldn't pay a car broker a premium on a price based on your painting the car, putting in a new engine or wheels. you pay based on the current market price as is.

If you're an investor, shouldn't you look to purchase at a discount to current value? Not based on someone's sales pitch?

I've drunk the Kool Aid more than once. Hope I've learned my lesson finally!

I just shake my head when I see most wholesale "deals"  But I actually bought a house from a wholesaler and sold it to a neighbor for a 30k profit 2 days later (I had no intention of doing this but he knocked on the door and offered me 30k more than I paid!).   Then he rehabbed it and made a 60k profit.  Of course this is rare.  So of course the wholesaler was clueless about what he had.  So was I because I could have made 90k if I rehabbed it but nonetheless my hourly pay was better than the rehabber!  So I always look at wholesale deals.  95% of the time they stretch the numbers but once in a great while they "shrink" the numbers because they don't know the real numbers and it works to your advantage.  I have a condo right now that is going to cost only 10k to rehab to nice flip condition and the wholesaler based his asking price on a 25k rehab.  He didn't even see the property but instead has an assistant do it.  So maybe the assistant was distracted that day and plugged in bad rehab numbers.  So just like they try to take advantage of investors, once in a while I can take advantage of their lack of expertise and thus always look at what comes to my inbox. 

@Bill Gulley  I know  you we want to blame guru's for the legions of wanna be uneducated wholesalers that have sprung up.. However in my opinion BP is more responsible for propagating newbies with not a clue to run out and be wholesalers than guru's do.. Last 2 Guru events I was at  and it was this month and it was the big ones the 4 and 5 day events that folks pay 25k to go to..  these Guru's advice was NOT to wholesale that its very difficult and what you should do is USE wholesalers let them do all the grunt work blow their credit card money and time on DM do one deal in 6 months and flame out  LOL... there was NO Guru talk of being a wholesaler quite the opposite. 

what I see on BP is the few wholesalers that do do well and then get on BP and talk about how well they did do and such .. those inspire this whole legion of undercapitalized how to get started in RE folks to think that wholesaling is the way to start a RE career.

So when you say Guru I think you need to add BP to that sentence then you would be correct from what I see in the industry and the actual GURU events I have personally attended. 

@David Oldenburg  I think this part of the RE industry is very regionalized.  

And it really depends on what folks think a good profit margin is.

there are a few high volume wholesalers in the PDX market one buys mainly court house steps and the other does the direct mail and gorilla marketing stuff... both back into what they will sell a deal for by allowing the buyer a pretty small profit margin.. but thats our market... 250k to make 20k is a big day here.  If your going to make more your not generally going to buy it from a wholesaler.

Were as our guys in Orlando work with one of the top dogs there and I fund those at all in 55 to 70k and they can make 7 to 20k  with 12 or so average.. 

Right now we are seeing our best profit margins come from MLS and the on line auction companies that have really high EM deposits really high meaning 5 to 10k this keeps the hordes from bidding and we get some smoking deals that way.

Also my number one provider of great deals are RE brokers who specialize in beat up houses that need extensive rehab.. so they are wholesaling in a way.. but they make the commish selling it to me and the list back.. and on our larger dollar deals were we buy something for say 200 to 250 they make their 6k or sometimes they double end it and make 12k .. then when i resell in the 400's they make 3% or another 12k. ( generally don't double end the resale) so they can make 20 to 30k per deal with out RISKING any money and building their career and business as RE professional.. I personally don't work with any wholesalers only agents. and directly with auctions.. not that I would not.. and some of the guys I fund work with wholesalers for sure Like I stated above. I jut don't do it personally. and I will not out of principal buy or fund any deal that some one has tied up on MLS and is trying to wholesale which seems to be a sport in the Texas market..

@David Oldenburg have a good Thanksgiving also. hey, I was just sent a off market wholesale deal in North Highlands. The numbers look good. We just need to verify that the rehab cost is really the amount the wholesaler estimated.

@Jay Hinrichs It sounds like you have a good niche in your market.  Making $12k on average and only spending 55K to 70K, those are good numbers!  What's really interesting is the buy and hold numbers in other states.   Where I live in CA, it is almost impossible to cash-flow positive on a rental.  Your cost of loan, or cost of your money (if paying cash), is almost always higher than what you can get in rent.

I talk to people on this site and see deals in other states where people buy $50k or 70K homes and rent them for $1,000+... If it were like that in CA, I would get back into acquiring rentals. I like to flip and do bridge loans with my money, because the returns are so much higher.  You are right, definitely regional :-)

Hello everyone! I am newer than a newbie to the RE profession and have limited, but growing knowledge in the RE field. I want to thank you all for these posts because I am like others with getting into the RE profession by way of Wholesaling. However, I don't want to mess anyone over on a deal and build a bad rep for myself or other well-qualified Wholesalers. I hope to one day become a Cash Buyer and I need this start in Wholesaling to build my finances, my Capital, my reputation, my future business and more importantly my financial independency (don't think that is a word). I have purchased books and I am seeking mentor-ship, but what other information is needed to become a successful Wholesaler and future Cash Buyer?

@David Oldenburg I could not disagree more with you wanting a federal or state regulation requiring wholesalers to obtain a license to wholesale. You are saying that wholesalers pitch "bad" deals all the time. IAre there not realtors out there who do the same thing? tell investors this is a "great investment property." At least that is how they advertise it, and they don't get slapped on the wrist when a buyer buys the deal and loses money. Stock brokers do the exact same thing. They pitch stocks and it sometimes loses. Who is at fault? The realtor, stock broker, the wholesaler? ABSOLUTELY NOT. 

You as a buyer should always do your own due diligence on anything you do whether it be buying real estate or a stock or any investment for that matter. Ultimately it is your decision to buy the deal and only your decision. At any point, you could say no it's not a deal. 

I completely agree that wholesalers should put out good deals but only for their own credibility in this business. But ultimately, any liability falls on your shoulders, not theirs. 

Using your logic, contractors should never be allowed to take advantage of any investor or homeowner. They should never be allowed to tell you "I can get this done in 4 weeks." and then it's done in 10 weeks. Or say the job will be 30k and it is really 50k. It is YOUR fault for hiring that contractor and not doing your due diligence on them. Yes, they should not be shady contractors but guess what, that is the way the world works and you are never ever ever ever going to fix it. 

Always do your own due diligence.  A wholesaler opportunity is a lead not a deal.  Do your own comps and do your own walk through and construction estimates.  If you aren't experienced enough, use brokers and contractors to back up your numbers.

@Devan Mcclish  agreed.. and for all those reasons I don't work with wholesalers generally unless they are proven top notch. and I don't work with bad realtors or fix and flippers.. and sometimes you have to go through a learning curve.

I respond weekly to yellow letters I get.. and 80% never answer the phone or call back.. So I know there is a lot of money being blown on this .. No different than those that borrow money to take RE courses then never do anything with the info and then blame it all on those who sold them the courses... 

Bottom line this is a very difficult industry to bust into.. i. and if someone actually can make it as a wholesaler then I think they have that special something and they would make it in most any sales related field from selling cars to selling homes and timeshare.

The reality with a site LIKE BP that promotes wholesaling so much that you have  legions of folks who are just throwing crap up against the wall to see what sticks.. and your right folks like me who actually buy property and close on it and reposition it.. Its up to us to sift through the time wasters...   So for me personally I just lump all wholesalers into one bundle and this is someone I care not to deal with at all because 95% know not what they are doing... But their are those 3% ers that do well. and thats who you spend energy on its the wholesalers goal to bust into the 3% before they flame out and go broke.

So your solution to solving a problem of people not knowing what they're doing is to involve Government.....which is full of people who don't know what they're doing?? 

What could possibly go wrong?!?!?

I'm laughing at everyone's concern over regulation :-)  I for one hate regulation.  They write thousands of new laws every year that do not benefit me.  I simply said a wholesaler should be licensed, this does not require really any "new" regulation at all. Here in CA, the Bureau of Real Estate could simply say that effective tomorrow wholesaling requires a real estate license.  They did this with Loan Modifications a few years ago, the industry got corrupt and they changed the rules almost overnight.  It reduced the amount of corruption in that industry immediately and was very effective.

For those who have not read my posts clearly, this is NOT for me. I am an extremely experienced real estate investor, who has been very successful. I can do everything on my own and never rely on what others tell me. Yes, wholesalsers waste my time, but I determine whether a deal is good or bad, and take that responsibility. I have mentioned here earlier that often times they go after people like elderly investors, who do not have my experience, and many wholesalers have no risk or loss because they have nothing. If they are licensed, they have something to lose if they scam others, they could lose their license, their E&O insurance could pay a claim, or there company could be sued for fraud etc...

I am on the same page with all of you not wanting more Government control. I have spent my life in that camp, and I am the CEO of two corporations in CA. I hate regulation. This is a very simple change. The good news for everyone is that is makes no difference what I want.  I am not the BRE and I have not heard that there is anything now or in the future planned to regulate wholesaling.  It looks like everything will be just as it is for a long time.  With that said, I throw out the same caution I do every month to the more than 400 members in my real estate investing group, many of whom are on this site, be very careful and protect yourself when dealing with wholesalers :-)

As a wholesaler closing an average of 20 deals per month & also a fix & flip investor, I am on both sides of the fence.

As a wholesaler, I've negotiated what I know is a good deal for the right buyer in that neighborhood.  It is a deal I'm always selling for SIGNIFICANTLY LESS than the other LOWEST CASH COMPS in the neighborhood.  However:

I NEVER SEND COMPS, REHAB ESTIMATES, OR ARV'S TO MY BUYERS

I don't send a well designed marketing package with all of the pertinent info.  I honestly feel that it is up to the buyer to due their diligence and decide for themselves whether they should be purchasing my deal.

The best, most experienced and easiest to deal with buyers RECOGNIZE A GOOD DEAL BY ZIP CODE & ASKING PRICE.  

The same way that I KNOW a good deal when I hear the asking price.  If the deal has an asking price that causes me to notice, then it's worth a visit to check out the repairs.

I'm sure newbies hate my deal marketing (or lack thereof), but I'd rather not sell someone their very first deal.  Even a truly good deal can turn into a truly horrible nightmare in the wrong hands.  The pros that typically buy my deals know how to manage a deal-I never risk some newbie screwing up a deal I sold them and pointing the finger at me.

It is the fix & flip investor's job to analyze the risk & reward of the investment they're about to make.  I never put that kind of trust in the numbers presented by a newbie.