Wholesaling Caution Not The Great Deal You Thought

79 Replies

Iv'e been thinking this for so long! Thank you for starting this post. I get emails and phone calls of wholesalers who try to sell these properties where they only make money! It's bad for their business and it's bad for the rest of us wholesalers. When we evaluate a property, we first think of how much the end buyer can make, not us! That's why most of our properties sell in less than 2 days and why we always have repeat business.

Great post @David Oldenburg !

I was a wholesaler from 2004 through 2010.  There are a few things that I can tell you about the "hustle."  First is that the game is supersaturated today with wholesalers fighting for deals.  I would not want to be breaking into this market at this time.  There will always be the outliers who can come into the space and use technology and savvy to climb the ladder faster than others, but all in all, it would be a daunting task without some serious training.

The second thing to note is, from the first day I began wholesaling, there has always been dealers that would stretch numbers.  In 2004-2007, it didnt matter much because of the market going crazy and climbing so rapidly, but soon after the ones who fudged the numbers fell out of the game.  The only way to survive in this business is to provide and honest product and not get Greedy. Greed will sink your ship very fast. 

I still buy from a few wholesalers, and have even sold a few myself when one falls in my lap.  

Keep up the HUSTLE 

David, You are so correct and these abuses are turning off some investors. On the other hand investors should seek adequate education and consider partnering with experienced investors before going out on their own.

If someone posted this already, sorry, I missed it. Here's my realty reality. 'Wholesaler' deals (or lack thereof) are a reflection of the market.

What I see is a market where there are "countless "deals" that are not deals" regardless of the source. My premise is that if there aren't "deals" at Trustee sales, then I believe the probability of a 'wholesaler' finding a deal is maybe about 0.1%

But, as I usually do, I figured I'd check my metrics in the current (today's) active market. First trustee I looked at was Shapiro & Ingle, sale property in Wake county, NC. Of the 13 held sales, 12 "Sucessful Bidder" are non-bank, with BoNY ABS SERIES 2006-22 being the only soon-to-be REO... unless someone (an idiot, IMO) places and upset bid in the next few days. In 2010, there were an average of less than 2 buyers per 10 sales... and there were many highly discounted properties. Borrowing a wall street term, our current market is called a Bear real estate market for a contrarian investment company like mine.

So for the 12 of 13 sales... I looked at a few of the "deals" the all cash buyer will soon own. First one: $118,125 purchase. Comps (and there are multiple similar townhouses that sold in 2015) are about $125K. Remeber, this is a distress sale, all cash, no preview, no "showings", as-is, where-is. Big dollars there, eh?  Second one: $120,772 purchase by AH4R. The now former owner bought in 2007 for $154,500 and current comps are $125K-$130K. Another screamer of a deal! Not!

Summary of the above paragraph: Loser 'deals'. When the market is full of extremely motivated buyers, why would any sane investor bother? What? Are you going to bid 5% over their already sky-high bids? No.

The market is full of trophie buyers, TV flip wanna-bes, relatively ignorant newbie investors, and the all-knowing recent guru class graduates.

It's like 2006 all over again.

Deal with wholesalers? No thanks. I may be alone on the sidelines, but I like the sidelines. Especially when out on the field I see a bigger opponent (the market) that can inflict serious injury.

Any gig that promises a 4 hour work week, fast riches, all while chilling on the beach with a Corona just might attract people who only want to work 4 hours a week, but make fast riches, all while chilling on the beach with a Corona. Who has time for due diligence :)

@Chris Martin  boy I don't envy how your trustee sales are held and the process you have to go through... 

I stopped buying courthouse steps in Oregon when a nice young mother with baby in stroller wheeled into the courthouse and presented a 300k plus cashiers check to bid on a property I wanted... I am thinking Geesh Not to pick on mothers and babies buying Trustee sales.. The next sale was a little dinger value in a good day 200k opening bid 85k over 35 people qualified funds.. ( in our state you must produce a cashiers check prior to bidding for at least the opening published bid and 1 dollar over. So that house bid up to maybe someone would make 10k on it if it went right... there was roughly 3 million in cashiers checks chasing one 10K deal.. at that time I took my pennies and opened my HML company I thought crap I am better off lending to these folks than competing :)

My two cents! Don't be too harsh on Wholesalers because of a bad experience.

A terrible Wholesaler has much in common with a terrible Rehabber and a terrible Buy and Hold investor. They all lose (or stand to lose) financially and damage their reputations. The silver lining for Rehabbers and Buy and Hold investors however, is that, even with the worst Wholesaler, you have the opportunity to "save yourself" by doing your due diligence (which should be a minimum risk management standard in your business).

While I agree, Bad Wholesalers are no good for business, I think Bad Business practices pose a greater risk.

Ps. This is by no means meant to criticize earlier post. I have much respect for anyone who takes the time to give their opinions (and/or add value) in these forums. 

Thank you for posting this question!  You are savvy enough to realize you can't learn wholesaling from a book or webinar!  Whew!

Based on your post, I'm not sure what wholesaling will do for you.  It's not a "by the way" strategy.  Treating as such will cause you (and others) heartaches, headaches, frustration, and delays achieving your goals.

If your goal is to build wealth and cash flow, there are faster and better ways to do it.

Consider becoming involved in your local REIA. Learn how to analyze properties to determine how you can make money with the property (and when you should walk away).

Determine where you want to own properties and the economics you want to target (e.g.,  ARV, NOI, etc.).

Shop for properties that meet those criteria. Look for someone with whom you can partner on those properties who has some experience rehabbing property profitably. Look for private lenders to help you finance your deals - there are a TON of them out there right now at decent rates...using banks is a thing of the past for investors.  

You might also considering "bird dogging" for someone who IS an experienced wholesaler if you are seeking to generate some cash to accumulate to fund your own deals.  Your odds of "getting paid" will be a lot higher because you will be hitching your wagon to a star instead of learning-on-the-job.

Wholesaling sounds like a great way to "find money", but unless you specialize in it, you will not generate enough cash to do anything meaningful in real estate.  Moreover, wholesaling is a J O B not a wealth building strategy.  Creating equity by buying, fixing, and holding for income is.

Wow, there have been so many great responses to this post!  @Lamarr Baxter it's great to see you here!  It's nice to hear from the wholesalers who are out there trying to make this a great industry and provide value for their clients.

@Account Closed ","user_avatar":{"medium":{"url":"https://biggerpockets.s3.amazonaws.com/assets/avatar/no_avatar.svg"}}}" href="/users/RodYarger">@Account Closed Yes, greed is the biggest hurdle I think we all must overcome. You are correct.  If you are too greedy, the Darwin Theory of Business will prevail, and your business will be gone!  Great comment :-)

Wow.So many points to talk about.LOL

You are right Dave.There are so many guys out there that don't know what they are doing.

I get newbies all the time that try to partner with me on a deal and don't have a clue.They put anything under contract just to try and make sugar from sh*t and It blows up in their face, they lose credibility, and waste the time of people who actually could be buyers if only it was a true deal.

I will make 2 points.  One for Dave who started the thread, and One for the newbie wholesalers who don't have a clue.

Point #1.  For Dave.

Emptor cavete=Buyer beware.

I suggest you don't even do business with a wholesaler without having a first time 5 minute conversation about their experience in Real Estate, how did they come about this property, and how did they come up with their ARV.

I actually do the same thing with people who call about my deals.  I’m trying to find a buyer, however if this is my first time speaking with them, I will ask them about their real estate experience, if they understand about assignments, if they understand that I’m wholesaling the property, and basically have a meeting of the minds about what my intentions are and If I can answer any questions for them.

That is what a good wholesaler should do.  If someone doesn’t want to give me 5 minutes to have a meeting of the minds, they are not someone who I want to do business with anyway.  I don’t care how good the deal is.  You should do the same.

In defense of the comment about another chance to bash wholesalers…

There are just as many BS cash buyer, time wasting, wanna be investors out there as there are wholesalers who don’t have a clue.

I’m an Investor first, and a wholesaler second.  I keep 1 out of every 5 deals on average to either fix and flip, or hold for rentals.  Every deal I contract is one that I would keep or fix or flip myself.  I just like the idea of a fast nickel instead of a slow dime.  Not to mention that my strengths are in the areas of Marketing, Negotiating, and Sales….I love that part of the business and wholesaling fits that mold.

So let me put this out there.  I’M PROUD TO BE A WHOLESALER.  11 years since my first real estate deal, and I have been involved in the buying or selling of about 200 deals residential and commercial.

I did it morally and legally, and paid my dues.  That’s why my number is public. LOL…

Sorry about the emotional blowup BP… I just had to get it out..

Now

Point #2.  For Newbie Wholesalers.

Go get educated.  I hate to agree with the wholesale bashers, but they are right.  Learn how to do your business.  Stop thinking that you can read a 20 page ebook, call up some “Handy Man Special” signs, partner with a wholesaler, market their deals, get a cut, and that makes you an investor.  It does not.

Real wholesalers, know their business, know what their buyers want, and know how to keep them coming back. They know marketing, how to talk to sellers, and negotiate without lying and being a scumbag. They know how to evaluate a deal for a true ARV, true repairs, and a true profit.You don't have to fudge numbers. Present the true ones. If someone wants it they will buy it, if they don't then they won't. Plus true numbers will tell you information about the deal, the market, and where you need to improve in your business. Here is something to think about newbies.

I give my buyers a copy of my original purchase contract.  This builds tons of credibility, I let them know how much I’m making up front.  I make money wholesaling through volume, good business practices, and doing what I say I’m going to do.  We all should do the same no matter our experience level in Real Estate.

Also.. Be ready to defend yourself against the negatives… If you are good and honest about what you do, It won’t be a problem.

I have said my part.  That was a great topic Dave.  I guess I needed to vent huh…LOL..

If anyone has questions they want answered from a real life wholesaler… connect with me.

Good luck all. 

P.S.  This just turned into an article.  LOL...I'm going to post it on my BP Blog if anyone wants to pass it on. 

One of the most common lines from a new "investor", an "investor" with no money, an "investor" with no experience, an "investor" with  no education, etc.....
"Hello I am a wholesaler"......

My personal experience has been most of these people will waste your time, have no clue as to value, think they will make milliions, etc. Most will fail. 

If you want success in RE: get an education first! As far as licensing: representing others requires a real estate license in most states! Will there ever be a "wholesaling" license? Doubtful because it usually crosses the line into brokering...and often brokering without a license.

Originally posted by @Gordon Cuffe :

@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.

 North Highlands can be a rough area. Sometimes rural. Depends on where. Here's to making a successful deal.

It's a good rant and I totally agree it is irritating to have to sift through 100 WDs to find one good one but it's just how the free supply and demand markets work. Any industry (REI, securities markets, flipping autos, etc) based on the premise of risk/reward and speculation will have it's grey areas. Newbies just like any other industries need to do their DD and become educated.

@Rob Rice  I sent you a message as well.  Excellent points and great advice about asking questions in advance.   I feel sorry for a lot of these wholesalers I meet, as they don't even know what they are doing. I mean even if a deal fell into their lap, they wouldn't actually know how to put it under contract, protect themselves, handle the title end of it, and get paid.  

I think it's easier to say you are a "wholesaler" than it is to say you are unemployed and trying to figure out how to be a real estate investor.  Maybe it's just me, but I find that being a Realtor would be a lot easier. Not for everyone, but for most. I mean every home is a potential deal for a Realtor, and you get about 3% (assuming you are on a high commission split). I see lots of wholesalers trying to scalp $1k to 3K on deals, when the Realtor makes $6K+.

@David Oldenburg  it certainly cuts both ways.. the BS investor and the uneducated wholesaler.... god forbid the 2 meet on the same transaction  LOL.

when I had my RE brokerage company... I would get about 1 meeting a month with one of my newer agents  all excited they had this new investor that wanted them to write 10 contracts a day and they were going to kill it.

I always told them to invite said investor in I would like to meet them and get started on the right foot.. I did not want to pop my agents bubble right then I would use this for a class room learning experience.

Get wanna be investor in the room start to interview and low and behold this on fire investor really has no money .. OR cant prove they do they have some flimsly pay for POF which of course means nothing.. I would tell the investor that your asking an agent to basically give up their lively hood to chase these deals.. we want to know who you are POF in the form of bank accounts with a banker I can talk to. And a list of homes in your name or companies name that we can verify ( I guess my HML roots were showing )

well other than those that worked for a company like American homes for rent or other larger institutional buyers.. these guys just kind of tuck tailed and left.. my agent was wide eyed and thanking me for just saving them untold amount of misery.  Its one of the reason many agents simply won't work with investors.. Because they have been burned by wanna bee no money so called investors.. Cashed up investors generally have their teams in place.  And a real investor will provide this info... 

We see it all the time on BP with BP members bitching that agents won't work with them I suspect many of these are the wanna bee types.. of course not all but you know the score

@Jay Hinrichs  I think you saved some of your agents a lot of time and energy with interviewing RE investors.  You are right about experienced RE investors usually having their own team.  I am a RE broker here in CA. The main reason I like being a broker has to do with loaning money.  The Usury laws make it difficult to loan your own money out here and make really good returns, unless you meet certain exceptions.  A RE broker loaning money or arranging the financing makes the loan exempt, so I am able to structure deals in ways that not everyone can.  

@David Oldenburg yes I am CA broker as well and I used my brokers license to run my HML company in Oakland circa 1987 to 1992 :) and yes we did fractionalized TDs every day of the week... with no worries of security laws.. Its a unique provision in CA

I read some of this. Wholesalers I have ran across over 12 years have all been a joke. I have never bought anything from any of them.

It's laughable on the commercial side. They give a vague description and then say sign a CA with a NCND and blah, blah ,blah. Endless forms of crap to sign without much info on the property.

You think I am going to spend 30 minutes of my time filling out this crap when I make thousands per hour for my time to see if it's a junk property or not??

Come on people I have no interest in running around a wholesaler to cut them out of their small fee.

I am sure there is a very small group of wholesalers who actually have deals that pencil no matter the asset class. I like making my own calls to owners directly along with my mailers. At least then I know if something is a deal or not. If a wholesaler can't break down a deal into very specific data and numbers upfront  in a one to two page flyer then they are wasting my time. I see a lot of BS commentary also like ( one of a kind, amazing deal, will not last, etc.).

No numbers on anything just a ton of crap with useless value.    

@Joel Owens  NCND is the first clue that your usually dealing a daisy chain I feel for those back in Mid 2000's  ... If any one ask me to sign thats the end of the conversation

Like anyone of these folks could actually enforce it anyway I doubt they have the stones to litigate much less the money to do so.

I, like thousands of others, drank the kool-aid of the vast number of gurus who have passed through Tampa over the past six months. I, like thousands of others, was told that wholesaling was THE BEST means of getting into real estate investing if you don’t have money, and my interest was piqued. (They make it sound soooo easy, and it's how they hook us.) I, like thousands of others, don't have up-front capital to invest, but I, unlike thousands of other "victims", know that wholesaling is a BUSINESS that requires continuing education in order to become an asset to the investors that we hope to develop real relationships with. In essence, it’s like any other BUSINESS, and in this, and other businesses, you will always have those who want to learn as little as possible in order to gain as much as possible. Scammers and laziness can be found in EVERY business on the planet.

I have so much desire to learn the wholesaling business from the ground up. I've joined my local REIA, attend as many of the other REIA meetings that I can around Tampa, I network, study everything that I can, read what's available on BP (natch!), and I'm always looking for ways to improve on my knowledge. I closed on my first deal just this past Monday (11/23), and I know that I got the seller out of a bind. I ran the numbers on 11/11 (and got the property under contract that day via a signed Letter of Intent, and a Purchase and Sale Agreement signed by both myself and the seller), presented the deal to my buyers on 11/12, and assigned the contract to a cash buyer (that another wholesaler brought to me) on 11/13. I left enough meat on the bone for all parties to eat, and all was closed in under 2 weeks. I felt pleased that I was able to (1) help someone, and (2) take down my first deal after seven months of analysis paralysis. I'm in the middle of my 2nd deal, and I've quickly learned that the above scenario isn't how this business always goes. I asked the wholesaler from my first deal to ask a few select buyers if they had any interest, and he blasted the property out as if it was his own. Highly unethical, and I had a false sense of trust because my first deal went so well with him. Also, I priced the property incorrectly, so I'm learning some hard lessons, and take FULL responsibility for the fallout. These are mistakes that I won't repeat, and unfortunately, I'm learning in the middle of a deal. Having guidance from a mentor would've helped to prevent my current situation.

And, that's where a lot of the problems stem for us "newbs". Head knowledge is one thing, but applied knowledge is the most important thing! I find that so many people would rather bash the lack of knowledge of the "newbs" being eaten up and spat out by the gurus, instead of extending their hand and sharing their knowledge! I'm ethical, honorable, and so desirous of a mentor (not a babysitter!) who I could look to for guidance here and there to help me grow within this business, and I would be an excellent mentoree for an experienced investor.

Wasn’t everyone on this site a "newb" at the beginning of their real estate investing careers? Who helped YOU to garner knowledge in your chosen niche? Who did you look to for guidance? Very few people become successful in any business on their own. I'd love to partner up with ANYONE who has been successful in this business. I also think that some people don’t want to share their knowledge because they feel that you’ll become successful enough to become their competition. Isn’t there enough profit out there for everyone? I don’t need what you have; I need what you know!

I'm working on having access to acquisition funds for deals in several weeks, and I want to JV with a PROVEN SUCCESSFUL INVESTOR who could provide the rehab funds, show me the ropes with boots on the ground, and split profits!

I'm willing, capable, teachable, organized, business-minded, and nice. And yes, that matters more than many seem to think. But, where does someone like me (who would be an asset to any organization, I might add) find someone who values what I have to bring to the table? Where do I look to associate with those who are ethical and ARE WILLING (‘cause the majority of you are able) to share, teach, and guide others and pay it forward? I’ve reached out on this site in the past, and I recently asked a successful wholesaler if he would consider mentoring me, and he responded that he feels "inadequate" to mentor.

It’s very frustrating knowing that I have what it takes to become successful (not just monetarily) in real estate investing, and yet not being able to get the training that I need from someone vested in my success. All of the bashing posts are speaking to some of the very issues that I’m having, but my mis-steps are not based on not caring or trying to scam anyone. I want to be one of the best in my chosen profession, and I’m like many who learn best with hands-on, as opposed to just reading how-to books. Help me out! Let’s share the profits! Hang out with someone who’s cool and has a good sense of humor (btw, that would be me...lol), and who’s not afraid to get into the trenches with you, swing a hammer, pull weeds, paint, work hard, and get it done! I’ve paid for the seminars, webinars, 3-day bootcamps, and the $1,997's (you know what those are!), but need a mentor. Period.

It would be great if all of the bashers of wholesalers would get together in their respective cities and form weekly training sessions for wholesalers who want to be better at what they do. Charge a small fee (if you’re strictly profit based), or just do it because you want to change how wholesalers operate. Trust me, we will come.  But, if your fee is $1,997, we know what your motive really is, and you'll just be another one of "them" spitting out the very wholesalers that you're bashing.

I’ve always believed this -- if you're complaining about something and don't become a part of the solution, that makes you a part of the problem.

Okay! It wasn’t my intent, but I guess the length of this post could be considered a rant. I'm only sharing my opinion, and hope that my post will be received in the spirit in which it was written. If anyone’s offended by it, bash it if you must but I won’t be responding to anything negative. Taylor Swift told us how to handle that!!! LOL

HAPPY THANKSGIVING to all of you, and may the majority of your deals be PROFITABLE!

Originally posted by @David Oldenburg :

I wish there was a State or Federal license required to wholesale and pitch wholesale deals.  I see countless "deals" that are not deals, or even close to being a deal. Many of these wholesalers have no real estate experience and have never had any formal training in how appraisals are done in the appraisal world.  They follow whatever set of guidelines give them the value to make it a "deal", or just create a value to justify the deal. 

If you are a newbie be very very careful of deals that are sent to you by wholesalers. The two most common areas are "stretching" the ARV (coming up with an after repaired value that is not realistic with true comps). This is easy to do when workking with newbie investors who do not themselves know how to comp to current appraisal guidelines of FNMA and FHA. Things like using outdated comps, that do not reflect the current value or market conditions. Using comps that are obviously nicer or have nicer amenities than the subject property.

The second area of concern is "stretching" how cheaply rehab work can be done, or completely leaving out work that needs to be done.  I see this all the time, here on this site and in my own business.  Be very careful when someone tells you a house can be rehabbed for a specific price.  Get your own bids, from several contractors, and ask them to "bid" their work to be equal to similar comps in the area. Yes, a contractor may be able to do the work for $20,000, but it may be work and amenities that is significantly inferior to the high valued homes in the area.  

It is amazing how fast a $40,000 or $60,000 profit can disappear when these numbers are misrepresented, or when someone without the proper knowledge unknowningly gives inaccurate numbers.

I would love to hear from others about your experiences using wholesalers, and who may be really good and very accurate with wholesaling. I have yet to find anyone in the Sacramento area who is consistent at doing their homework, and putting deals out that are solid.  I see about 5% to 10% of deals from wholesalers are actually good deals.

 Hello!  I have to agree with most I am seeing.  No matter what you can not believe what they are telling you.  No matter what you have to do you own numbers.  Due diligence is a must.  Do not ever listen to what others are saying.  Investing is investing.  Good luck!

If someone is regularly wasting your time whose fault is it?

That's right, it's yours!

You are allowing your time to be wasted.

If you don't work with wholesalers, kindly indicate that to them when they call, wish them a pleasant day and hang up. Problem solved.

If on the other hand you wish to work with only competent wholesalers who bring you deals that make sense and don't waste your time you can do the following:

1. Take 30 minutes out of your day to draft an outline of wholesale deals that you would be interested in. Put as much detail as possible in the outline, including property type, location, how comps are to be made, ARV is to be calculated etc.

2. Indicate to anyone who calls with a wholesale deal that you only work with prequalified wholesalers who meet your reporting and investment requirements. If they are interested in becoming prequalified you can send them a copy of your requirements outline.

3. If you have a website, post your investment requirements there also.

What does the above accomplish?

A. It lets potential wholesalers know exactly the types of property you are interested in and how exactly you expect information to be formatted and calculated. This will eliminate those who bring you "deals" that don't fit your investment profile or have incorrectly formatted or calculated information. If you don't tell someone exactly what you want, your chances of receiving it are remote at best.

B. By prequalifying wholesalers, you ensure that they are aware of your requirements.  Those who can't or won't provide you what you need, how you need it won't become prequalified.

C. Wholesalers who are aware of your requirements beforehand may disqualify themselves before they even call, saving both their time and yours.

To blindly consider every "opportunity" that is sent to you and taking time to analyze every one on the offchance one of them is good is crazy. Better to put your effort into the 20% of things which bring 80% of your results. Conversely, try to avoid the 20% of issues which cause 80% of your headaches.