Buying from a wholesaler? Pros and cons?

6 Replies

pros are they don't know value and leave a ton of money on the table .. and or bring you a deal.

cons  they rarely leave enough on the bone and are non licensed so no over sight absolute buyer beware and they are generally new to the business and don't really under stand how deals work.. desperate to make a deal.. etc etc. many talk a good game but bottom line is never trust their numbers.

top of the line whoelsalers who have a full blown business usually have their known buyers and will go there first..

It depends on which wholesaler you are talking too. 

So first lets separate amateur wholesalers and Pros, (first take out the equation or out of this question amateurs wholesaler) these are newbies trying to make a buck or two, Normally they are just learning out of a course they paid or took.. ( so take these wholesalers out) 

NOW The Pros and the Cons (FROM a PRO WHOLESALER) 

(Based on my experience)

Second LEt me describe qualities that separate these PRO's from the amateur.

Normally I Have seen a pattern These pros have their RE licenses or brokerage, has access mls( even though they don't need to have a license to wholesale ) Second they invest for themselves. ( they are well known in the industry, Locally ) And typically have already a system in place, To provide a consistent flow of opportunities for their investors. Also, Are consistent on their spread for the investor. So you more likely will predict the average spread working with them.  More likely have done an inspection prior show you the property to an investor and have decent rehab calculation. and also have 100% control of the property (that means no daisy chain) , (gets all the deal through his one marketing, all off-market deals) (works with a good title company and provides Marketable title) 

Pros:(with a pro wholesaler) 

Predictable Spread

All done for you, all leg work. ( preliminary inspection ) 

Personal Service (helping to get your criteria and deal, practically for free)  (until you decide to commit to a deal) 

All negotiation Done for you with the seller, ( normally Will handle all issues with the seller)  (less headache for the investor)

They are investing all the marketing from their own money ( not the investor) 

Exclusive deal ( off market) (NOT ON THE MLS)

Less risky than buying in an auction. 

And if he is a good wholesaler will give you meet on the bone deals, (because he wants you to come back and eat) OR just enough Spread for you to sustain your flipping or hold business and keep getting the volume and consistency on numbers to grow your portfolio or company. 

Cons

You will have to pay a premium (but that varies) you are still getting  discounted price (and you should as an investor) and better than get it on the mls and bid on prices ( with non-investor) 

 Normally there is no inspection contingency.

 No contingency on financial as well if for some reason you didn't come up with the money on closing. (is a bit hard to make an extension sometimes.)

Might not have total control of which title company you want to use, or Fees you might pay with the title company. (might have to use only wholesalers title company) and if that's the case might have to pay extra for your attorney to shadow the transaction. . (for your ease) 

sometimes, might not get the Key of property, Sometimes might have to buy sight unseen, As is deals overall... 

Dealing in the majority of the situations with distressed sellers and distressed houses... 

And believe me, you can tell when is a good/ knowledgeable Wholesaler (professional) . I have worked and still work with a few and is day and night

Regards

This of course is all based on the wholesaler and how they operate their business. 

Pros:
 * Familiarity with multiple markets, to meet specific needs. If you prefer 2-3% versus 1%, we already know what market can perform at those numbers, consistently.

* List of local PMs for you to interview
* List of local Attorney's, if you need to consult about anything

* List of local GCs or specialized contractor's, if you need them.

* Written estimates of major expenses, prior to you even seeing the contract
* Minimum of 30-35 full size HD pictures. Not just shots of a bedroom, but all     4 walls, floor and ceiling. Never cell phone pictures. 

* Targeted properties that actually meet your requirements. 

* Fast turn around. A single family home can be presented, within 7 days, consistently. Packages can take up to 45 days, depending on quantity. Wholesalers are systems oriented, this allows us to pivot to a new market and depending on that client's need, can begin providing deals, in as little as 10-14 Days. 

* Already know the area's to avoid

* Understanding of multiple strategies. Remember, 99% of our clients are investors. Whether they buy a few per year or manage multi-million dollar portfolios, we spend a great deal of time talking to investors with interests in multiple avenues. 

* Very skilled negotiators. When you talk to 100s of sellers you learn what to do or say, quickly. You could do a lot worse than having a wholesaler handle the negotiations. 

* Very creative in making offers. We don't just need to negotiate a cash price, we can put many of our clients in much better positions, rather than spending their cash. 

Think of us as a concierge at a 5 star hotel. However we can help you, just ask. 

Cons:

* You may get stuck in a daisy chain this will usually mean the deal won't close

* Inaccurate numbers across the board 

* No knowledge of the local market or area where the home is.

There are several really negative things that many wholesalers do. The great thing about that, is it is very easy to distinguish between the two. If you are not getting sound information, or that information is found to be inaccurate, just move on. If they can't provide you written estimates of that new roof, you have to ask why. If they are not willing to provide a basic service, move on. If they put ridiculous demands on you, like no inspection periods, no quality photos, unreasonable closing times then simply move on, it was probably not a good deal anyway.

So above are some of the "ugly" cons that are rampant, but avoidable. Here are the cons that you should experience.

* Closing times within 30 days, preferably much faster than that. May not cost the deal, but we are no different than any other seller, if Buyer A can close in 10 Days, and Buyer B in 30, it will goto Buyer A. 

* We have VIP buyers and to crack that list is not easy. This may mean you won't see a deal, for months. When you do see one, act quickly and work your way to that list. It is well worth it, trust me. 

* Short shelf life. Wholesalers manage tons of data and this includes a buyer's list. If we see "tire kickers" on our list, they are quickly removed. A relationship with a wholesaler suggests you are ready to buy when a deal is presented and it meets your needs/wants. 

* It may sound rough, but wholesalers are not going to drive you around to 20-30 properties, unless you're wanting a package. We just don't have that kind of time. This is better left too realtors that don't mind that. In all honesty, a wholesaler that can show you 20-30 deals, please read 1st line under "Cons". 

* The title company can be a con, if you prefer your own company/attorney. I personally would never shut a deal down for this request, but keep this in mind. We use "X" title company because we have had great experiences with them and escrow has already been opened, thus this property is marketable. Nothing more frustrating to find out you can't close because of a title issue, after you spent hours analyzing a deal. 

Developing a relationship with a wholesaler is no different than developing a relationship with any other profession. It is all about their business aptitude and their willingness to help. If you get none of this, it's easier to just walk away. There are plenty of deals to be had, in any market. 

Pros:

The property is off market.  

Cons:

I would 70% of whole salers are inept at their craft.  Make sure you go to a competent, professional, and knowledgeable whole saler.