I might take a break from buying from wholesalers for a while.
I'm starting to understand why wholesalers take so much flack. And I've even done it over the years, but recently dealing with them as a buyer is enlightening for me.
Yes, their prices are discounted, but you have to deal with so much more crap so it kind of becomes a break-even deal. I'm referring to wholesalers in towns a few hours from my market, so I rely on my team there to handle the boots on the ground. My list of complaints to paint a picture for why wholesalers aren't doing buyers all that much of a favor (while they lie to their sellers):
- 1. You can't get in the property if it's occupied without some kind of magic trick to get someone there at the same time as me or someone on my team. And then that person ends up not showing half the time and we can't get in.
- 2. Every deal I've bought has been mis-represented. Email states quadplex has all separate utilities that tenants pay. Nope not even close. 2 units share electric and all 4 share water. "I'll be honest, the floor does have a little bit of a slant, but is just one or two floor joists." Nope. Contractor goes in and finds out 52 floor joists got wet and rotted at some point, every room has a bow. || Another one, the email acted like the house had a converted garage space. I run the numbers with that assumption and a few other things, and with enough SF the numbers make sense. Drive out there, and one HVAC vent makes the wholesaler think it's liveable space. It's pretty much an attached shed. And, the rest of the house was smaller. Only one bathroom, was told two. Waste of time. And that's a wholesaler with a large presence in this area. They have a whole staff.
- 3. The tenant surprises. Oh, the tenant surprises. One seller told his tenant to lie and say he's paying $600, even doctored the lease to show 600 instead of 500. 7 out of 8 market-rent units I bought in Chattanooga all had to be evicted, while the marketing email in most of them pitched it as a rental to pick for a little cash flow, or renovate. All of them got ugly.
- 4. The under-sell to get hard earnest money before buyer is none the wiser. These guys are like used car salesmen. Similar to #2 above. One wholesaler sent me a deal (that I ended up buying) where the foundation was on piers and roughly 40% of the piers under the house were severely compromised. Broken apart, leaning, some had a pile of rubble around them. You didn't think that might be useful to know, before your potential buyer starts investing time in vetting the deal and then due diligence once under contract? "FYI: foundation is complete toast."
- 5. The overall seemingly lack of integrity. Had a signed doc with a wholesaler, and he decided to sell to someone else for a little more. Allllright. Also, they will tell you anything you want to hear so they can get a paycheck and get out of there.
- 6. The ...laziness? Is that safe to say? It's like some of these guys just don't want to get out of their office chair and drive somewhere. I tried 3 times to get somebody in a rental property we had under contract and he just kinda shrugged it off. Finally got inside and it was practically a tear down. Why did you email that out? Why did I waste my time making an offer? I think a lot of the misrepresentations problems are because the wholesaler hasn't even seen the inside yet (or honestly just doesn't know anything about houses and repairs, or easements, or evictions, etc). How you gonna try to sell a house and you don't even know the condition? You've just seen pictures that the college kid took for you.
- 7. Starts good. Gets bad. Ends worse. Most of the deals I've bought from wholesalers escalate over the course of closing into more and more surprises. Most recently, I contracted a house. Inspector arrives for a 5-point, and there's someone in there. Long story short, by the end of the contract, there's 4+ promises from wholesaler it will be empty, it's closing day, still there. Officially squatters have taken over over the course of the contract. Eviction time. This same house, come to find out, has no road access or easements, land locked. And, this is the surprise 52 joist replacement house. By the end of it, this "discounted" deal isn't worth a penny more than I'm paying for it.
Look, I know a lot of those things could have been avoided if I did more thorough due diligence. But to be fair, they want hard earnest money most of the time upon assignment, nevermind if I can get just 3 - 5 days to send a contractor to take a look.
About 70% of my transactions are direct to seller. I love those because it's my word and the sellers word. Straight forward. None of this back and forth, smoke and mirrors stuff, going through the wholesaler who is pretending to the seller he's buying it.
I'm starting to think it might be better to buy MLS deals at a higher price but at least with a more straight forward manner of doing business. Or do my own marketing in these towns.
Does anyone else have experiences like this? Are wholesalers even worth dealing with? Maybe I am in favor after all of anti-wholesaler regulations...
Following this thread while drinking my Friday suds and eating my carnè asãda burrito..
@Allan Smith Amen brother. Amen.
Sounds like you are working with the wrong wholesalers. Wide range of business owners in most industries, landlords too. All that stuff is pretty bad, just work with more pros! A good wholesaler should be helping you find more deals at great prices. Not driving you crazy and giving you more stress. If we can't add value to the marketplace we don't deserve a fee.