Good vs. Bad Wholesaler?

Developer · Tampa, FL · Member since 2020 · 84 posts · 59 votes

After reading several articles about wholesaling one thing seems to be consistent, wholesalers have a bad rap. Why is that?

I am looking for stories/information on what creates a good wholesaler and a bad wholesaler? While I am new to wholesaling (SW Florida) I am not new to the construction industry (10 years).

For those wondering, I do have a formed LLC and all the proper contracts through our RE attorney. I will be conducting honest transactions with the goal to help both the seller and the investor.

Thanks,

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Originally posted by @Steve Morris:

See how easy disclosure is? Now be the exception to the rule of wholesalers and actually practice it.

Sorry, I run across old people whose only wealth is their house and some WS comes along to take money that should be theirs and hides it from them. Not ha-ha.

I just got an offer form a wholesaler ( national chain) here in Oregon.. I own the house.. its worth probably 350k as a fixer..

they offered 260k.. LOL.. And had all their assignment clauses and affiliated business relationships .. told my wife they have one buyer that buys 10 homes a month in PDX market.. ( which no one does these days not enough inventory to do that).. then it turns out the buyer is his company.. the lender is his company LOL.. once you suss it all out..

I wrote him this morning and asked him if he minded if I sent the contract down to Salem to see what they think of it.. just to make sure in my own mind what these guys do pass's the sniff test at the state level..

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Joseph CacciapagliaBusiness Member
Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
5y
I think wholesalers in general have a bad wrap because the strategy attracts both newbies and the less scrupulus people in the industry (don't read that to mean that there aren't any good wholesalers, becuase there are plenty). Both of those groups cause problems for their buyers for different reasons. The newbies provide terrible comps and construction estimates for their deals because they don't know any better. The unscrupulous people do the same thing, but just to take advantage. Neither of these things really matter if you're an experienced investor and are properly running your own numbers, but that's not the typical buyer of wholesale deals.
Good wholesalers are those that consistently provide good deals. If they do provide comps or construction estimates, they are accurate. In general, I don't think providing that info is even necessary, because investors should be running their own numbers anyway. However, if you're going to do it, do it right. If you have to inflate comps to make a deal appealing, I don't want to see it.
The consistency is very important. People choose wholesale deals because they don't want to comb through the MLS to find value. If you're sending a ton of weak deals and only the occaisional good deal, then you're not saving investors any time. There are plenty of wholesalers out there that I don't even open their emails anymore, because their deals are all basically full market deals based on their condition.
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Deb S.
Investor · Punta Gorda, FL · Member since 2010 · 151 posts · 127 votes
5y
In my opinion, a good wholesaler will leave plenty of 'meat on the bone' for the buyer, be very accurate in describing the property AND include pictures - not just of the outside of the property. Don't be afraid to give the address so any interested buyer can drive by and do their own assessment without having to bother you. After all you only want to deal with serious buyers.
Once you have a buyer and/or signed contract, don't keep shopping around for a better price. Build trust and a good reputation and you'll never have a problem finding buyers.
Lastly and probably most importantly, communication is key for me. If I call or text about a property and get no response and have to reach out multiple times for an answer, this makes me frustrated because my time is as valuable as yours. Communicate, communicate, communicate - even if you just send a text that says 'hey busy right now, will get back to you by end of the day'. Let me know you received my call/text.
in the end it's all about building relationships. I want to build my network with honest and reputable people and maybe even make a friend or two along the way! Hope this helps!
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David Emanuel
Wholesaler · Philadelphia, PA · Member since 2017 · 37 posts · 19 votes
5y
@Wesley Davis I think it really boils down to knowing what is a deal and what isn’t. Since you’ve been in construction, you may be able to estimate repairs better than others, which is a big plus. Make sure anything you put under contract is a true smokin DEAL, record a good video of the inside and outside of the property, provide as much detail as possible, and you should have very little problems finding a buyer for your deals
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5y
Originally posted by @Wesley Davis:
After reading several articles about wholesaling one thing seems to be consistent, wholesalers have a bad rap. Why is that?
I am looking for stories/information on what creates a good wholesaler and a bad wholesaler? While I am new to wholesaling (SW Florida) I am not new to the construction industry (10 years).
For those wondering, I do have a formed LLC and all the proper contracts through our RE attorney. I will be conducting honest transactions with the goal to help both the seller and the investor.
Thanks,
well I think one thing in your state its illegal to sell real estate you don't own.. just because an attorney puts a contract together for you does not make it legal to the department of real estate.. If you really care you will check with the DRE on the actual laws and rules .. If your plan is to close on the house first Like good wholesaler do.. then and only then market it.. then that's legal .. that's one reason wholesalers are shunned.. they rationalize what they do as some sort of benevolent service to sellers.. Of course it happens every day and folks do it until someone files a complaint and normally its a cease and desist dont do it again.. All the large wholesalers in Florida that i have funded deals for are ALL licensed brokers.. Bottom line.

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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
5y
"After reading several articles about wholesaling one thing seems to be consistent, wholesalers have a bad rap. Why is that?"

Yes, fans I have returned to disclaim my issues with wholesalers! My biggest issue is DISCLOSURE, as a broker we place honesty and welfare of our clients above our commissions. To enumerate:

1) WS finds someone that doesn't know FMV of his property and offers them 60% of FMV without any CMAs

2) WS doesn't tell seller he won't be the true buyer and in mice type says he can assign his contract

3) WS scrupulously avoids putting $0.01 in escrow so he can walk anytime without risk

4) WS uses subterfuge like dual escrows to make sure seller doesn't know the true buyer or what true buyer is actually paying

5) WS isn't licensed and expects a fee/margin/skim for arranging the sale of real estate, usually not legal

I guess the most galling with brokers, the higher the price the more the seller gets (and we get in commission). With WS the higher the price, the more coin in WS pockets at no gain to seller.
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Walter Key
Realtor · Keystone Heights, FL · Member since 2015 · 340 posts · 118 votes
5y
In short, many wholesalers (not all by any means) are inexperienced and don't put together good deals.
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Wesley Davis
OP
Developer · Tampa, FL · Member since 2020 · 84 posts · 59 votes
5y
@Joseph Cacciapaglia @Deb S. @David Emanuel

Thank you for your feedback. It seems that the largest pressure point is the construction rehab estimate which directly reflects on the deal. After doing our initial research we used the 70% rule which has the main component of estimating the repair values. So we created an excel spreadsheet that calculates those values based on our inputs. For example, when replacing a kitchen we have it based on a linear foot. So if the countertop in 15' long then the associated costs of upper/base cabinets and countertop and fixtures are included in that gross price. But if you do not need new base cabinets you uncheck a box and it removes that cost. I hope that makes sense.

Our goal is to have the most accurate rehab estimate possible.

As a follow-up, One thing that seems unclear is what to provide in the "listing" to the investors. I see @David Emanuel mentions having a video walkthrough. As an investor, outside of pictures, location, and sq ft is there anything else that you like to see.
Also, I see the pros and cons of posting the listing price vs having a bid on the property between multiple investors. As bidding may lead to more money for the wholesaler is seems annoying from an investor standpoint. Any thoughts on that?
Thank you for all of your help!
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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
5y
"As an investor, outside of pictures, location, and sq ft is there anything else that you like to see."

Full disclosure to all parties and a RE license in the jurisdiction you're selling in.

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Wesley Davis
OP
Developer · Tampa, FL · Member since 2020 · 84 posts · 59 votes
5y
@Jay Hinrichs
Thank you for your comment and we have run across that as well. As a result, we have an ongoing conversation with our attorney to make sure we are checking all the boxes. If the result is that we have to go through a brokerage that is 100% ok as both my business partner and I are taking the required courses to become an agent and affiliate ourselves with a brokerage.
As a secondary option, we will be searching for deals similar to a "wholesaler" but will be conducting business under a brokerage. Like I said before we are trying to be honest and legal. No reason to work the system if we have the means not to.
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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
5y
Originally posted by @Wesley Davis:
Like I said before we are trying to be honest and legal.
Except you're not - Do you tell the seller how much the true buyer is paying?

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Wesley Davis
OP
Developer · Tampa, FL · Member since 2020 · 84 posts · 59 votes
5y
@Steve Morris
Haha, thank you for returning to air out your grievances.
Growing up in this area I have respect for the people living hear and on top of that I am soon to be a licenced architect. As an architect, your only goal is to protect the health, safety, and welfare of the people. I am also currently taking the course to be a real estate agent. I do not want to swindle anyone as our main goal is not to be only a wholesaler. This is a way for us to gain some honest capital to then buy and hold properties.
I will keep your notes in mind as we move forward. Thank you
1 Reply
Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
5y
"As an architect, your only goal is to protect the health, safety, and welfare of the people."

Excepting sellers in wholesale "deals".

The ha-ha is a nice dismissal, but as brokers, we have a duty to honesty to all parties and full disclosure and getting our clients the best price.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5y
Originally posted by @Wesley Davis:
@Jay Hinrichs
Thank you for your comment and we have run across that as well. As a result, we have an ongoing conversation with our attorney to make sure we are checking all the boxes. If the result is that we have to go through a brokerage that is 100% ok as both my business partner and I are taking the required courses to become an agent and affiliate ourselves with a brokerage.
As a secondary option, we will be searching for deals similar to a "wholesaler" but will be conducting business under a brokerage. Like I said before we are trying to be honest and legal. No reason to work the system if we have the means not to.
the license is all you need.. then its about disclosures to your sellers and having the ability to close. keep in mind commissions are negotiable up or down.. end of the day money is made in the LONG run on being a very good agent.. selling all homes you come in contact with not only homes that have big spreads for you guys in them..

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Wesley Davis
OP
Developer · Tampa, FL · Member since 2020 · 84 posts · 59 votes
5y
Originally posted by @Steve Morris:
Except you're not - Do you tell the seller how much the true buyer is paying?

I plan on showing the seller different options depending on how fast they need to sell. As a wholesaler, we will have a generic assignment fee that will 100% be disclosed to both the seller and the buyer (at the beginning of the deal). It will then be up to them to proceed forward with the deal. I am not trying to make 20K+ on a single-family house. This will give the seller more money to help them in whatever bad situation they are in while also piquing the investors' interest in the property.

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Steve Morris
Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
5y
See how easy disclosure is? Now be the exception to the rule of wholesalers and actually practice it.
Sorry, I run across old people whose only wealth is their house and some WS comes along to take money that should be theirs and hides it from them. Not ha-ha.
1 Reply
David Emanuel
Wholesaler · Philadelphia, PA · Member since 2017 · 37 posts · 19 votes
5y
@Wesley Davis outside of those things, I do not think you need to provide much more. A thorough video of the outside and inside of the property should be good enough. Stand outside the property, and do a 360 view of the neighborhood, a full view of the entire exterior of the property, and show all repairs you notice of the interior.

IMO the purpose of the video/pictures is to weed out tire kickers who will want the address just to view the property and not move forward with buying. If you did a great job at recording the video, you should have only serious investors asking to do a walkthrough.
Remember, at the end of day the buyer will have to do their own due diligence. The information you provide should only be used to help an investor decide whether they would like to move forward and view the property. They will come up with their own estimate for repairs, and ARV.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5y
Originally posted by @Steve Morris:
See how easy disclosure is? Now be the exception to the rule of wholesalers and actually practice it.
Sorry, I run across old people whose only wealth is their house and some WS comes along to take money that should be theirs and hides it from them. Not ha-ha.
I just got an offer form a wholesaler ( national chain) here in Oregon.. I own the house.. its worth probably 350k as a fixer..
they offered 260k.. LOL.. And had all their assignment clauses and affiliated business relationships .. told my wife they have one buyer that buys 10 homes a month in PDX market.. ( which no one does these days not enough inventory to do that).. then it turns out the buyer is his company.. the lender is his company LOL.. once you suss it all out..
I wrote him this morning and asked him if he minded if I sent the contract down to Salem to see what they think of it.. just to make sure in my own mind what these guys do pass's the sniff test at the state level..

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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
5y
A good wholesaler has investors that are ready to purchase every property they put under contract because the deals are always based upon sound numbers.
A bad wholesaler has unsound comps and formulas, no cash buyers, no funding sources.
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Deb S.
Investor · Punta Gorda, FL · Member since 2010 · 151 posts · 127 votes
5y
I have to disagree with those here that say you need a RE license to wholesale property. I'm in Florida so I'm speaking for my state and it is NOT required to have a RE license to sell YOUR INTEREST in a property. Clearly, the WS does not own it but DOES have an interest in the property typically secured by a deposit to the seller/owner of that property.
Also, I don't know ANY WS that closes on a property first. That is not wholesaling. That is a P & S and then you have to put the same property up for sale and pay closing again?!! There goes any profit you may have made.
I agree that transparency is key so there are no surprises. A WS should tell a seller right away that 1 of 3 things will happen: I will buy your property and fix and flip it for a profit, I will buy your property and rent it/add it to my portfolio OR one of my partners will buy your property to do the same.
Also, when a buyer is using HM, that HM lender wants to see the original contract between buyer and WS. So, in that scenario you as a buyer know exactly what the assignment fee is. Lastly, the assignment fee is paid by the end buyer so the seller should not be annoyed at the end price. The seller is getting exactly the amount agreed upon which was put in writing and signed by all parties involved. This is just honest business - nobody is trying to hide anything or pull a fast one on the seller in this scenario. Literally, everyone from the seller, WS, HM lender and end buyer knows all the numbers.
Just my two cents.
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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
5y
@Deb S. This issue has been discussed many times on BP... you should review FL law on the subject as a RE license is definitely required to wholesale in that state.

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David Emanuel
Wholesaler · Philadelphia, PA · Member since 2017 · 37 posts · 19 votes
5y
@Tom Gimer So if I have a property under contract in Florida, I need a License in or order to assign that contract?

I don’t understand what’s illegal about it if the same title company that agents sit and close deals with, are the same ones that will sit and close deals with an investor assigning a contract/double closing without a license. Why would they jeopardize themselves for an investor doing illegal activity?
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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
5y
@David Emanuel You can assign your contract, that is not disputed... the issue is how to market your interest to potential buyers without violating FL law.
The title company is not going to ask the wholesaler how the end buyer was located... or whether the wholesaler is licensed.
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Deb S.
Investor · Punta Gorda, FL · Member since 2010 · 151 posts · 127 votes
5y
@Tom Gimer you're contradicting yourself. You said 'as a RE license is definitely required to wholesale in that state' and then your response to @David Emanuel says a wholesaler CAN assign a contract. So you said 'the issue is how to market your interest to potential buyers without violating FL law'.

What kind of marketing to potential buyers would break Florida law?

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Tom GimerBusiness Member
DMV · Member since 2017 · 3k+ posts · 3k+ votes
5y
@Deb S. If an unlicensed wholesaler can operate without using any oral or printed solicitation to sell real property of others or interests therein, or who takes any part in the procuring of purchasers, or receives, expects, or is promised any compensation or valuable consideration, directly or indirectly therefor, then you're right... but that's a pretty high bar.
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David Emanuel
Wholesaler · Philadelphia, PA · Member since 2017 · 37 posts · 19 votes
5y
@Tom Gimer I think people are mislead when someone says “wholesaling is illegal”. Wholesaling in real estate is the act of assigning a purchase and sales agreement, and that’s legal in all 50 states as far as I know.
I do understand there are some laws that may dictate the practice of finding an investor to assign your contract to, but I’m sure there are ways to do it without breaking any of them.
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