Real wholesalers - or hype pricing - my numbers are not adding up - dilemma

Atlanta, Georgia
Rehabbing & House Flipping
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Real wholesalers - or hype pricing - my numbers are not adding up - dilemma

Luis Maza
Member since 2024 · 8 posts · 5 votes

Hi all, 
returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
I just add the spreadsheet we use as a sample to see if this makes sense....

Would love to hear your opinions on how much money are we making for everyone else, before we make 20k

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Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
2y

@Luis Maza, there are multiple factors.

First, I can't speak for all wholesalers, but all but one wholesaler I have ever worked with has been very far off on their numbers.  ARVs that are inflated by 15-20%.  Rehab costs that are under estimated by very wide margins.  And therefore purchase prices that just don't work for me.  In my opinion, a wholesaler is nothing more than a "listing agent".  They share a property, but I don't rely on them in anyway.  If I want a property, I will look at all available properties and run my own numbers, and ultimately may find one.

Second, it is not the wholesaler's job to care about how you finance the deal.  I buy my flips in cash.  I don't want the pressure of a ticking clock every day with high interest.  I "could" make higher returns on my equity if I borrowed, but it also increases the risk.  And at the end of the day, using your example and disregarding percentages: if you could buy this all cash, instead of "maybe 20-30k" you would make $70-90k, based on your projected profit and anticipated financing costs.  

Third, and tangential to first point, there are not a lot of deals out there.  

I am not sure what your experience with "wholesalers" has been in the past, if any, but let's just say wholesalers are not in this game for you.  They want to make the biggest fee off of each deal they can.  And as I continue to see more and more "we buy houses, cash" advertising, even the distressed homeowners are likely getting multiple offers from wholesalers, driving up the wholesaler price, which means higher price for you.

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  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    2y

    @Luis Maza, there are multiple factors.

    First, I can't speak for all wholesalers, but all but one wholesaler I have ever worked with has been very far off on their numbers.  ARVs that are inflated by 15-20%.  Rehab costs that are under estimated by very wide margins.  And therefore purchase prices that just don't work for me.  In my opinion, a wholesaler is nothing more than a "listing agent".  They share a property, but I don't rely on them in anyway.  If I want a property, I will look at all available properties and run my own numbers, and ultimately may find one.

    Second, it is not the wholesaler's job to care about how you finance the deal.  I buy my flips in cash.  I don't want the pressure of a ticking clock every day with high interest.  I "could" make higher returns on my equity if I borrowed, but it also increases the risk.  And at the end of the day, using your example and disregarding percentages: if you could buy this all cash, instead of "maybe 20-30k" you would make $70-90k, based on your projected profit and anticipated financing costs.  

    Third, and tangential to first point, there are not a lot of deals out there.  

    I am not sure what your experience with "wholesalers" has been in the past, if any, but let's just say wholesalers are not in this game for you.  They want to make the biggest fee off of each deal they can.  And as I continue to see more and more "we buy houses, cash" advertising, even the distressed homeowners are likely getting multiple offers from wholesalers, driving up the wholesaler price, which means higher price for you.

    4Reply
  • Kevin IveyPro Member
    Flipper/Rehabber · Marysville, WA · Member since 2020 · 216 posts · 126 votes
    2y

    simple answer yes this is mostly what I see from a wholesaler and a 90 day turn is tight especially like our local market froze for all of July and August almost nothing sold.

    As the previous person said the wholesaler isn't in it to make the end user money.  I have seen where lenders balk if the wholesaler fee is over 15%.


    a lot of flippers have started trying to find their own deals with driving for $ and direct mailing.

    1Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    2y
    Quote from @Luis Maza:

    Hi all, 
    returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

    Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

    In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

    We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
    I just add the spreadsheet we use as a sample to see if this makes sense....

    Would love to hear your opinions on how much money are we making for everyone else, before we make 20k

    I would search out for another deal, reduce the rehab (get multiple quotes) or for example I am doing a flip right now we took out redoing all the windows which saves us about 8K... Your consist numbers you have and the variable numbers that you can play with are rehab and holding costs... Finding another contractor, cutting costs somewhere in the job, and finding cheaper money (doing it all cash). 

    The McKernan Group4.958 Reviews
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  • Luis Maza
    OP
    Member since 2024 · 8 posts · 5 votes
    2y

    Thanks Kevin, Thanks Peter..

    Good info, we are trying to get cheaper money by financing it ourselves and getting 1 partner in on the deal.

    15% do seem high, i can see myself running for the fences at 15%, but like you all said, every deal is different and we do have to find creative ways to play with the numbers.

    0Reply
  • Luis Maza
    OP
    Member since 2024 · 8 posts · 5 votes
    2y
    Quote from @Account Closed:
    Quote from @Luis Maza:

    Hi all, 
    returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

    Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

    In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

    We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
    I just add the spreadsheet we use as a sample to see if this makes sense....

    Would love to hear your opinions on how much money are we making for everyone else, before we make 20k

    Your comment: "keeping the property for 90 days while we finish the rehab". I'd in the month that it takes to actually get an offer and the additional month it takes to close. 90 days is too optimistic.



    Shoot, that is correct, completely forgot that could take longer and in my opinion i though that 90 days was ok, but you right from the time we can do showings and people get their paperwork/money together we could be talking about 60-90more days, thanks for bringing it up Bob..

    1Reply
  • Malcomb StapelPro Member
    Investor · Topeka, KS · Member since 2020 · 669 posts · 488 votes
    2y

    @Luis Maza yes, my experience with wholesalers is that many of them either cannot do a proper ARV estimate or are inflating it. Couple that with tacking on 20-30k worth of fees on a 100k property and you have a recipe for no deal.

    Don't get me wrong, they absolutely have their place, and we have a handful that we love working with. I have no problem paying a reasonable fee for their services. 

    0Reply
  • Rob BeemanPro Member
    Specialist · Philadelphia, PA · Member since 2010 · 301 posts · 118 votes
    2y

    @Luis Maza Just like there are quality contractors out there and those that are not, the same applies to wholesalers. The right wholesaler that knows how to properly calculate a SOW (scope of work) to gain the rehab budget, generate an ARV from local comps and not want to get rich on every deal is NOT easy to find....but, they do exist. When you find them they are like gold for your business.

    My guess is that you consider many properties as options before deciding to buy one, and vetting wholesalers is similar (look at many, with hopes of finding one). Here are some reasons why the wholesaler pricing may not work:

    They do not understand how to calculate the rehab or the ARV

    They are NOT the party under agreement with the property owner and are part of a daisy chain with another wholesaler (or more than one). This is more common that you might think.

    They do not take into consideration the costs borne by the investor associated with the transaction such as: closing costs, carrying costs, finance costs, exit costs, etc.

    They are trying to hit a homerun on every deal and not leaving enough "meat on the bone" for the next person. 

    When I was investing, this is what I did to help locate the right wholesaler - I would supply them VERY specific details of what WORKS for me in the way of a property. Example: I define what zip codes (or neighborhoods) that I buy in. I specify that it has to be at least 1000 square feet (SF) (bigger the better), it doesn't have to be a 3+BR, but if it's not and at least 1000 SF I can convert it to be a 3BR. It DOES NOT require a full gut rehab (rehab could consist of new kitchen, new bath(s), windows, flooring, paint, etc. (mostly cosmetics), what price range that it must fall into at that condition (for the purchase price) and/or what the maximum LTC to ARV must be (in other words the purchase & rehab numbers must not exceed 65-70% of the ARV, the lower the percentage of ARV the better). They understood that if it fits that buy box.....I buy it. If it doesn't, don't bother sending it to me.

    When I found wholesalers that wanted to make money, they would locate properties that fit my buy box and we would do many deals together. I never cared what they are making as the assignment fee, as long as I knew the numbers worked on my end.

    As for a purchase & rehab lender that will finance up to 100% of the wholesaler's assignment fee - I can introduce you to one that finances that and also 100% of the purchase & rehab up to 65-75% of the ARV.

    As a lender I sometimes receive off-market properties from wholesalers and other sources and share them to our borrowers if they fit what they are seeking. I recently connected with a GA based wholesaler that seemed to supply what fit within one of our borrower's buy box. You might want to see if they can help you (just be specific on what your buying criteria (the buy box) is so they supply what makes sense (if they can locate it): James Fleming 706.463.9584. Wishing you luck, Rob.

    1Reply
  • Yogev Lifchin
    Specialist · Krakow, Europe · Member since 2019 · 87 posts · 25 votes
    2y

    @Luis Maza

    If you struggle with a wholesaler, reach out for more, there's usually a dozen or so good wholesalers in every market in the land....

    In addition to that, as a business strategy I would say that a great thing any flipper can do is develop their own off-market seller marketing techniques. It works great for wholesalers who sell the deals to a flipper, so a flipper can reap the rewards by going the extra mile and conducting their own marketing

    1Reply
  • Doug Lovett
    Investor · Tampa, FL · Member since 2015 · 63 posts · 59 votes
    1y

    Don’t rely on wholesalers to run numbers for you. Run your own numbers and make an offer that works for you on EVERY property you analyze. If the wholesalers numbers are way off you may be the only one making an offer - even if it is tens of thousands less than the asking price. 

    1Reply
  • Jonathan Chan
    Lender · Clermont, FL · Member since 2020 · 168 posts · 88 votes
    1y
    Quote from @Luis Maza:

    Hi all, 
    returning to the game this year and would like to pick your brain a bit, we started working with a wholesaler that will send us properties here and there with the "wholesale" price, but every time we check the properties and add the numbers, the margins are, well, I am not sure, too low perhaps, maybe we are getting to picky, but this is my dilemma for example...

    Today we got a property, wholesale price 300K, rehab about 50-60K, ARV is about 440k, but with the cost of hard money, we have about 100k cash, hard money interest at 11%, keeping the property for 90 days while we finish the rehab, closing costs, commissions, we ended with 30k profit before taxes, while it sounds appealing, adding up all expenses and cost we ended up expending 50K on rehab(labor/materials) and about 50-60K with cost of the loan, interest, commissions, etc, everyone makes money, happy with that, but it seems that we are working to produce a 100k for everyone else, while we make 20-30k if everything goes well...

    In my opinion, we are not really getting "wholesale" price, it seems that we either buying to expensive, rehabs are much more than we would like to spend and the cost of borrowing that money is too high...

    We came up with thoughts as: lets fund it ourselves with money from a close friend/partner that we will bring in, and that would save us 10-15k here and there, but still, is that the norm now?, not so much for the profit we are making, for all of the expenses involve that surpass our profit.
    I just add the spreadsheet we use as a sample to see if this makes sense....

    Would love to hear your opinions on how much money are we making for everyone else, before we make 20k


     I've looked at most wholesaler's numbers. They're a waste of time. You'll have to run your own.

    0Reply
  • Afra Saity
    Member since 2024 · 4 posts · 3 votes
    1y

    Hi, Luis. Although the majority of deals nowadays have tighter margins, it seems like you’re taking the deals you get from one wholesaler to be reflective of the entire market. My investors have bought plenty of deals with better margins than the one you described. Give me a call to talk more. 470-685-0188

    1Reply
  • Afra Saity
    Member since 2024 · 4 posts · 3 votes
    1y
    0Reply
  • Henry M.
    Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    1y

    @Luis Maza

    Regarding wholesalers, probably 99% of those deals are garbage. Unless you're direct to a seller, you'll often find yourself with tight margins which equates to losing in the end.

    Here in Texas, I’ve gone through hundreds of deals this year and maybe half a dozen deals were worth the investment.

    We'll see what occurs this coming year and how it will affect real estate. In the meantime, hang in there. 😎

    "Big" Henry

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