Problems with wholesalers

[Esteban Olivares]

Investors — real question:

What’s the biggest issue you’ve had working with wholesalers?
Bad comps? No access? Daisy chains? Overpriced deals?

I’m trying to understand what matters most so I can serve my buyers better.

Drop it below or DM me.

[Jay Hinrichs]

Quote from @Peter Mckernan:

The real reason wholesalers are bad (not all, but most) is because they create the numbers for ARV for the end buyer that will get their deal sold not take care of the end buyer to get repeat business. This goes the same for the owner, they tell them we can close in 15 days no issues, give a high price to close it because the seller pushes back on the first numbers they give the seller and it never is offloaded or falls apart in escrow.

I have an example, there is a lady that wanted to get a deal.. She is great, very nice and a go getter.. She really wanted a deal, and to get into flipping because she left her job and wanted an active income. So, we started looking, and after about a month of not closing on a deal or getting in contract because we were sticking to numbers that would get her a return; the client got a deal sent to her by a wholesaler. The deal was in a good area with good comps, but not comps that supported the wholesalers purchase price. The comps they sent this lady were comps where same square footage, a mile away, and same bed/bath count. The catch is that the two great comps that were supporting the wholesaler's number was in a historical district which was a different area feel, different make up of houses, different architecture, and houses that sell for more due to all that stuff. I explained this to the client and that it was not good move to buy the house due to all the factors and she would not make money due to the purchase price and where the true ARV was for the property.

The end of the story for her is that she is currently still on the market 114 days later trying to get her price she will not get, and that market is DOM average of 30 days. She also has holding costs with this property and is desperate to sell the place due to high holding costs that have been dragging her profits even lower. 

This is a prime example of what wholesalers due to newbie buyers and buyers that do not know what is a true comp. Which, this ends up giving wholesalers the bad name they have today. So, make sure the ARV is true to what that house is, make sure the repairs are what the wholesaler says, and make sure you would with someone that knows what they are doing.. Vetting everything a wholesaler tells you before buying...

One of the major risks and especially in a high priced market like So cal.. is if this is a cash sale as many are and the wholesaler is making an assignment fee on the settlement statement cash buyers do not realize they do not have title insurance for the assignment fee.

so in practice you have a 800k as is sale wholesaler making 50 to 100k ( pretty common in high priced markets) being the nature of the beast you now find out you have a buggered title and make a claim.. title insurer is only going to pay the underlying contract price your going to EAT the 50 to 100k and if you think the nice wholesaler is going to send you back that money I have a bridge to sell you :).  

U can get some title and escrow companies to write a policy for the full amount but it takes calling around to find one.. Most will just say no.. But the first time your stung for this U get the picture.. just another reason working with wholesalers is dangerous.. with a realtor commish is out of proceeds and those dollars are covered in the event of a title claim