New Comer Advice on Investor Backed Wholesaling
Wholesaler · Houston, TX · Member since 2013 · 57 posts · 5 votes
New Comer Advice on Investor Backed Wholesaling
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Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
9yI'd say it's VERY unlikely that a company that is selling you properties will be selling them at enough of a discount that you can turn around and resell them at a profit. There are two reasons for this:
1. Most wholesalers (whether individuals or brokerages) are going to mark up their properties as high as possible when selling. There is unlikely to be additional markup available in this properties as-is;
2. If this brokerage that you're working with is willing to work with any investors, it's likely that your potential buyers (investors with cash) will have access to these same deals before you buy them. Investors are unlikely to pay you more for a property they could have purchased directly for less.
Add to this the fact that, if you purchase the properties outright from the brokerage, you will have extra closing costs (the first purchase), loan fees and potentially other costs that eat into your margins.
All-in-all, this doesn't sound like a good way to try to make money in this business...
29 Replies
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
Why do you need an investor for wholesaling? The major benefit of wholesaling is that you don't need any money, other than for marketing. And, if you don't have enough cash to do your marketing, I would suggest saving until you do.
Or is there some other reason you need investors?
- Wholesaler · Houston, TX · Member since 2013 · 57 posts · 5 votes9y
@J Scott thanks for the reply. I may have posted the question wrong. I've signed up with a wholesale investment brokerage company to purchase properties at a discount. That is the part i need the investors for, the property purchase portion. This is why i like asking questions to make sure i sound less and less like a newbie.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
Now I'm a little more confused...
If you're purchasing the properties, you're not wholesaling. What is your intent after you purchase these properties?
- Wholesaler · Houston, TX · Member since 2013 · 57 posts · 5 votes9y
Sorry for the confusion i can see it as well in how i asked the question. Im now seeing that what i should have asked for was advice on dealing with investors period. I basically want to assign the properties to investors after i find the deal and exit before the house closes. This is why i signed up with the investment brokerage company to get great deals on the houses so that i can do my due diligence on them and figure it would be a great deal for the investor. That should make more sense. So, im just wondering the do's and don'ts to be aware of when finding investors and dealing with them.
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
I'd say it's VERY unlikely that a company that is selling you properties will be selling them at enough of a discount that you can turn around and resell them at a profit. There are two reasons for this:
1. Most wholesalers (whether individuals or brokerages) are going to mark up their properties as high as possible when selling. There is unlikely to be additional markup available in this properties as-is;
2. If this brokerage that you're working with is willing to work with any investors, it's likely that your potential buyers (investors with cash) will have access to these same deals before you buy them. Investors are unlikely to pay you more for a property they could have purchased directly for less.
Add to this the fact that, if you purchase the properties outright from the brokerage, you will have extra closing costs (the first purchase), loan fees and potentially other costs that eat into your margins.
All-in-all, this doesn't sound like a good way to try to make money in this business...
- Houston, TX · Member since 2016 · 79 posts · 29 votes9yHey Stefon Bostick ! Like J Scott mentioned, what you're doing is different. Unless I misunderstood. Wholesaling usually means buying directly from seller. If you're buying from business, wholesale fee has already been carved out. I would think you'd be making it harder on yourself the way your doing it. Best thing is BP is the best place to figure it all out. Best of luck!
- Wholesaler · Houston, TX · Member since 2013 · 57 posts · 5 votes9y
@J Scott first off thanks for sticking with this post through all the confusion, it is obvious that i am new to this so all of this info is not only helpful but very much appreciated. I still have a long way to go as you can see and like i mentioned this is why i like to ask sanity questions to get this feedback.
Ok now that we are here, with the relationship i have with the investment brokerage company do you think flipping would be a better exit strategy to consider? Have you heard of investors backing someone all the way through closing and giving a small percentage to that someone for the find? For example:
Consider this scenario(all hypothetical of course):
I find a house that is MLS for $200K. The houses in that neighborhood have sold at an average of $220K in the last year. If i go through the brokerage company i can get it for $140K. I tell the brokerage firm i want it and give them the fee(lets say $3K) to take it off the market and put it into "pending" status. It needs about $10K worth of work to bring it up to par for resale. Could i get an investor to fund the cost of this process and take a percentage of the sale at the end?
- Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes9y
Originally posted by :
I find a house that is MLS for $200K. The houses in that neighborhood have sold at an average of $220K in the last year. If i go through the brokerage company i can get it for $140K. I tell the brokerage firm i want it and give them the fee(lets say $3K) to take it off the market and put it into "pending" status. It needs about $10K worth of work to bring it up to par for resale. Could i get an investor to fund the cost of this process and take a percentage of the sale at the end?
A few questions, as I'm still confused:
- Who is this "brokerage company?" Are they the brokerage that is listing the house on the MLS? Or a separate company that would be buying the house listed on the MLS?
- If they are the company that is listing the house on the MLS, what makes you think they would take $140K for a house listed at $220K? Also, if they are listing the house, they work for the seller and have a fiduciary (financial) legal requirement to the seller to get the best price. They won't take a "kick-back" to take the house off the market -- they simply get their commission when the house sells.
- If they don't have the listing and are just buying the house off the MLS, why do you need them? Why wouldn't you purchase the house yourself off the MLS?
As for finding an investor to fund the deal, that certainly may be possible. But, I can't answer that question until I have a better understanding of what the deal is.
- Wholesaler · Houston, TX · Member since 2013 · 57 posts · 5 votes9y
No Problem @J Scott ask as many questions as you would like as this convo is very helpful.
To answer your question its a separate company that i would go through to buy the home at cash price. I think that may be the part im leaving out. Im a certified buyer for them and they have access to the cash price on the property (which i am nowhere close to being able to afford). I give them a set amount to secure the house and then move forward with closing the home from there on the cash price. If i tried to purchase these houses myself i would not get the cash price option......i don't think.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes9y
None of this makes much sense so it would be best if you lay it out clearly and concisely as well as answer the question of "which investment firm are you working with".
- Investor · san antonio, TX · Member since 2016 · 133 posts · 43 votes9y
@Stefon Bostick I think everyone here is pulling their punches. Youre only going to make it wholesaling if you can source properties at a steep discount, and that entails creating a marketing machine. Direct mail, internet, website, networking, all of that. There is no brokerage firm in existence that mass sells wholesales at an appropriate discount. If there were, they would quickly get swamped by rehabbers. The bottleneck in our business is sourcing houses at an appropriate price. If the firm you keep mentioning did exist, there would be no room in the business model for you. The rehabbers would go straight to the firm.
- Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes9y
"I've signed up with a wholesale investment brokerage company to purchase properties at a discount."
If you paid to sign up with this "brokerage", I'd say you got taken. You should probably reveal the company so that you can get real input. Sounds like BS to me.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Will Barnard great western or new western I bet sucked this guy in :)
- Wholesaler · Houston, TX · Member since 2013 · 57 posts · 5 votes9y
@Jay Hinrichs you are correct! As a newcomer it looks like ive already made my first mistake @Ann Bellamy. Quite frankly i am looking to get into wholesaling and flipping. Im going to my first meetup tonight so hopefully my next post will be more educated. However, all of this feedback is a teaching tool in itself.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes9y
Originally posted by @Stefon Bostick:
@Jay Hinrichs you are correct! As a newcomer it looks like ive already made my first mistake @Ann Bellamy. Quite frankly i am looking to get into wholesaling and flipping. Im going to my first meetup tonight so hopefully my next post will be more educated. However, all of this feedback is a teaching tool in itself.
I was almost positive it was going to be NW acquisitions but I wanted to hear it from the horses mouth first. I certainly hope Stefon did not pay any upfront fees to get on this "buyers list" stuff, that would be just one more reason to not like this company.
Stefon, there is no harm in being new and not knowing where to start, my first message was simply pointing out that providing as many details as you can in your questions would better help others help you.
As some others have just pointed out, there is no such thing as some company that can offer you deals at huge discounts that would not offer the same to anyone else they had contact info for. You are basically looking to be a wholesaler by buying from a wholesaler, in other words, two middlemen and that would make what could be a decent deal a no deal. Creating convoluted transactions is not your best approach, regardless if you are new or seasoned.
- Wholesaler · Houston, TX · Member since 2013 · 57 posts · 5 votes9y
@Will Barnard thank you for the reply and no i did not pay any upfront money. I may not be at 100% capacity in terms of real estate but i know when something is too good to be true and im glad i got this out to see what everyone thought. I've received similar feedback from other professionals and again this is teaching me alot. Im signed up for several events this month and next to improve my learning so i think in a couple of months i'll have a grasp on what to watch out for and start honing in on my strategy. Thank you guys for the feedback!
- Wholesaler · Corona, CA · Member since 2017 · 37 posts · 28 votes9yStefon Bostick Sounds like you're on the right track with learning as much as you can and asking questions/engaging on BiggerPockets. As for New Western I absolutely love this company it has changed my life! We also don't charge any fees to be on our list and we don't sell properties to wholesalers. I'd say keep networking and learning- there's a place for everyone in this business, you will find your niche. Let me know if there's anything I can help with- I've been wholesaling for 9 years and I've done it in Dallas, San Antonio and Southern California. Best of luck to you!
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes9y
@Stefon Bostick the are lots of people out there who will take your money by teaching you real estate. Many are very good, some are out and out crooks. The problem is it is easy to make real estate sound great. It can be made to sound like it is easy, risk free, and can be done with no money. It is none of those things.
You can do this. You can start with a modest amount of money. It will not be easy. To be honest most people never make it to their first deal. But that is why we are here. We want to help you be one of the ones that is successful.
There is some good free material above under the education tab above. Check out the free ultimate beginners guide.
Good luck to you.
- Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes9y
As Ned stated, most fail which could probably be said about any field. Those that succeed are those that don't let fear, hardships, obstacles, roadblocks, etc stop them. Keep up your education in the field and get out in the real world and apply/practice.
- Investor · san antonio, TX · Member since 2016 · 133 posts · 43 votes9y
LOL new western. They took advantage of my team and I last year. We trusted their judgement and took our first loss of 19.5k. Please, stay away. They are not interested in long term relationships, just selling to out of country investors. I would also stay away from net worth, we have done 6 properties with them and havent made one dollar.
We are based in San Antonio.
- 9yNathan CronPro MemberInvestor · Southern California · Member since 2011 · 27 posts · 98 votes
@Steven Mitchell Sorry for your experience with New Western Steven. I'm the Broker and opened up that office 6 years ago. We take pride in the value we add to the investment community and contribute our success to the long term relationships we've established. We certainly aren't the fly by night company. We're here to stay and a major contributor to the investment community.
Just to clear up some policy issues with you Steven, 95% of our properties are sold to local investors with boots on the ground. We want our investors to make educated decisions to the extent that we make you sign disclosures prior to being part of our network highlighting key points about investing like performing your own due diligence, title, as is, etc. My understanding is that your project manager walked the property and gave you the green light. After determining the foundation was more than anticipated, you fire sold the property(not smart to put your opinion of value and rehab cost on the mls listing). After losing money on 7 properties its important to take ownership and accountability. There's another kink in your system. New Western is not your problem.
We try to take every precaution as a company to safe guard investors against this exactly. We have an initial consultation to understand goals and strategy, have mandatory disclosures recapping important points, do not allow "sight unseen" purchases (unless uber qualified, verified by Broker), verify private lenders prior to accepting a contract, and several other measures that we've learned by listening to our clients throughout the years.
We have a lot of happy, successful, repeat clients that we enjoy doing business with. We provided 280 investment opportunities last year to local investors of which 54% were off market. Sorry you couldn't see the value in us Steven. I want to personally extend the olive branch to anyone in the community that is skeptical about our services. We are simply another avenue for you to locate distressed real estate. That's it! I'm open to a phone conversation or a sit down meeting to discuss your investing needs.
- Investor · san antonio, TX · Member since 2016 · 133 posts · 43 votes9y
Your foundation was 10k off and your ARV was gotten using comps from a neighborhood that sells for much higher per square footage. We only lose $$ with wholesalers, we make nice margins otherwise but thank you for the advice.
I understand about due diligence (now, lol. Back then not so much). We bought from you when we were first starting, after your guys sold us on them knowing their business. IE not making up foundation bids and not pulling a CMA out of thin air. The property was turned down by two private lenders in town who only lend to rehabbers. We were laughed at and warned about you. We thought we knew better than them so we went forward anyway.
On another property, I asked your man Gabriel to walk me through the numbers and let me know where the value lie. He wrote me a very salesmany 4 paragraph essay that ended up with the conclusion that he couldnt see the value anywhere. It was amazing how hard he tried though, I will give him credit. Getting him to admit it was like pulling teeth. Your people are SALESMAN, they arent investment advisors who know VALUE like they advertise. It was obvious he knew how the numbers go together but was trying to gloss over the meat by throwing in fancy math. I believe he ended with the conclusion that if all the stars aligned, the subject property would make 1-3k. LOL
I personally analyzed a good 100 of your properties from your email blasts, hoping to find a good wholesaler finally in the area. Nothing added up. We were excited to finally do this one with you because we just assumed we were missing something. That our RE agent and fellow flippers we were running this all across were all missing something. We were not.
The MLS we put out all information on the property so whomever we sold it to was knowing exactly what they were getting. The inherited foundation issues. What the smart ARV would be. We didn't want someone else to pay for our mistake. See how that goes? We know what the smart play is. We know how you would have done it. We choose not to operate that way. We took the big loss ourselves instead of passing it on to the next guy.
New western was given the opportunity to make things right. They did not. They were all about caveat emptor. Its fine, we now know better. Please dont pretend....everything your diatribe just tried to pretend.
I was never going to publish my experience on the internet, but if youre going to come here and write that crap, Ill be sure to keep responding. Your gall is astounding.
- 9yNathan CronPro MemberInvestor · Southern California · Member since 2011 · 27 posts · 98 votes
@Steven Mitchell We don't disclose ARV information on any marketing material and haven't for the past 2 years. You have to directly ask the associate for their opinion if your interested in what we think. This is in an effort to have all investors come up with their own values and analyze the deal effectively. You say "our" foundation bid was 10K off but please understand we rely on industry professionals just like you should. What did your bid come back at? Im willing to bet you didn't get one. The bottom line is that you left out major steps that needed to be conducted to determine if the investment was wise. It appears you have a track record for this.
No foundation bid, no ARV, no due diligence, lenders laugh at you = Dont buy!
Yes, Realtors are salepeople.
Smart ARV? You are advertising the ARV $4900 less than we anticipated
Understand that the information you put on the MLS listing exposes you and the listing agent to extreme liability. You're standing by numbers that are subjective. Those are your opinion. You say that you want the new owner to know what they are getting but the Sellers Disclosure is filled out terribly. On section 4 of the Sellers Disclosure you have N/A and never once mention foundation issues. Thats a disservice on your end and a direct violation. I see at least 3 errors in the SD that goes against your above comment and can land you and the listing agent in hot water.
I know I cant turn you into a believer Steven and thats fine. I'm going to stand up for the business every opportunity I get. We are good people, doing good business. Happy Investing!
- Investor · san antonio, TX · Member since 2016 · 133 posts · 43 votes9y
Yes we realize we didnt do the due diligence and lost. You win. We were new. Telling me here right now in front of everyone that we should have vetted your deal more intelligently isnt making your point..
We are saying you dont add value. We are saying you misrepresent yourselves. You dont give investment advice. Your predictions arent rooted in reality or experience or have any predictive value. You sold us on the idea that you were industry experts, you do this all the time, and our money was safe with you. You even say in your first post how you want to talk to people about their investing. You imply you arent just taking half your listings from the MLS. Yes, we realize now we cant really work with a wholesaler like that. We took our lumps. Telling us this, again, isnt making your point.
We had three bids between 17-22k for the foundation. Im not sure why you think we wouldnt after holding the property for six months and trying to decide the best exit strategy. I think you sound angry. For comparison, your bid was 8k. I think you can see how taking 9-14k out of a deal could kill it.
Your ARV was based on the neighborhood to the north across the lake. For those of you tuning in at home, we bought this house before we knew how to do our own CMA, lol. Yes, we were stupid.
You are the only show in town who believed in that ARV. Trust me my friend, we wanted to believe as well. If your ARV was the true market ARV we wouldnt have had to sell it for so much cheaper. It would have been snatched up immediately. It wouldnt have been laughed at by the money lenders who do this every day. It wouldnt have been passed up by every rehabber in san antonio. They wouldnt have left in disgust once they did some digging and saw the foundation. It is well known that the largest bottleneck in san antonio is sourcing these things cheaply. If your ARV was correct I wouldnt have held the property for over half a year searching for a buyer.
When you offered to take it back at a 10k discount, were you still believing your ARV and rehab estimate? If so we are confused on the discount. We gave you the chance to make things right so we could do another deal. We werent angry, we just assumed you had messed up. We just wanted to do another deal. You wanted the money you made from us more. We understand.
The small amount of due diligence we were educated enough to do, we were rushed through by your rep. We had to close right there, right now. Please do not pretend this is not how you operate. I sincerely doubt you are fooling any rehabber here who has worked with a decent sized shop.
My PM just reminded me another property she saw with you. Mid showing, another wholesaler showed up and kicked her and your agent off the property. That was our first sign that maybe you guys werent as legit as you claimed.
Oh, I was just reminded out of the 100ish deals we looked at through you, we only had one that hadnt been shopped to us by another wholesaler that week, or not off the MLS. We do remember one house on Summit that was actually legit. Good work. Do more of those.
I am not sure what seller disclosure stuff you are talking about, but the buyers were all made aware of the foundation issue while they were on site. You are welcome to go knock on the door today and ask them. Are you trying to discredit me here? Everyone knows, as I mention it in almost every post from this past year, that we are new rehabbers. That we arent licensed agents. That we are a small group of doctors expanding into other businesses.
Please stop playing the victim here. You obviously know this business much better than we do. We are warning people that you are not looking out for their best interests as you continually advertise and mention here. You are churning your houses and moving on without adding value to the investors, except perhaps by accident. The REI meetings here are filled with people you have burned.
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