The good and the bad from wholesalers
Investor · Orlando, FL · Member since 2009 · 978 posts · 39 votes
Greetings everyone my name is Foster Algier and I have been wholesaling properties here in central Florida for many years. I thought it would be useful for all of us to have a discussion about what, as a rehabber, has brought you to a wholesaler. With so many deals available and so many wholesalers out there, how do you search for a good wholesaler? How much information do you want on a wholesaler’s property list and what information is irrelevant or makes a wholesaler’s analysis of a property unnecessarily congested? And finally, what has endeared you to a wholesaler you’ve worked with before and convinced you to continue working with them? Feel free to give your ideas, criticism, and stories, and let’s help each other work efficiently and successfully.
Saying there are no "good wholesalers" is relative to your position. If you are the wholesaler and can consistently sell properties above a % that most buyers want, you are successful. But to an investor looking to buy a good deal to fix & flip, they might think that you as a wholesaler have nothing but crap deals because your numbers don't fit their criteria.
Here's an example: I just closed a deal this week that was sold at 80% of LTV. ARV is $75K, repairs were $17K, and sale price was $43K. My purchase price was $25K and my gross profit was $18K. Is this an example of a "good wholesaler" or a "bad wholesaler"? Depends which side of the deal you're looking at. Most of my deals aren't like this, so don't get me wrong. This just happened to be one of the times when I was able to sell to an investor that lived on the same street as the property and he really wanted it and was happy with the price.
I try to keep my asking prices in line with what my buyers are willing to pay, but there are times when "premium" houses bring "premium" money. Don't blame me as a wholesaler for being able to sell a house for more than what you'd pay. I have investors that actually criticize me and think I'm crazy for having such a high asking price on some deals and having others that fit the 65% rule. Each property is evaluated and priced accordingly.
As a wholesaler, you don't make what you deserve, you make what you negotiate. Obviously, the better you are at negotiating (both on the buy and sale sides), the more you can make.
A lot of the wholesalers in my market do have crap deals, I'll admit. Many of their purchase prices are what I'd sell them for. But hey, to each his own.
To me, finding a good wholesaler is like finding a good realtor - you have to go through a lot of crap to find the good ones, but you can make a lot of money once you do find a good one. I've got one particular buyer that I've sold about 75 houses to, and all were sold at 75% of ARV, minimum. He's happy, I'm happy, and life goes on. Why sell for 65% when there are buyers willing and able to pay more?
The point of my ranting here is that while most wholesalers do have crap deals, there are good wholesalers out there that successfully close deals at prices and percentages that you wouldn't consider buying. That doesn't mean they aren't good wholesalers, it just means they've found a niche that you aren't in.
There are alot of deals available but not with great margins.......I am looking for real deals below 65%.
I will happily pay 10k for a great deal or 20k in high-end markets like Cali or NYC.
Its always about the numbers, plain and simple. I am sure I speak for most cash buyers when I say I will gladly pay for a great deal. Problem is many wholesalers lock up stuff at 80+% and call it deal.....I can find those all day long on the MLS. Negotiate the best deal you can and somebody will pay for it.
We have found that we can get a better deal by working with a realtor (mls) vs. wholesalers. It usually takes more effort and a little more relationship to work with a realtor - but generally you get the specific product that you want.
What I find with most wholesalers is that they are pitching a deal they have available - not finding properties that the investor specifically desires. Therefore, they are often trying to put a square peg in a round hole which gets old after a while.
Maybe that is not always true - but out of the last 30+ properties we purchased none came from wholesalers.
Greg.
Much like Greg, I've yet to find a great deal from a wholesaler. Many can bring me deals almost as good as I can find myself, but once they add in their fee, it's no longer a great deal.
I've yet to be offered a deal by a wholesaler that fit my purchasing criteria. I can explain until I am blue in the face, and they just can't seem to understand what I am looking for.
Again and again, they try to talk me into properties that I have specifically told them are located in areas that I don't purchase in.
I can find better deals by myself. But I would buy from a wholesaler if they ever brought me a property that met my criteria and was priced right. I've got nothing against paying a wholesaler a nice hefty fee, if the final price to me is still within the range that I am looking for.
Good thread, thanks for starting it.
I have two business models that have been very successful:
1. I fix & flip properties to investors across the country that are looking for a turnkey cash flow property with a tent in place. That being said the properties I do buy and renovate must be 4 units and under and have at least $300/mo cash flow after the PITI payment is made and the property manager is paid. We pay no commissions to a Realtor and we sell our properties to pre-qualified buyers very quickly.
2. I wholesale properties that don't fit the above criteria. We do a heavy volume here in Phoenix. We don't buy bank owned or auction properties at the court house steps. We buy primarily from motivated sellers. Our formula that allows us to sell most of our properties in hours is this: 70% of ARV less repairs. Most of the time our properties are in high 50% to low 60%.
I believe we've been very successful because we build strong rapport with our buyers. I meet them for lunch, go to birthday parties and socialize on a regular basis. I know exactly what their long term goals are and I work hard to help them achieve it. Not one of my buyers can get a better deal anywhere else ( so they think).
Just my 2 cents...
Cheers :)
Sean
I am a rehabber in Little Rock. Life sure would be a lot easier if I knew a good wholesaler. I have never been presented with a deal I haven't already found myself unless it was in the warzone. And, that is because I don't search there and would not work there. I did meet a guy that was different a few months ago that was interesting because he claims to deal strictly in probates. But, I haven't heard a word from him since I gave him my criterias and contact info. I hate it when seminars come to town.
Don
Pardon me for any oversimplification as I am new here, but what I am seeing from the replies of the experienced rehabbers here is that they are more than open to purchasing from a wholesaler, and that it might free up time taken to search for properties, but they have not found a wholesaler who a) Has a deal at or below their price point or b) Finds properties tailored to their preferred criteria (area, size, type of rehab).
As a newbie looking to put a foot in the door with wholesaling this is quite disturbing. I have seen many successful wholesalers at local REIA meetings and discussed with them their steps to evaluate and lock up a deal at equal or below 70% ARV. Otherwise this niche of investing couldn't exist.
Is there just a lack of good wholesalers in the area? Do the current wholesalers, as Mr. Childs says, just send you every deal they have and it frustrates you and prevents a mutual relationship? Do you use your own team to search for properties or do you find it better to just do it yourself (I know some find it time consuming to search for properties)?
Saying there are no "good wholesalers" is relative to your position. If you are the wholesaler and can consistently sell properties above a % that most buyers want, you are successful. But to an investor looking to buy a good deal to fix & flip, they might think that you as a wholesaler have nothing but crap deals because your numbers don't fit their criteria.
Here's an example: I just closed a deal this week that was sold at 80% of LTV. ARV is $75K, repairs were $17K, and sale price was $43K. My purchase price was $25K and my gross profit was $18K. Is this an example of a "good wholesaler" or a "bad wholesaler"? Depends which side of the deal you're looking at. Most of my deals aren't like this, so don't get me wrong. This just happened to be one of the times when I was able to sell to an investor that lived on the same street as the property and he really wanted it and was happy with the price.
I try to keep my asking prices in line with what my buyers are willing to pay, but there are times when "premium" houses bring "premium" money. Don't blame me as a wholesaler for being able to sell a house for more than what you'd pay. I have investors that actually criticize me and think I'm crazy for having such a high asking price on some deals and having others that fit the 65% rule. Each property is evaluated and priced accordingly.
As a wholesaler, you don't make what you deserve, you make what you negotiate. Obviously, the better you are at negotiating (both on the buy and sale sides), the more you can make.
A lot of the wholesalers in my market do have crap deals, I'll admit. Many of their purchase prices are what I'd sell them for. But hey, to each his own.
To me, finding a good wholesaler is like finding a good realtor - you have to go through a lot of crap to find the good ones, but you can make a lot of money once you do find a good one. I've got one particular buyer that I've sold about 75 houses to, and all were sold at 75% of ARV, minimum. He's happy, I'm happy, and life goes on. Why sell for 65% when there are buyers willing and able to pay more?
The point of my ranting here is that while most wholesalers do have crap deals, there are good wholesalers out there that successfully close deals at prices and percentages that you wouldn't consider buying. That doesn't mean they aren't good wholesalers, it just means they've found a niche that you aren't in.
Here is what happens for me:
A person gets a deal under contract and I get an email blast from 5 or 6 wholesalers telling me about the same property. Most of the time it is a marginal deal.
The wholesaler I know that is most successful, has 3 or 4 buyers that pay a bit more about 73-75% of ARV and buy most of the stuff he throws at them in that range. Nothing fancy, just a phone call.
I am sure there are some good wholesalers. I just wish I knew some. I can't think of a single wholesaler that I have seen (mainly at REI club meetings) more than twice. And, all of them always try to sell me on the same thing....70% to 75% minus repairs. I don't even use that formula on properties that interest me. That formula might work out fine on a property worth $100k to $135k. But, on the $50k to $60k ARV properties they want to sell me, there is not enough left over to pay for the stolen copper or the body guard to keep me from getting mugged!
Don
I've gone to the local REIA meeting for one year.
Every meeting, at least one wholesaler takes my name, email, etc.
I have one wholesaler sending me an email.
What happened to the rest of them?
Ray in Ct.
Thank you all for commenting here as a newbie in wholesaler properties this has been very insightful. question is how do you differentiate yourself , when all of the marketing strategies are passed down from the previous decade of wholesaling gurus.
Why? Because if you had spent even 5 minutes on the phone with me (or exchanged a single email), you'd know that this deal didn't fit my criteria.
And sending an investor any deals that don't fit the criteria they describe to you would make you a bad wholesaler.
Of course, if you only send deals that meet your investor's criteria, I'd consider you a very good wholesaler.
Unfortunately, based on the above, I've only met bad wholesalers...
Thanks for this thread! It makes me glad to see that the niche I'm trying to fill seems to be everyone's biggest complaint. That is, only bringing an investor a deal that is exactly what they're looking for.
Can you imagine going to a restaurant with a specific dish in mind (for me that would be Wok-seared lamb/beef) and the waiter consistently tries to push a bologna sandwich instead? That's a problem....and guess what.....I was moving into the role of a waiter when I started in real estate. Yes, I understood the "less than 70% ARV" rule, but my fee threw the numbers out of whack - making margins slim, but I kept pushing these deals. I would throw deals on the "investor walls" hoping that "something" would stick....big mistake, but a valuable learning experience.
As a wholesaler striving to build my buyers list, I've stopped chasing "everything" and started focusing on what investors really want. ALL investors want a deal (true PP vs. ARV or true PP vs. ARV and potential cash flow) and each deal comes with a risk. But that risk is minimized based on the what the investor knows has worked for them in the past (which neighborhoods, types\age\size of homes, etc) and from that, their experience-based criteria fills in the "potholes" on the road that will lead to what becomes a true and profitable deal to them.
Yes, I focus on:
1. REOs
2. HUDs
3. Motivated sellers
But all of the above is meaningless if they don't fit within an buyers' investment criteria (again, it's price, location, property, etc.). Even though I don't have to, I develop exit strategies for my buyers (although I know they have their own exit strategies). I do it as a courtesy and to have them help refine my strategies as someday I will become a profitable and successful investor - much like them. I'm listening, learning, and doing all I can to be the best wholesaler my buyers could ever have.....
Jaremy- I agree with your analysis. Sometimes successful wholesalers are made so by their relationships with buyers. They may not offer a deal that is considered incredible based on percentages (ex.below 70% ARV - extras) but they know the area well and can guarantee a solid deal, reducing the risk of the rehabber. I believe some wholesalers offer a service by their local expertise.
J Scott and Don Hines- I agree that many wholesalers send you what they have, not necessarily what you want, and I think that is a consequence of being new to the business and how one proposes the deals. In the beginning, like Dave Gibson said, he chased everything. Finding any good deal is a time consuming accomplishment and you want to get it sold. The reality for wholesalers is that you analyze all solid deals you come across, put in under contract, and then look over your buyers list to fit it to the right investor.
Unfortunately, like Mr. Childs explained, it often comes across that you are trying to fit your square peg property into an investors round hole investing strategy. Good wholesalers have to take great time and care to network with and get to know their buyers so that they can propose deals that their buyers are looking for in a way that makes them feel like they are receiving professional and personal attention. Though I do believe that investors often undervalue the expertise and track record of good wholesalers.
I am very glad that we can use discussion and constructive criticism to help each other work more efficiently. Thank you.
I'm having the same issue with the wholesalers I've talked to. They must be marketing to buy-and-hold investors because there isn't much room in the deal for the flipper's profit.
They don't get out of bed for less than 10K which is pretty high on a property worth 50K.
They will only work for 10K? Interesting. That seems to be what the gurus and seminars always suggest, a 10-15k profit for wholesalers. In the area I am in I network with all of the prominent wholesalers and we have generally agreed to keep it to a tight 5k markup on our properties. It is a standard. About 1 in 20 are smoking deals that we can increase our margins on, but we don't get greedy because like you point out, the deals have to work for all involved.
On a side note, we often help each other find buyers and split the fee. I believe that being reasonable here has directly influenced our ability to go through so many deals each month.
Thank you Diane for your experience. Does anyone else have any input on what your wholesaler(s) profit margins are for properties? This should be interesting.
Of course, I'd much prefer if the wholesaler gave me even more equity/profit, but as long as the deal allows me to meet my profit/margin targets, it doesn't really matter what the wholesaler is making...
And I think that's been my problem all this time. Finding deals that investors won't touch because it didn't fit their criteria.
And I think that's the key to successful wholesaling. Don't waste time looking for properties that investors won't touch instead build a buyers list and get their criteria and then start looking for deals based on their criteria.