Flipping and Wholesaling are Dead... RIP
Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes
Flipping and Wholesaling are Dead... RIP
Most Popular Reply
Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes
7yKeep this in mind!
You are not looking for EVERY SINGLE LEAD in your market that possibly exists (well I am but I am an over achiever).
How many deals can you seriously handle? No matter what the new fad is out there, there are plenty of people that want to deal with an actual person cash buyer that can come to their house and make offers.
You need to market yourself the right way. Surround yourself is insane crazy amazing reviews. Become the authority in your market. The go-to guy. No matter how many dollars Z is throwing at marketing, no one can buy off your reputation of THE go to person that buys and flips houses.
Don't be scared of Zillow. Be scared of that other small business dude with that amazing website that is building a real rep for himself!
30 Replies
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
there is Offerpad and a bunch of other big money backed on line wholesalers out there.
I even got a call on my home I live in in Lake Oswego its a 7 figure home and here we have a big wholesaler wanting to offer to buy my home as is.. that's a first time.. I get all sorts of calls on our rental grade stuff from locals.
but when I dug into it out of curiosty.. they give you an automated offer in my case 674k to 750k for as is cash offer.
but if I wanted to retail it they said 1.1 to 1.2 and here is a list of 3 top agents in Lake Oswego..
So I suspect they are trying to cream the deals and are selling advertising for agents just like Zillow.
I then responded to offer pad on my Home in Vegas same thing.. its worth about 500k.. and they did the song and dance and offered 270k.. all on line all big money websites .. and they are buying homes.
Peer street makes first position loans for them to buy this stuff along with other lenders know doubt.
of course I was not going to let a 500k prop go for 270k.. and no way sell my home in OR for 750k when I know I can get north of 1 mil.
So its something were these on line wholesalers are coming into play and so for the small beginner it just got that much tougher.. but I suspect they are not going to work the low value high crime D class which is dominated still by wholesalers.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes7y
Originally posted by @Jay Hinrichs:
there is Offerpad and a bunch of other big money backed on line wholesalers out there.
I even got a call on my home I live in in Lake Oswego its a 7 figure home and here we have a big wholesaler wanting to offer to buy my home as is.. that's a first time.. I get all sorts of calls on our rental grade stuff from locals.
but when I dug into it out of curiosty.. they give you an automated offer in my case 674k to 750k for as is cash offer.
but if I wanted to retail it they said 1.1 to 1.2 and here is a list of 3 top agents in Lake Oswego..
So I suspect they are trying to cream the deals and are selling advertising for agents just like Zillow.
I then responded to offer pad on my Home in Vegas same thing.. its worth about 500k.. and they did the song and dance and offered 270k.. all on line all big money websites .. and they are buying homes.
Peer street makes first position loans for them to buy this stuff along with other lenders know doubt.
of course I was not going to let a 500k prop go for 270k.. and no way sell my home in OR for 750k when I know I can get north of 1 mil.
So its something were these on line wholesalers are coming into play and so for the small beginner it just got that much tougher.. but I suspect they are not going to work the low value high crime D class which is dominated still by wholesalers.
Interesting real experience, Jay. Thanks!
Personally, I think it's only a matter of time before these players enter Detroit. No, they probably won't work the high-crime, D-class areas, but there are plenty of pockets in Detroit that are attractive. The more players in the space the more they'll be chasing margin, and that means opening up to other markets.In turn that can push local wholesalers/flippers to areas they might not have worked before (areas larger players won't yet touch). I find the potential implications fascinating and would love to see how the data starts shaking out in a couple more years.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Travis Biziorek:
Originally posted by @Jay Hinrichs:
there is Offerpad and a bunch of other big money backed on line wholesalers out there.
I even got a call on my home I live in in Lake Oswego its a 7 figure home and here we have a big wholesaler wanting to offer to buy my home as is.. that's a first time.. I get all sorts of calls on our rental grade stuff from locals.
but when I dug into it out of curiosty.. they give you an automated offer in my case 674k to 750k for as is cash offer.
but if I wanted to retail it they said 1.1 to 1.2 and here is a list of 3 top agents in Lake Oswego..
So I suspect they are trying to cream the deals and are selling advertising for agents just like Zillow.
I then responded to offer pad on my Home in Vegas same thing.. its worth about 500k.. and they did the song and dance and offered 270k.. all on line all big money websites .. and they are buying homes.
Peer street makes first position loans for them to buy this stuff along with other lenders know doubt.
of course I was not going to let a 500k prop go for 270k.. and no way sell my home in OR for 750k when I know I can get north of 1 mil.
So its something were these on line wholesalers are coming into play and so for the small beginner it just got that much tougher.. but I suspect they are not going to work the low value high crime D class which is dominated still by wholesalers.
Interesting real experience, Jay. Thanks!
Personally, I think it's only a matter of time before these players enter Detroit. No, they probably won't work the high-crime, D-class areas, but there are plenty of pockets in Detroit that are attractive. The more players in the space the more they'll be chasing margin, and that means opening up to other markets.In turn that can push local wholesalers/flippers to areas they might not have worked before (areas larger players won't yet touch). I find the potential implications fascinating and would love to see how the data starts shaking out in a couple more years.
question will be can these big on line wholesalers actually make any money.. keep in mind 95% of wholesalers out there never close on the deal they are just acting as real estate brokers illegally.. so between regulations that states start to enforce that could have an impact. with the how to gurus and sites like BP were begineers gets all excited to only find out wholesaling is really the toughest thing you can do in real estate.. I mean you got to find that seller that is willing to take far less for their property than what its worth.. then you have to coordinate with a buyer etc etc.. so its just a commission game on the fringe.
these bigger on line companies as stated actually close and resell.
Just google Offerpad Las Vegas and pop on their site you will see houses for sale and they are not assigning contracts they own them
- Central, MN · Member since 2015 · 148 posts · 184 votes7y
Won't there always be a niche for people to work the low volume, run of the mill areas? I live in rural MN... the type of places where a handshake that is trusted means way more than a fancy approach or number. I think there will always be a place for the average Joe RE investor, but those places are less and less. I do agree the REI is tougher and tougher for the small guy because of these types of programs, the growth of syndications, etc . It is becoming like many other businesses, the folks running more volume with smaller margins will keep carving out a bigger and bigger piece of the pie.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Rich S.:
Won't there always be a niche for people to work the low volume, run of the mill areas? I live in rural MN... the type of places where a handshake that is trusted means way more than a fancy approach or number. I think there will always be a place for the average Joe RE investor, but those places are less and less. I do agree the REI is tougher and tougher for the small guy because of these types of programs, the growth of syndications, etc . It is becoming like many other businesses, the folks running more volume with smaller margins will keep carving out a bigger and bigger piece of the pie.
this has happened in the HML space the last 5 or 6 years in my day you put money out at 20% apr minimum.. now with all the money flooding into the game.. 10% apr is common and less.. so margins are super skinny with all the money flowing into that sector as money chases yield. its ok to make a 3% spread like a bank does on a loan if you have 100 to 500 million to lend.
but if your a little guy with 5 mil to 10 mil you can live on 3% spreads.. or if you do its Hubby and wife lending their own money.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
But flipping is not dead 3 of my JV partners in 3 different states just completed their projects we funded and all three went pending within 5 days to owner occs and all three will hit our return goals and make our ground partner significant profits. so they are very excited.
its very market specific though
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes7y
Originally posted by @Jay Hinrichs:
Originally posted by @Travis Biziorek:
Originally posted by @Jay Hinrichs:
there is Offerpad and a bunch of other big money backed on line wholesalers out there.
I even got a call on my home I live in in Lake Oswego its a 7 figure home and here we have a big wholesaler wanting to offer to buy my home as is.. that's a first time.. I get all sorts of calls on our rental grade stuff from locals.
but when I dug into it out of curiosty.. they give you an automated offer in my case 674k to 750k for as is cash offer.
but if I wanted to retail it they said 1.1 to 1.2 and here is a list of 3 top agents in Lake Oswego..
So I suspect they are trying to cream the deals and are selling advertising for agents just like Zillow.
I then responded to offer pad on my Home in Vegas same thing.. its worth about 500k.. and they did the song and dance and offered 270k.. all on line all big money websites .. and they are buying homes.
Peer street makes first position loans for them to buy this stuff along with other lenders know doubt.
of course I was not going to let a 500k prop go for 270k.. and no way sell my home in OR for 750k when I know I can get north of 1 mil.
So its something were these on line wholesalers are coming into play and so for the small beginner it just got that much tougher.. but I suspect they are not going to work the low value high crime D class which is dominated still by wholesalers.
Interesting real experience, Jay. Thanks!
Personally, I think it's only a matter of time before these players enter Detroit. No, they probably won't work the high-crime, D-class areas, but there are plenty of pockets in Detroit that are attractive. The more players in the space the more they'll be chasing margin, and that means opening up to other markets.In turn that can push local wholesalers/flippers to areas they might not have worked before (areas larger players won't yet touch). I find the potential implications fascinating and would love to see how the data starts shaking out in a couple more years.
question will be can these big on line wholesalers actually make any money.. keep in mind 95% of wholesalers out there never close on the deal they are just acting as real estate brokers illegally.. so between regulations that states start to enforce that could have an impact. with the how to gurus and sites like BP were begineers gets all excited to only find out wholesaling is really the toughest thing you can do in real estate.. I mean you got to find that seller that is willing to take far less for their property than what its worth.. then you have to coordinate with a buyer etc etc.. so its just a commission game on the fringe.
these bigger on line companies as stated actually close and resell.
Just google Offerpad Las Vegas and pop on their site you will see houses for sale and they are not assigning contracts they own them
I agree that this is the big difference. Zillow, Offerpad, OpenDoor... they're acting as the wholesaler and the flipper. Essentially, they cut out the middle man (the wholesaler who'd be marking up the offer to the flipper). So this should make it even tougher for your "mom-and-pop" wholesaler to operate.
It doesn't seem like these guys are turning a profit yet, but the fact that Zillow is a public company definitely adds legitimacy. And the program is out of "beta" now IMO as they announced the expansion into 11 more markets.We're definitely going to see an impact over the next 3-5 years, and I'm sure there will be other implications we're not yet foreseeing.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes7y
Originally posted by @Rich S.:
Won't there always be a niche for people to work the low volume, run of the mill areas? I live in rural MN... the type of places where a handshake that is trusted means way more than a fancy approach or number. I think there will always be a place for the average Joe RE investor, but those places are less and less. I do agree the REI is tougher and tougher for the small guy because of these types of programs, the growth of syndications, etc . It is becoming like many other businesses, the folks running more volume with smaller margins will keep carving out a bigger and bigger piece of the pie.
Rich, like the local hardware shop before Home Depot arrives in town, I think the answer is yes and no.
As Jay notes below, margins will compress. Your small, rural areas will attract folks that can't make the numbers work in the more urban parts. Obviously, this will compress margins.
You may have to reinvent yourself or differentiate to survive. I don't know what that looks like as I'm not in the wholesale or flipping business, but it will have to happen.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes7y
Originally posted by @Victor S.:
But clickbaiting is well and alive :)
There is still definitely room for both activities, even in the current cycle.
Click-baiting will never die!
And yes, the current cycle provides plenty of opportunity still, IMO. But if I'm in the wholesaling or flipping business I'd be taking notice.
Do you want to keep doing the same thing, waiting for the hammer to come down? Or do you want to get ahead of the curve and reinvent yourself to survive?
Better yet, why not reinvent your business so that you thrive? IMO, investing in areas that the big guys haven't expanded to yet is the way to do that, likely as a buy and hold investor.
- 7yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Victor S.:
But clickbaiting is well and alive :)
There is still definitely room for both activities, even in the current cycle.
also keep in mind low value assets many times are not owned by sophisticated folks who probably would never do a deal on the computer they need that person to come over and talk them into it and do it in person.. that's for certain.
- Flipper/Rehabber · Wilton, CT · Member since 2015 · 4k+ posts · 4k+ votes7y
Keep this in mind!
You are not looking for EVERY SINGLE LEAD in your market that possibly exists (well I am but I am an over achiever).
How many deals can you seriously handle? No matter what the new fad is out there, there are plenty of people that want to deal with an actual person cash buyer that can come to their house and make offers.
You need to market yourself the right way. Surround yourself is insane crazy amazing reviews. Become the authority in your market. The go-to guy. No matter how many dollars Z is throwing at marketing, no one can buy off your reputation of THE go to person that buys and flips houses.
Don't be scared of Zillow. Be scared of that other small business dude with that amazing website that is building a real rep for himself!
- Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes7y
I think it is the economics of Zillow offers that makes it interesting. They are seeking big deals on the front end. They sell for almost exactly what they buy for. It is not the "normal" wholesale economics of APV x 70% - renovation.
https://seekingalpha.com/article/4259178-zillows-m...
"Going back to Exhibit 4, renovation, holding, and selling costs have averaged 3.0%, 0.9%, and 4.5% of sales so far, leaving a return before financing of 1.6%. Interest has eaten up 0.8%, leaving a 0.8% margin after interest.
Clearly, bottom line profit margins are thin, but that is by design. The overarching strategy is to give homeowners the best deal Zillow can afford while still breaking even on the transaction. That will maximize adoption of Zillow Offers, and will drive lots of ancillary revenue streams."
It is very common for a company like Zillow to enter a market at zero to negative margin to take up market share. If people hit the Zillow Offer button instead of go to wholesalers that could sink a lot of individual business models. Even if they eventually fail it is a lot of disruption. And they are leveraging the brand. So a normal wholesaler has to spend a ton on advertising to find a distressed seller. But it is not unthinkable that a distressed person looks on Zillow to see what their house is worth first when they decide to sell. Will Zillow get the 1st shot?
Like I said, I think the economic dynamics are the interesting part
- Rental Property Investor · Los Angeles, CA · Member since 2016 · 172 posts · 122 votes7y
I saw a commercial the other day advertising this feature on Zillow. Wholesalers need to take this seriously!
Think about it, would you go with a random guy who sent you a note in the mail? Or would you trust a big corporation like Zillow who people are more aware of their brand?
- Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes7y
I still don’t think Zillow offers is going to beat the buying price resulting from throwing a random dart at a local real estate agents directory and asking the winner to sell your house, in current condition, in a week. Which is also the fundamental problem with wholesaling.
- Investor · Austin TX · Member since 2016 · 1k+ posts · 2k+ votes7y
What about when they get their numbers wrong? I have seen an increasing number of Opendoor properties that are approaching 100 days on market. Our market here in Dallas is cooling off and I imagine that Opendoor stands to take a loss on some of the properties that they are holding right now.
- Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes7y
@Account Closed, that is so true!! so many people pour money into concepts that have proven to lose money for several years and hope that consuming even more money can make them profitable. ( Of course some are but some/many are simply flawed). If Uber ever goes profitable I reckon civilization as we know it is over.
- London · Member since 2019 · 722 posts · 386 votes7y
Some businesses scale and some do not. Stamping out home refurbishments implies a repeatable process. As we all know, each house is unique, each project comes with its own surprises and labor is not always consistent. Plus weather.
Better information does lead to tighter margins. Efficiency is good and the more efficient operators have thinner margins. The fat margin operators get pushed out.
Local operators are closer to a craftsman. They operate in their own way and there is little standardization. They are trading time for money. Some scale up and have a crew. A craft with some volume. Few ever get to the point where they are a replicable model which can be 'lifted and shifted' to multiple cities or states.
Finance and market are very scalable. Most of the trades needed to refurb a house operate to standards yet managing the labor is not very scalable.
In Silicon Valley, we talk about lifestyle businesses and scalable businesses. It will be hard for Zillow to scale if they want to run it directly. If they want to operate a franchise or licensed model where a local business operator runs the shop and Zillow provides the back office (marketing, sales, branding, etc), fine.
MacDonalds is really three main businesses. The number 3 business for them is selling food. The number 2 is selling franchises. The number 1 is real estate. If there were no food sales, there would not be much for business 2 and 1 to do. And gourmet burger places compete just fine on a local basis.
Conclusion? Zillow can change a market to the point where it is no longer what it once was. That said, it does not mean the local operator cannot compete. The magic is when the local operator joins forced with a Zillow. Similar to small shops selling through Amazon.
Background in case it matters: As an old school tech guy who was there before the birth of the Web, I might have a bit of a unique perspective on tech changes impacting real estate.
Tim BL invented the web so he could use Bill's software and I worked with Bill at two firms.
I started as a RE investor 35+ years ago while working in Silicon Valley. 11 or so years before the web was invented.
I spent years working for investment banks so finance is something I understand well. Global role based in London.
Finally, I studied AI at Stanford before it was trendy. A long time before.
Been there, done that and the t-shirts have faded plus they have holes. And I still love the tech and real estate crossover.
- Investor · Rochester, NY · Member since 2017 · 206 posts · 175 votes7y
@Travis Biziorek
Couldn’t disagree more. I’m sorry but you can’t put that much importance on what someone else is doing. We just received a call yesterday from this guy who was going through foreclosure. He had 15 letters sitting on his desk and he decided to call us. When I asked him why, he said it’s because we were from Rochester NY and probably understand the Park Ave area.
You’re always going to have competition. Be aware of it, know what they are doing but don’t stop.
- Real Estate Consultant · Evergreen, CO · Member since 2018 · 1k+ posts · 736 votes7y
I believe it will only get worse. Renter's Warehouse is even getting into the game. I had someone there contact me about their new program. I suspect that this will heavily affect the single family market including buy and holds but not multi family.
Unfortunately the larger base of prospects they contact aren't knowledgeable about their home's values and this will likely become predatory very fast! Maybe too fast to stop that from happening.
- Investor · Vashon, WA · Member since 2015 · 7 posts · 1 vote7y
@Travis Biziorek
You forgot, they are also the bank. I think zillows long term strategy is to make the loan origination fees and interest payments. Still I question if the algorithms can get the price right. This is definitely going to change the business though.
- Flipper/Rehabber · Worcester, MA · Member since 2016 · 179 posts · 113 votes7y
@Travis Biziorek these are public companies that report their progress every quarter. So far Zillow.com is losing tons of money. You can't replace a person with an algorithm, theres too many variables. How long until investors decide not to burn money with these ibuyers? Ivy Zellman is doing research on this too, so far it's nothing to fear.
https://wolfstreet.com/2019/05/10/house-flipper-zillow-lost-109k-35-per-flip-net-loss-triples-shares-soar/
- Member since 2019 · 11 posts · 9 votes7y
I think traditional flipping and wholesaling is dead...but people just have to adjust.
I worked at a real estate office, and we saw all types of wholesalers. The ones who are doing well against these big companies are professional, well-advertised, and communicative. A great website and good personality can do wonders compared to large firms like Opendoor. - 7yAlex KhanPro MemberSpecialist · Southeast Michigan · Member since 2015 · 300 posts · 244 votes
@Travis Biziorek no way 👨 Jose
Join the conversationCreate a free account to reply, vote on answers and follow this thread.