Watch out for Wholesalers!!

[Vijaianand Thirunageswaram]

Howdy folks,

Hope every one is staying cool in hot, hot summer dog days!!

Anyway, I been buying houses from wholesalers for myself and for my investors and happen to deal with wide variety of them. From big sharks to local neighborhood wholesalers who is willing to work with you. I have learned few things which I would like to share for investors who are planning to do deal with wholesalers for their next deal whether it's BRRR or Flip.

1. Double closing cost - Many big wholesalers like NWA, Networth, Myers tack in their closing cost with the original seller to you if you are second buyer. There is no way to avoid it but when you are bidding for it, take that closing cost into account as part of your purchase price. Even worse, some wholesalers like NWA add admin fees $400 - $500 on top of it. It's ripoff if you ask. Not all of them do double closing so ask the wholesaler before bidding on the property to get an idea. 

2. Asking price is not final - Don't ever think you cannot negotiate with the wholesalers. You can and it depends on wholesaler and market. I have always try to haggle if the property is in the radar for long and wholesaler contract is coming to an end. Don't hesitate to shoot your offer and you will never know when they will come back.

3. Rehab Estimate - Please take their rehab estimate with grain of salt. Except few wholesalers who does pretty good job even by taking their contractors and providing estimate copy others are just doing ball park estimate. Always do your estimate during showing, don't take their word for it.

4. ARV - It's same case for ARV as well. Do more analysis to get the right ARV not taking wholesaler word for it.

5. Location, Location, Location - Make sure the property is in right location where you can sell or rent for the ARV. Sometimes it might be in the same city but certain streets and subdivision don't have the same ARV as others. Do more research about neighborhoods if you are investing on higher budget.

6. Major repairs - When it comes to major repair like foundation, roof, do check with the foundation company to get an estimate before bidding on it. It's not easy to correctly estimate these repairs without their expertise even if you are experienced investor. 

7. Closing - Try to make sure funds are in place and able to close. Some wholesalers will work with you and flexible but others are like, their word is golden word and act like one even though they don't realize they don't make money if you are not around. If you feel the wholesaler or agents are so unfriendly, I wouldn't deal with them even though deal is great.

I want to mention few investors who worked are good to do business, Chuck (American Home Buyers), Rene (Daniel Acquistions), (Rob)Jet Lending. I will add others when I remember but there are small local wholesalers who are good and don't make ton of margin but decent to work and understand the logistics of working relationship.

Hope these tips help you to be careful and make right deals to reach your goals.

Happy Investing!!

[Mark Sewell]

I would be careful using actual names of individuals and companies in a post like this.  

That said, I agree with you, and in fact, I would have named a few more.  

In fact, one of those firms that you did name requires a non-refundable earnest money deposit ($5000 if memory serves), regardless of size of the deal. And they have you sign for disclosure on that, before you even view a property. So if you find a property that you think makes sense, and you commit to it, you cannot get your EMD back if you back out later (eg, after your contractors points out some defects or costs that maybe you missed yourself). So they make their coin, whether you close or not. Maybe this is what you were referring to -- I don't see how they can charge closing costs twice.

I don't even look at their ARV numbers. They are inflated, almost as a matter of principle, I think. However, I have seen a few that were shockingly spot on, or very close at least. But not many.

There is one very prominent wholesaler (not mentioned) that provides a rehab estimate from their own renovation crew, and in fact, I think you can even hire them to do the rehab, so they stand behind it.  Never seen their offerings, but I think they are doing it right.