4 Common Wholesaling Myths DEBUNKED

Guru, Book, & Course Reviews
11yFollow

4 Common Wholesaling Myths DEBUNKED

Stephen Chatto
Rental Property Investor · Yardley, PA · Member since 2012 · 436 posts · 198 votes

Real Estate Myths. I am glad my Mentor @Karl Krentzel is willing to tell me the truth so I can get deals DONE.  Her are a few myths he helped me DEBUNK

1) Myth #1 Realtors mess up deals and are a waste of time.

False - Karl has always encouraged me to work with Realtors. I am working with one now on a deal and she has been great. She found my ad on craigslist, called me up, listened to what I have to say and brought me a buyer. Now that She's involved she is keeping everything moving forward quickly and efficiently.

Extra Credit Question: Who do you think was using a higher ARV. The Buyer with the Realtor who gets to list the house after rehab or the average fix and flip investor?

2) Myth #2 - MAO = ARV *0.65 - Repairs . What a joke. I love this formula because it helps me be competitive in my market. My competition used that formula on this deal and his offer price was 50k less than mine. Plus to top it off. ARV and Repairs is completely made up. Your taking two numbers that are completely arbitrary and up to massive interpretation and then popping them in a formula to determine your offer price. COME ON. At the end of the day you need to know your market to learn where the prices should be.

3) Myth #3 - State contracts are stupid. Wow, I have learned the hard way that things run so much smother if on a state contract. As a wholesaler you are selling CONTRACT not houses. So it is fair to say that a better contract is worth more. We determined above that realtors can bring buyers. Strong buyers in fact. Do you think it is easier to sell that buyer with a Realtor a State Contract or a 2 Pager? Use a state contract and your buyer pool opens up tremendously.

4) Myth #4 - You need to know how much the repairs are, and the ARV so you can advertise your deal. What a joke. You think buyers agree with your repair cost estimates and ARV? Why waste your time. When advertising this deal I didn't include either. Here is the property. Here is What I know, Here is my Asking price. Don't think for your buyer.

I can think of multiple examples in my business when these 4 myths have been debunked. It feels good to know the truth

Hope some of you can benefit from this insight.

13Reply
143 views

Most Popular Reply

Guy Gimenez
Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
11y

One man's myth is another man's facts. There are no absolutes in life (outside of death) or in investing..only generalities. I don't disagree with the OP on many assertions, but using one's experience to arrive at an absolute is, well, a bit of a stretch.

6Reply
See this reply in the discussion

105 Replies

Jump to latestLatest
  • Stephen Chatto
    OP
    Rental Property Investor · Yardley, PA · Member since 2012 · 436 posts · 198 votes
    11y
    Originally posted by @Donnie M.:
    Originally posted by @Stephen Chatto:

    ld be.

    3) Myth #3 - State contracts are stupid. Wow, I have learned the hard way that things run so much smother if on a state contract. As a wholesaler you are selling CONTRACT not houses. So it is fair to say that a better contract is worth more. We determined above that realtors can bring buyers. Strong buyers in fact. Do you think it is easier to sell that buyer with a Realtor a State Contract or a 2 Pager? Use a state contract and your buyer pool opens up tremendously.

    Could anyone explain to me what a state contract is?  Thanks!  I tried searching but could not find an answer.

     A state contract is the one put out and used by the local realtor association.  It's the one realtors use.

    0Reply
  • Stephen Chatto
    OP
    Rental Property Investor · Yardley, PA · Member since 2012 · 436 posts · 198 votes
    11y
    Originally posted by @Mark Ferguson:
    Originally posted by @Stephen Chatto:
    Originally posted by @Mark Ferguson:

    I am a little confused. On the first deal you said it was move in ready, but then the buyer made 60k in repairs. That seems like an awful lot of money to spend on a move in ready home. After you sold the house, how did you know the buyer spent that much on repairs? Is it a guess or did he tell you for some reason? 

    On the second deal the buyer only ended up spending 20k when you estimated 35k. I understand flip versus rental, but maybe the problem is not the formula, but that you are plugging in the wrong over estimated repair number into the formula? that shows why it is so important to be able to estimate repairs correctly. 

    I see wholesalers send me deals and most of the numbers are so far off it is a joke. The ARV is over estimated and the repairs are under estimated which are big warning signs. While it may not be important to have those numbers when shopping deals you need to know the numbers to know what to buy.

    It is very dangerous to base a purchase simply off cash sales. You don't know what condition those homes are in or what the circumstances are. 

    1) On the 1st Deal The property was move in ready.  How do I know the repairs were 60k.  I asked the buyer after all was said and done.  He decided to add square footage on the second floor.  He decided to change the floor plan on the 1st and second floor.   He decided to put a new roof and new siding.  Etc.  That's why I do not estimate repair cost.  I don't know what you are going to do to the house.  As a rental it could have been rented as is.  It was a Nice well maintained house...  A little dated.   Most of the guys in the area would have spruced it up for 30-35k...   This guy went all out and paid 60k in rehab.  

    2) On the second deal.  There are a lot stuff that is left as is for a rental grade property, and a different grade of items put into it.   

    The repairs are all made up guesses.  Really.   They are.  Have 3 contractors bid a job (Without giving them an exact scope of work) and you will get completely different numbers.   Some will budget for new heater and windows and roof.   The other guy won't.  Heck even with the scope of work the numbers will vary.  

    Again. That's why I state the facts when selling a deal. Not guesstimates of ARV and Repair costs.

    And no.   Cash sales are not the be all and end all of pricing.  They are another tool to use when determining a purchase price.   And if you're lucky there are pics to compare condition etc.  

    So what was ARV with only 30k in repairs? If the estimated repairs were 30k for a normal flip that this is not a very good example to prove your point. 225k * .7 - 30k equals 127.5 right at your sale price. Did he go way over budget because he found issues or would the ARV have been much lower with only a $30k rehab?

    I know you can't know what every investor plans to do, but you should know the basic ARV and repair costs when you get the deal under contract so you know what your investors will buy. After talking about this more it sounds like you knew exactly what the ARV and repairs would be with multiple situations.

    Yes, I had my guess of ARV and Repairs for multiple situation.

    0Reply
  • Karl Krentzel
    Real Estate Broker · Tucson, AZ · Member since 2012 · 410 posts · 337 votes
    11y

    State Contracts

    Basically, what I propose to Investors (and particularly Realtors® who Wholesale) that they use their State Approved Realtor® Contract (if available).

    As wholesaling primarily is NOT "flipping houses" as you many times will assign the property for profit (which is not "flipping" but "assignment of contract"), the quality of the PAPER you sell becomes paramount.

    If you are using some two page contract you downloaded from a Internet guru somewhere.

    Will it work? Sure.

    However, if you want to be able to wholesale your deals to Realtors®, or their buyers, then you ought to use a State Contract.  

    Problems Eliminated..

    Using a State Contract also eliminates many of your problems in advance. Disputations between Sellers and Buyers are usually spelled out in great detail.  Oftentimes, these contracts are extremely buyer friendly or could be made so if you modify the contract to meet your needs.

    The problem is, the benefits of using the State Contract aren't always immediately visible.. and when you are new, or a scaredy cat Investor who won't upgrade your services to your public, then you won't learn the State Contract inside and out so that you know it better than anyone.

    By knowing your particular State's Contract better than anyone else, by priding yourself on knowing the rules, you can use them to your advantage. 

    However, it's not easy.  Just like the Matrix. Some rules are hard and fast.. like gravity. Others can be molded to meet your needs.  

    Such is the way with contracts... particularly State Approved Realtor® Contracts.

    They Give You Power!

    Have a Powerful Sales Day! 

    3Reply
  • Christopher Rodriguez
    New York, NY · Member since 2015 · 173 posts · 33 votes
    11y
    Originally posted by @Karl Krentzel:

    State Contracts

    Basically, what I propose to Investors (and particularly Realtors® who Wholesale) that they use their State Approved Realtor® Contract (if available).

    As wholesaling primarily is NOT "flipping houses" as you many times will assign the property for profit (which is not "flipping" but "assignment of contract"), the quality of the PAPER you sell becomes paramount.

    If you are using some two page contract you downloaded from a Internet guru somewhere.

    Will it work? Sure.

    However, if you want to be able to wholesale your deals to Realtors®, or their buyers, then you ought to use a State Contract.  

    Problems Eliminated..

    Using a State Contract also eliminates many of your problems in advance. Disputations between Sellers and Buyers are usually spelled out in great detail.  Oftentimes, these contracts are extremely buyer friendly or could be made so if you modify the contract to meet your needs.

    The problem is, the benefits of using the State Contract aren't always immediately visible.. and when you are new, or a scaredy cat Investor who won't upgrade your services to your public, then you won't learn the State Contract inside and out so that you know it better than anyone.

    By knowing your particular State's Contract better than anyone else, by priding yourself on knowing the rules, you can use them to your advantage. 

    However, it's not easy.  Just like the Matrix. Some rules are hard and fast.. like gravity. Others can be molded to meet your needs.  

    Such is the way with contracts... particularly State Approved Realtor® Contracts.

    They Give You Power!

    Have a Powerful Sales Day!

    ---"

    By knowing your particular State's Contract better than anyone else, by priding yourself on knowing the rules, you can use them to your advantage. -----"

    I have always know this to be true..... In order to beat the system you need to use the system. 

    2Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free