Wyano, PA · Member since 2013 · 15 posts · 3 votes
Ive been reading most of the morning on BP. I have read of how many people here do not have any good experiences with Wholesalers. That really bums me out. I have been reading as much as I can in the past few weeks on this topic. I figured that BP would be an exciting place to learn wholesaling. What I find out is that there are some disappointing post here on wholesaling. Negative people I guess. I was so excited to start wholesaling. I do have money to buy a house but I was looking forward to making money wholesaling. Is wholesaling respectable? I have listened to all the podcast on wholesaling. The podcasts are great !! Thank you (Bigger Pockets) Please tell me the truth people. What has owning a wholesaling business done for you? Man! Im so bummed. I am going to do it anyway. I am a good truthful person and that's the way im running my WHOLESALEING BUSINESS !!!!
Here's the number one problem with the wholesaling business; it attracts complete newbs with ZERO experience and ZERO money because they think it is the best strategy to avoid any risk. The problem is, they have no clue where to find and put together a deal. SO, they find some other newb wholesaler with some crappy non-deal, then tack on $5,000 and start shopping it around to all their 'buyers.' Well, one or more of their pretender buyers with their "I buy houses all cash and close fast" business cards, who actually has never closed on any house and has zero cash thinks "I'll just wholesale this house and get some money going!" So, he tacks on $5,000 to this already marked up non-deal and starts shopping it around. Now, we have a daisy chain of pretender wholesalers all shopping around the same non-deal to every REI in the land.
I find nothing more hilarious than when somebody stands in front of a room of 100+ people at the local REIA and announces their smoking wholesale deal. Just absurd! If it is such a smoking deal, why is it being dragged from REIA to REIA and has no buyers yet?
I was at a meeting last week and this girl stands in front of 500+ people and announces she has notes 10 cents on the dollar. Not one single person stood up. Not one! If she really had notes so cheap, she'd be mobbed. Nobody is interested because we've all heard the same BS time and again.
If you are deciding you are going to be a wholesaler because:
A. You have no money and think this is the best way to get into real estate.
and/or
B. You think that if you wholesale, all the risk will pass to your buyer and you can just get checks for tying up properties...
You probably will have a few frustrating months, then decide real estate investing is a scam, doesn't work, or whatever other excuse people who fail use.
Here's the truth from a former rehabber who now wholesales (my last check was for $47K); wholesaling costs LOTS of money. I spend THOUSANDS of dollars every month on marketing in order to bring enough deals into my funnel. I hire marketing consultants. I hire copy writers. I am in mastermind groups for real estate and direct marketing.
Yes, I take down some properties, but I pass on tons of great deals to my very small list of buyers as well. I can't buy them all and nor would I want to. I pass along fat equity rehab/flips and sweet rentals. Sometimes I need the money to pay for another property I'm more interested in. Sometimes I just want my buyer to get a great deal to make up for a not-so-great deal I sold him earlier.
The key to being a great wholesaler is deal flow. If you're only finding 1 deal every few months, you're better off rehabbing it yourself (or partnering with some) because you'll make more money. It will also give you the experience you need to survive in this business. Lastly, you may ultimately decide wholesaling isn't really for you. My local investor friends who rehabbed and flipped over the last 3-4 years are MILLIONS ahead of me. Yeah, they've made MILLIONS more than I have and most of them own dozens more rentals than I own. I would put rehabbing and flipping first if I were you or anyone else reading this post thinking they are going to get into real estate and wholesale. I wholesale because I absolutely detest flipping homes. I want to do a rehab like I want to be rear-ended by an uninsured driver. I've rehabbed and flipped, and quite successfully I might add, but I just didn't enjoy it. That is why I wholesale. I prefer just to make the kill and leave the hauling, skinning, and dressing to the butchers.
There is nothing wrong with wholesaling. However a lot of wholesalers push deals where the numbers do not work, inflate ARV and underestimate repair costs. The problem is wholesaling has a low barrier to entry. All books and gurus tell you to start there with "no money down". Unfortunately, however, to be a good wholesaler, you must know rehab costs, and your local market as good as your buyers. It is arrogant and foolish of new wholesalers to expect to know this right off the bat as it takes years to learn. Not saying it can't be done, as I'm friends with some wholesalers in my market who make great money. The best wholesalers actively are involved in REIAs, seek out experienced investors to learn from, and market consistently.
If you run your business respectable, get educated on your area and are honest there is nothing the matter with it. I read through the posts on here and I see "Wholesaler" by the title of the person and I wonder how many are actually wholesaling or read a book or saw a guru and determined they were going to do that. What is the percentage of those actually creating income by wholesaling on this site? I think that is the perception problem, those actually doing it and those saying they do or are and come off completely unaware of how to do it. Kind of going at it half cocked.
The biggest issues I have with wholesaling isn't actually wholesaling. Its wholesaling gurus who tell folks they can start with no money and no knowledge and rake in fat paychecks. The truth is that wholesaling is hard. It takes time, effort and no small amount of cash to succeed. You're not going to jump in and have big checks showing up in a month. But that doesn't sell courses, does it? So you get a lot of folks with dreams in their eyes trying to make a big paycheck. They come up with horrible deals. Often straight off the MLS and marked up. Those folks are never going to make a dime wholesaling.
IMHO, wholesaling is exactly the same job as being a real estate agent. The upside is that you're not limited to the usual commission structure. The downside is that you lack the infrastructure that agents get - an office with a broker to assist you, MLS access, etc. And you're operating on the edge of the law. You play tricks by putting properties under contract and assigning or double closing rather than being up front and signing a listing agreement with the seller. Wholesalers advertise "quick closings with cash" when they, in fact, have no intention of doing that. Hence the poor reputation for that business.
I think the other thing that people miss about wholesaling is just how cheap you have to get the property in order to wholesale it. It's hard enough finding properties that meet the 70% rule, it's even harder to find properties that beat that rule. My personal opinion is that's very difficult to make a living being a pure wholesaler (not impossible, just takes a while). I think a lot of people who wholesale are also rehabbers or buy and hold types who wholesale deals that don't fit their needs.
Finally, I think it's very difficult for a wholesaler to credibly talk about rehabbing homes whenever they've never done so. A lot of wholesalers have never rehabbed a home and derive their repair numbers from talking to other investors (who often lie about their repair numbers) or stuff they read on line. They'll throw out $20,000 (or some other "big" number) as a repair number and think they are being conservative because it's such a big number. I really believe it's difficult to appreciate the cost and risk associated with rehabbing until you've done enough of them and seen how quickly a rehab can go south. The result is that often wholesalers underestimate repairs. (Obviously, there are exceptions to the rule, but this is just something I've observed.)
Remember, your best Wholesale customer is yourself! We have a very successful Wholesaler in the Houston area who says that he usually keeps the best deals for himself now and then sells the rest. He's made a great deal of money and his buyers still get great deals from him.
I told myself all I was going to do was wholesaling for six months but then ended up finding a few deals I just couldn't pass up myself. Much depends on your wholesaling goals. If you're okay with $1k profit/deals then you can probably find and sell many good wholesale deals. If your goal, like many wholesalers, is $10k or more a deal, then yes, the market is much slimmer and you're working hard to make the numbers work and find buyers.
Also, don't discount Commercial wholesaling. I've done several commercial deals that are bringing in $20k+ wholesale fees but they take months and are more involved. I also have done mobile home deals for $1k - $10k each; so don't limit yourself to just one type of property. Good luck!
I think the stigma comes with not having your own money. Any RE investor model that doesn't require money is suspect and so are the players/ peddlers. That said, my last recent wholesale deal came about when I was leveraged to the hilt. I actually borrowed (for an obscene rate) the EMD (and my EMD lender's POF bank statement) to put it under contract (FYI - even desperate sellers are not ignorant re markets/ value/ POF like they are often portrayed here). I assigned it and micro managed the deal for both sides through escrow/title/closing. I gave both parties a good faith cash bonus as well after closing (to calm resentment). I'm not a wholesaler. I just look for great deals with great margins and put it under contract. Once done, I can decide if I want to WH/assign, close/fix/flip or keep and rent.
What bothers me is that people claim there are ignorant property owners everywhere that don't know their markets or home value and will dump their home on you (WHer) today at a fire sale (with margins such that your end buyer is still getting a great deal) vs listing it for a week at a little below market, paying commissions and still making substantially more money. Also, keep in mind, a WH deal from initial contract to finding an end buyer to assign, to closing (when you get your money) takes just as long as a conventional closing. Also, absent a novation, you can't just assign, take the money and run before your buyer closes (so don't expect to assign and let the parties close on their own). You will always be liable for performance if your end buyer/assignee fails or seller fails. I have never seen all parties agree to a novation, Emphasis: Don't expect to assign, take fee and run, and leave the parties to close on their own. If the seller backs out, your buyer is coming after you. If your buyer backs out, the seller is coming after you. They are not ignorant. They will not give you your money until after closing (even if the end buyer is loopy and does, you are still liable).
In short, WHing is very hard. 1) Finding a deal that really works for all parties (almost impossible), 2) Putting it under contract without EMD or POF (almost impossible and a huge misconception), 3) Getting your cash early or after closing without a hitch (almost impossible). 4) No resentment from one or both parties- almost impossible. 5) Absent a novation, having no liability or losses if the deal with your assignee or seller goes south - almost impossible. 6) Providing value/ convincing the property owner that selling to you at that insanely low price right now (and not listing it/ market be damned) is in their best financial interest- Almost impossible.
All that said, I will still WH if it is the best option given the circumstances at that time. The stars need to align almost perfectly though. Are you discouraged or challenged?
@John Chapman We are both in the same market. The 70% rule is a guideline, if you are getting deals at 75% ARV in this market you are doing fantastic. Its very common for rentals to be going for wholesale rental deals going at 80% ARV. People will buy them all day long at that price.
@Aaron Mazzrillo Like Aaron Mazzarillo said in his podcast, a good wholesaler is really at the top of the pack in REI. Wether they started as a wholesaler or not, because at that point you can make money assigning contracts and cherry pick the very best deals for yourself.
The problem is precisely what @Jon Holdman noted. Too many people are fed this pipe dream from a REI guru that came through town. Wholesaling is a business, you have to spend money marketing and you have to be consistent with it, and it is very difficult to build this business or any for that matter from the ground up. I know people that started off initially with a $500 per month mailer budget, and it took them awhile to land their first deal, but every time they did they rolled the profits right back into marketing and now this person is closing on about 3-5 properties per month. And he started at a modest $500 per month budget, pretty impressive.
I love good wholesalers, without them I wouldn't have found half the deals I closed on this year. You just have to be able to find real ones.
@Samantha M. Yes, I'm familiar with the market and I pretty much agree with what you say. However, my opinion is that right now we are in a pretty hot market. I would not build a business model that counts on being able to resell properties at 80%. (maybe long-term wholesalers have a different view, I really don't confess expertise in this area) I guess at the end of the day, it's my opinion/perception that if you're going to be a wholesaler you need to be able to sell to rehabbers, as well as buy and hold types. I don't think rehabbers can make the deals work at 80% unless they are at pretty high ARVs. Again, I'm not bashing wholesalers, I'm just giving my perception of the business model.
Here's the number one problem with the wholesaling business; it attracts complete newbs with ZERO experience and ZERO money because they think it is the best strategy to avoid any risk. The problem is, they have no clue where to find and put together a deal. SO, they find some other newb wholesaler with some crappy non-deal, then tack on $5,000 and start shopping it around to all their 'buyers.' Well, one or more of their pretender buyers with their "I buy houses all cash and close fast" business cards, who actually has never closed on any house and has zero cash thinks "I'll just wholesale this house and get some money going!" So, he tacks on $5,000 to this already marked up non-deal and starts shopping it around. Now, we have a daisy chain of pretender wholesalers all shopping around the same non-deal to every REI in the land.
I find nothing more hilarious than when somebody stands in front of a room of 100+ people at the local REIA and announces their smoking wholesale deal. Just absurd! If it is such a smoking deal, why is it being dragged from REIA to REIA and has no buyers yet?
I was at a meeting last week and this girl stands in front of 500+ people and announces she has notes 10 cents on the dollar. Not one single person stood up. Not one! If she really had notes so cheap, she'd be mobbed. Nobody is interested because we've all heard the same BS time and again.
If you are deciding you are going to be a wholesaler because:
A. You have no money and think this is the best way to get into real estate.
and/or
B. You think that if you wholesale, all the risk will pass to your buyer and you can just get checks for tying up properties...
You probably will have a few frustrating months, then decide real estate investing is a scam, doesn't work, or whatever other excuse people who fail use.
Here's the truth from a former rehabber who now wholesales (my last check was for $47K); wholesaling costs LOTS of money. I spend THOUSANDS of dollars every month on marketing in order to bring enough deals into my funnel. I hire marketing consultants. I hire copy writers. I am in mastermind groups for real estate and direct marketing.
Yes, I take down some properties, but I pass on tons of great deals to my very small list of buyers as well. I can't buy them all and nor would I want to. I pass along fat equity rehab/flips and sweet rentals. Sometimes I need the money to pay for another property I'm more interested in. Sometimes I just want my buyer to get a great deal to make up for a not-so-great deal I sold him earlier.
The key to being a great wholesaler is deal flow. If you're only finding 1 deal every few months, you're better off rehabbing it yourself (or partnering with some) because you'll make more money. It will also give you the experience you need to survive in this business. Lastly, you may ultimately decide wholesaling isn't really for you. My local investor friends who rehabbed and flipped over the last 3-4 years are MILLIONS ahead of me. Yeah, they've made MILLIONS more than I have and most of them own dozens more rentals than I own. I would put rehabbing and flipping first if I were you or anyone else reading this post thinking they are going to get into real estate and wholesale. I wholesale because I absolutely detest flipping homes. I want to do a rehab like I want to be rear-ended by an uninsured driver. I've rehabbed and flipped, and quite successfully I might add, but I just didn't enjoy it. That is why I wholesale. I prefer just to make the kill and leave the hauling, skinning, and dressing to the butchers.
I don't think people are negative on wholesalers as much as the wholesaling "myth". The myth that is really easy and will cost you nothing.
I suppose that it is possible to luck out and find a deal without really spending any money with some of the free or super cheap methods available. However I think if you talk to any wholesaler that has any legs in the business they will say that you have to be able to lay out some reasonable money for marketing to get the amount of leads necessary to find enough deals to sustain yourself.
I like to say the wholesaling is simple (not a hard concept) but not easy (actually finding deals to execute the simple concepts on).
The low barrier to entry does mean it is the field that most people with GRQ (Get Rich Quick) dreams will get into. Once they see it is not free or easy they bow out or they do land some of these "deals" that are just stale MLS crap that they offer for more than it was listed for. So they will give new wholesalers a big credibility barrier since any seasoned rehabber or landlord will have encountered tons of these guys.
If you work at it and find really good deals you will be the most popular person at any REI event you go to. Any investor loves a GOOD wholesaler!
@Aaron Mazzrillo Great points, the only thing that didn't make sense to me was this comment.
"B. You think that if you wholesale, all the risk will pass to your buyer and you can just get checks for tying up properties..."
If you wholesale correctly, there really is no risk. Get an option period to find a buyer, and then contractually limit your liability. You can make it such that the only remedy a seller has for non performance is earnest money, no specific performance. Just be warned, if you are going to do that, be ready to put up more EM to sweeten the deal.
@John Chapman Of course at 80% ARV here in Dallas for flips most people are going to pass. I am talking about buy and hold land lords, lots of people are salivating for 75% ARV, and many of the biggest wholesalers in town are selling the rentals at 80% ARV and the contracts dont last more than 48 hours. I would throw out some names as examples, but I don't want to go triggering the name alerts. PM me if you would like some names.
I wholesale because I absolutely detest flipping homes. I want to do a rehab like I want to be rear-ended by an uninsured driver. I've rehabbed and flipped, and quite successfully I might add, but I just didn't enjoy it. That is why I wholesale. I prefer just to make the kill and leave the hauling, skinning, and dressing to the butchers.
@Aaron Mazzrillo Great points, the only thing that didn't make sense to me was this comment.
"B. You think that if you wholesale, all the risk will pass to your buyer and you can just get checks for tying up properties..."
If you wholesale correctly, there really is no risk. Get an option period to find a buyer, and then contractually limit your liability. You can make it such that the only remedy a seller has for non performance is earnest money, no specific performance. Just be warned, if you are going to do that, be ready to put up more EM to sweeten the deal.
Just to be clear, when you decide to go into business, there is always risk. Even according to your answer, your EM is as risk you if don't find your buyer. You're also at risk if you don't close and the seller sues you for specific performance. They might not really have a case against you, but that doesn't mean they can't file! And, even if it is so obviously cut and dry that you are beyond innocent, you still have to hire a lawyer. Last time I checked, they don't work pro bono on specific performance suits.
The point of this part of my post is this; A new investor ponders the idea of taking down a property and writing a check, actually taking title, committing to doing the rehab and funding it as well as hiring labor to do the work, then putting the property on the market and leaving it vacant susceptible to squatters and vandals while it is waiting to be sold, dealing with an appraiser and/or a shaky buyer, waiting on all these pieces to come together just to get a pay check and it terrifies the crap out of him. So, he thinks "Well, since I'm a huge puss, I'll just be a wholesaler and therefore, I don't have to write checks or take title and all that risk will pass to whomever buys the property. Then, I'll just get a check from thin air!"
Well, one problem - deals don't come out of thin air. I put more than $6,000 on my credit card already this month in preparation for next month's marketing endeavors. So, the idea that there is no risk or money involved in wholesaling is a fallacy. If one wants to do it on the cheap-o and post free ads on craigslist, a deal might be found. It won't put food on the table for very long though. And if you only wholesale one property, are you really a wholesaler or are you just... kind of lucky?
Who is this lady, who have notes at 10 cents on the dollar I will send a limo to pick her and buy all she has?
Joe Gore
Exactly my point! She is in San Diego and you are in Texas and you are willing to send a limo all the way out here to pick her up. Heck, I'd double down for a private jet... if she really had what she thinks she has, BUT we all know she doesn't.
"Attention! Attention! I have a map to gold mines just full of gold. Now, I don't want to keep it all to myself or share it with my immediate friends and family. I want to be known as the guy with really good maps!! So I'm going to stand on stage and let all you unknown people have a crack at them. Don't forget though, when you get ridiculously rich from the gold just pouring out of those mines, you be sure to remember who the guy with the good maps is!!"
I've heard several guru promos on wholesaling, purchasing notes, liens, judgments, fix and flips, commercial multifamily purchases pretty much every aspect of real estate investment. All with claims of each can be done with little to none of your own money. We all know that money is needed for any transaction to be completed. It just doesn't have to be your own money.
Every aspect of real estate investing has its perks as well as its headaches. GOD knows there are more landlord complaints about their tenants on BP than fish in the sea. I've done the landlady bid in the beginning of my entry to this biz and most certainly won't go there again. If it's not reasonable for me to have a property manager I won't hold the property. @Christopher Mozgawa Go with your gut and do your thing whatever niche you choose. Whether its wholesaling some of the time, all of the time or not at all. So long as its your choice. Education is a requirement for any business model so don't sell yourself short by not attaining as much as possible. Never let anyone discourage you from bringing your dreams to fruition for building a better life for yourself....
Wow. Thanks to all of you! Really ! I mean it. (Mary B.) special thanks to you.
I just want to be a flipper of some sort, except I don't want to do the remodeling. I had enough of that for a life time. I am edumakated in real estate somewhat. I had a real estate license long ago and had some rentals. That was all 10+ years ago. I was partners with my brother and things were going well, till a severe medical situation occurred in my life. I sold my rentals back then and took care of my family member. That was the only thing on my mind. It took a couple of years to regain his health. He had a severe brain injury. Now he is back to normal, and in fact he is my partner. He is my son. He is now 24 years old. I love him dearly, even though he knows everything.. lol..He is so excited to do wholesaling. Yes, we want to wholesale and flip properties. We have enough money set aside for a good 6 months of marketing. Im trying to start some kind of plan and be a help to people and not a pain in the butt. Thanks again to all of you!!!!
You certainy have received excellent feed back. I would suggest you start flipping houses and continue to search for houses to offer investors. Once you establish a track record, things will come your way. You need to line up your investors who recognize value as well as buyers for the house your flipping. Both avenues require hard work and commitment and it appears you have both. Seasons greetings and have a happy successful New Year.