Newbie Thoughts on Wholesaling

15 Replies

Like every other newbie on this forum I have dreams of being a real estate investor. My initial interest was in rehabbing / flipping but after reading and lurking for a couple of weeks, from an educational and financial perspective, I am not prepared to take on a project.

The obvious first step is wholesaling so I have now turned my attention to this part of the business. Learning more and more I have no perceptions of easy money. My perspective is this: If I expect to be successful as a rehabber, I need to have the skills one would expect from a successful wholesaler. As I began to build my wholesale strategy, I envision total transparency with my perspective buyers.

  • Accurate and documented rehab cost using J. Scott’s methods with cost verification and adjustments from local contractors.
  • Conservative ARV with supporting logic
  • Purchase targets would be 70% of ARV minus rehab cost. I have read that the 70 % is considered a home run. It would be helpful to know what the actual average is for most, 75% - 80%?
  • Although I have not experimented with the reporting, I would use the rehab and rental property estimators on this site to prepare a professional investment analysis for perspective buyers. Buyers would receive a packet contacting both reports along with the documented rehab estimates.
  • I also envision a fair fee structure. Perhaps 10% of the purchase price with a $5,000 cap up to $75,000. Beyond $75,000 the cap would be held at $6,000. Thoughts are definitely welcome here!

I have read many issues investors have with wholesalers. My focus is on identifying these issues and putting systems into place that will provide investors with reliable and accurate information. I want business partners and in my experience that requires open and honest dialogue.

Keep in mind I am very new and based on what I have learned to date, the above represents my current thoughts. Feedback is always appreciated!

Thanks

Mike

Mike... All I've gotta say is that I WISH YOU WERE IN SCOTTSDALE!!

It's hard finding a wholesaler who's honest, knows the numbers, works with integrity, and understands investor need. You're on the right track, and if you can produce leads with the parameters that you've set above, you will be successful.

I haven't found a deal that meets the "70% rule" yet. Mine run closer to the "80% rule." I really prefer to simply seek a 10% return on total cash invested. On a $250k all in deal, I should net $25k. On a $500k all in deal, I should net $50k. It works for me so far. Some rehabbers might want 12% though. Some might want 15%.

Thanks Scott, your feedback is appreciated! I have a full time job that pays the bills so I am in a position to move slowly and methodically. If I can’t be a successful wholesaler I suppose that is an indication I should not pursue real estate investing.

Mike

Looks like you have the bulk of it down.  The 70% or 80% depends totally on area and what your buyers are looking for.  If you have a buyer looking for 15%, the 80% is good as it allows you to collect 5% in between if bought at 80%. 

What type of marketing are you doing or looking to do?

JC

Mike, you don't know how far ahead of the game you are as a newbie. Honesty and integrity go a long way in life and business.

Good fortunes to you

Originally posted by @JC Gauthier :

What type of marketing are you doing or looking to do?

JC

 I plan to start with a direct mail campaign however I am still working through strategies for building a list. I am also working through the which comes first debate; a seller or buyers list. The reverse wholesaling concept does seem to make good business sense. 

Mike

Originally posted by @John Hamilton :

Mike, you don't know how far ahead of the game you are as a newbie. Honesty and integrity go a long way in life and business.

Good fortunes to you

I couldn't agree more John!

Mike

Your post made me think of a few things I've come to realize:

1) The 70% rule will lose you about 100% of the deals. If your ARV is conservative just to be safe, and your repair estimate is too, the 70% will tell you what to offer, right? Wrong. Conservative estimates and the 70% rule will get outbid by a more aggressive investor just about every time.

2) New guys think about repair estimates too much.  Once you start doing this, and after you've done a few detailed repair estimates, you'll find that you can pretty much "ballpark" the repair estimate.   Here, on a typical 3/2/2 rental, I start at $15,000 rehab cost and adjust that up or down based up what we find in our inspection.

3) When you get aggressive and start paying 75%+, is there any "meat on the bone" for the wholesaler?  Cash buyers won't be excited about paying you 85% for a deal, so you may not find a buyer and the deal falls thru.

Last THREE deals I got beat on, the buyer that beat me could NOT DELIVER to closing.  SO FRUSTRATING to work on a deal and then lose it to someone who offered way too much and can't find a buyer.

I haven't talked about this much, I try to be optimistic, but I think this is one of the big challenges to wholesaling in 2014.  Too much competition offering too much for investment properties.  Hopefully, things are lot less competitive in your market.

@Dev Horn Great thoughts! I have found that the reason I am able to get properties that match the 75% criteria is due to the marketing. If people are going off of MLS or FSBO that has been advertised I could see that becoming much more difficult.

That being said @Mike Conley don't sell yourself short either. If the seller is happy with your offer and the buyer is happy with your offer don't cap yourself. Now I am not talking about robbing or being greedy. I am a man of integrity and our entire business model is that everything should be mutually beneficial. We wholesaled a St. Charles house for a profit of 10k earlier this year. Can you do that on every deal no. Should we have settled for 5? No. The property could not have been sold to a retail buyer and was costing the owner nearly 1k a month sitting around. She got paid cash in less than 3 weeks. She was ecstatic. As are the people who bought the house from us. Buyer actually contacted me saying it was such an awesome deal compared to what they've ran into that they would like to be placed at the top of my list. Just my 0.02 and a bit of personal experience.

@Dev Horn  you make some good points. The problem i see is true wholesale deals don't make it to normal investors like me. The ones that do come by are marginal at best. I'm not even asking for a lot. So my option is to get out there and try my hands at wholesaling for myself. No Realtor fees, no wholesale fees... I can now pay more than wholesalers.  I'm working on a burnt out land lord that I will be buying at 84%. But I can finance it, get my inspector in the house, and get a 16% coc return.  No all cash requirements, no double closings costs, no assignment fees, no wasting people time. I would much rather have a wholesaler bring me something but their deals are few and far between and go to there regulars or they sell them themselves on the mls.  Seams there aren't enough deals to go around for all the new real estate investors. 

Originally posted by Ryan D.:

@Dev Horn Great thoughts! I have found that the reason I am able to get properties that match the 75% criteria is due to the marketing. If people are going off of MLS or FSBO that has been advertised I could see that becoming much more difficult.

Yeah - that's what we do although I do bid on MLS deals as well. We're in one of the top REI markets in the U.S., so there are multiple investors bidding on every off market deal we find. The day of going in and buying a house uncontested are long gone here. People who fill out your form on the Internet are smart enough to fill out multiple forms and create a competitive bidding situation. That competition drives up prices...

Hey Mike, 

I'm a newbie too starting with wholesaling and looks to me like you have the blueprint for success . It looks like the way I want to run my business as well . It will be interesting to see how well you do. 

Kevin Carbon

Hey Mike, I'm also a newbie and I believe that transparency is key. Your model will help to set you apart from most wholesalers, especially newbie guru products. I will also try to include all your points and not fall into the trap of being sneaky and secretive with everyone involved in the transactions, which is one of the most common cons of wholesalers that I've been learning about.

@Paul Duhon @Kevin Carbon Like the both of you, I discovered the issues investors have with wholesalers. My goal is to develop, and more importantly, execute a business model to solve these issues. Good luck guys! 

@Mike Conley   sorry for ranting in your thread!  There are good wholesalers out there and it sounds like you are starting off in the right direction. Good luck to you. 

It really depends on your local market and what people are buying at. I can't usually buy at 70%.  Off market deals are easier to get better wholesale margins on because you have little to no competition.    At the end of the day I think it comes down to your ability to negotiate a lower price than what someone else is willing to pay.  You need to be the expert negotiator and get a lower price than someone else could.

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