So you think you're a wholesaler?

40 Replies

I had to post about this experience because I'm half confused and half mad!

I had been bidding and watching a HUD property for a few months, waiting for the right price. Finally it had been lowered to where I needed it to be. After a few days of bidding, another bidder got it. OK, no big deal.

I'm cruising Craigslist a few days later, and there's the house! Someone is trying to sell it! 

HUD's list price was $49,000. Assuming he's under agreement for ~$40,000, his all-in will be $42,000 give or take.

I emailed him and asked what his price was, and that I had been bidding on it. I figure if he's trying to tack a few thousand on it and turn it, it might be worth it. His asking price... $64,900!!! So it was on the MLS for $49,000 3 days ago (and actually still shows as active), you don't even own it, and you're trying to make $20K+? Who's going to go for this? At his asking price the numbers don't really work as the ARV is $95K. Is he trying to get a retail buyer paying cash since the house isn't able to be financed as-is? I told him I wasn't interested at $64,900 and I'm not sure what he's trying to accomplish trying to make a $20K margin. He told me that it was a HUD house and not everyone could bid, which I'm not sure if he thinks I'm stupid or he doesn't understand, but that's obviously not true. I told him the numbers don't make sense for an investor and the odds of a cash retail buyer coming along are slim, but best of luck. He asked if I would like to be added to his buyer's list but I politely passed telling him I need REAL deals!

What is this guy trying to accomplish? Is he new and thinks this is a viable strategy? I certainly don't think it's a viable strategy. Do you think he has this deal tied up for $500 and doesn't even have the money to close it? I'm hoping it becomes available again, but we'll see. 

Hi, I am new to REI and I am trying to get into wholesaling. I'm a newbie and even I can tell as green as I may be that this was insane, immoral, improper, and immature for any would be wholesaler to attempt thanks for the post. It would almost be funny if it didn't lend to giving us want to be real wholesalers a bad name!

I forgot to mention that it's really outright wrong to be tying up this property in a contract with such attempts!

All due respect to the OP, this has more to do with the State of BP than his plight.... (and @mark Gallagher I do feel your pain)

But when I see posts like this these days, only one question comes to mind.......

Should I just grab my popcorn and wait for all the usual suspects to turn this into a real ranting wholesaler bash, or just start ignoring my "wholesaling" keyword alerts......because this has gotten so boring.

Mark, I didn't follow the "you don't even own it" part, did he buy it from the HUD auction? Did some else and they listed on the MLS at 49 and he has it on CL asking 69?

He's clearly marketing the property. What does the PAREC say about that? :)

@Bill Gulley

I'm ASSuming he is the winner of the HUD bid. It only came off HUDhomestore a few days ago, and it's on craigslist at the marked up price.

I'm sure the commission would have a field day.

@Mark Gallagher I am thinking HUD requires you to have proof of funds and also you must close in the name of the entity on the original purchase contract.

In PA can you do pass through closings ?  or maybe this investor wholesaler has the funds to close.. and is just getting a jump on his marketing.

this just goes to the great fool theory.. as in someone might pay far more than what another would pay...

Originally posted by @Mark Gallagher :

@Jerry Puckett

All of my questions might have seemed rhetorical, but they were serious questions. Do wholesalers, yourself, think this is a viable deal? 

 No Sir, I don't.  As stated, my comment has more to do with the community at large than your actual post. 

On the other hand, there are a lot of unknowns here....perhaps he's trying to make a quick profit first before actually getting started. I'm pretty sure that's fairly common practice and widely accepted. I don't know anything about him or his experience or business model and I'm no one to judge. But he has interupted your business model,  not mine. Perhaps you know him personally and can better judge.

What I do know is that there are quite a few people on BP with unreasonable levels of expectations for wholesalers as a a whole, who because of the actions of a few, blame all indiscriminately. And the title of this thread will likely attract them like flies. 

@Jay Hinrichs

I'm sure he has a POF from somewhere that HUD just throws in a pile. My best guess is he's got $500 out there, hoping he ropes a big fish in. I wished him luck, for if he can pull that off, I'm certainly jealous.

First not sure what is confusing about the situation.

It is listed on MLS being sold by HUD.

This guy bid on it at HUDHomestore and got it accepted (Either he is a HUD approved agent or is working with one - hence his thing about not everyone can bid).

Sent in the paperwork and his $500 deposit and now is trying to find someone to sell it to before he closes (and you have to close on a HUD).

The ad the OP has didn't have any text that I saw so don't know what it said, but most likely there was some technical violations in advertising but that is a minor infraction that has nothing to do with the question posed.

As to the question about it being a viable strategy... Assuming you are right that the ARV is only $95K and it can't be financed as is (so it must need a fair amount of work) then no. Nothing to do with where he got the deal but has everything to do with it not being a good deal at all for what he wants to get. If the idea is to get a retail buyer with cash I guess that could work since let's say it needs $20K in work that still gives a homeowner 10% sweat equity off the bat. That seems like a needle in a haystack method though.

But the headline in the ad mentioned investors so that doesn't seem to be the idea anyway. Only investors that would be interested would be gullible newbies that don't know what they are doing. This is assuming you are right on value. But I would guess you are at least close since knowing how HUD works the place was probably listed at around $65K and then around $60K then around $55K before it was down to this $49K. And probably for a month or so at each price point. So if there was no action on it between $55-65K for several months before I don't see how it would be worth the top of that now.

So 3 good reasons why this is a bad strategy. 1) If he insists on this price and can get it he will lose that $500. While a small deposit in the greater world of RE that is a lot for most Wholesalers to put up and lose. No weaseling out of a HUD contract as an investor. You lose the deposit even if you have a legit inspection and find actual real undisclosed issues. 2) If he does end up selling it to someone for more like $50K he instantly has the reputation of bringing overpriced crap deals to you hoping to make a big spread and not caring about his end buyers. 3) The only way to sell it at that price is to find someone that is naive and to pull one over on them. They will lose their shirt and be out of the business, so no repeat customers. I would rather have a few good happy buyers to pass stuff off to than have to depend on a constant stream of new idiots to overpay (granted the last few years this doesn't seem like a bad bet...) on every deal.

Shaun Reilly, Real Estate Agent in MA (#9517670)
1-800-774-0737

@Shaun Reilly

To be clear, I am NOT knocking wholesalers, but realize it appears that way. I don't read posts about wholesaling but I see there are numerous topics on them and tons of discussion with two sides of a fence. All I am trying to point out is this person is trying to make a KILLING on a deal and it doesn't make any sense. I would have offered him a couple thousand, he makes money for the paperwork, and then I do the heavy lifting. As I've said, I hope he can pull it off, and I will certainly be jealous. 

I was more interested in what people thought his strategy was and how the back-end was working. I too think he's risking $500 hoping he can find someone to buy it. If not, it will come back on the market.

I would think most wholesalers are looking for off market deals, not things I can find on the MLS and HUDhomestore.com.

Wholesalers have value, but in my opinion it's not in deals like this.

@Mark Gallagher

I almost exclusively purchase HUD properties and I am starting to see this more and more. Most of the HUD asset managers have relaxed any enforcement of their long standing policy of not allowing any marketing of the property while you have it under contract. This along with an easy POF policy and no recourse other than loss of EM has brought more wholesalers attempting to do a double close without the ability to close on them

Saying all this, those of us who flip houses for a living have to make adjustments and turn a "negative" into a positive.  Many of these properties do not close and return to the market therefore have been in HUDs inventory a significant amount of time.  This can mean that others interested in the property have moved on and the possibility of getting a lower offer accepted.   

@Greg H.   recently I have been required to pay 10% of offer price as EM  what government agency requires that... happened on 2 or 3 I funded in June.

I would love to the HUD up the EM deposit to 10% with 50% non refundable.. this would keep the deals for those who can actually close .. :) and create yet more opportunites for transactional funding LOL little self serving I know

Originally posted by @Jerry Puckett :

All due respect to the OP, this has more to do with the State of BP than his plight.... (and @mark Gallagher I do feel your pain)

But when I see posts like this these days, only one question comes to mind.......

Should I just grab my popcorn and wait for all the usual suspects to turn this into a real ranting wholesaler bash, or just start ignoring my "wholesaling" keyword alerts......because this has gotten so boring.

 No Jerry, no popcorn this time. Mark probably knows what I would do..

I remember years ago answering newbie questions for you, you have caught on fast! 

I suppose my comments about having done wholesale type transactions, not being against an assignment falls of deaf ears or blind eyes on BP. My issues are more to the dumb things newbies do, not understanding what they are doing. I have no issue with reasonable fees, 33% is not reasonable.

I don't understand why the good wholesalers don't take the newbies in with much better guidance, they are out there screwing things up for all the good ones. :) 

@Mark Gallagher

I didn't think you were crapping on wholesalers in general, just this guy.

That was what I feel I was doing in my post as well.

Sorry if I didn't make that clear.

BTW can definitely wholesale MLS places, but not like this guy is. Pretty easy rules of thumb is if you are trying to sell your contract for like 30% over the MLS price that won't work unless people do NO research on a place. MAYBE if you got something that was grossly underlisted on the first 1-2 days on market it might be possible, but will still turn off a lot of people. If it has been listed for months at or below your asking price you didn't do anything and people won't be hot to pay you for that.

I don't really wholesale but I did do a HUD a while back but my numbers were listed for about $79K after several months and many price drops (Think is started around $117K). I SOLD it for $44K. I felt it was worth more like $50K and offered it up to start at $48K but didn't get any takers so I adjusted to where people needed it to be (Main reason I moved it was that it was about 75 miles from me, so I didn't have an intimate knowledge of the area and people seemed to think my ARV was a tad to high) and gave someone what I think was a very good deal. I sold it for about 55% of list so that was value since they weren't willing to even try to get it at that price. I wasn't greedy either in the end after doing the double close (and I had the cash so didn't have to pay for transactional funding) I made just under $2K on it.

Shaun Reilly, Real Estate Agent in MA (#9517670)
1-800-774-0737

There's a lot of that going on in the Tampa Bay area on CL. They're even using photos in the MLS listings and not even photo-shopping the MLS logo out of the photos.

@Bill Gulley   not sure about each market but the last thing most people are going to do in hot and competitive markets is create competition for themselves.

I know when I used to buy court house steps and newbies would watch me buy 3 home in one hour they would walk up and start to ask me questions.. I would politely tell them they need to go learn it like I did... not going to create my own competition.

Same I think with successful wholesalers I would think the last thing on there agenda is to train all these newbies so they are direct competition..

now its one thing if your market is anywhere mid west or bigger rust belt city and its urban core props.. which there are thousands to be bought at anyone time

but again if your working a very hot market.. why would anyone do this seem like business suicide to me.

Originally posted by @Jay Hinrichs :

@Greg H.   recently I have been required to pay 10% of offer price as EM  what government agency requires that... happened on 2 or 3 I funded in June.

I would love to the HUD up the EM deposit to 10% with 50% non refundable.. this would keep the deals for those who can actually close .. :) and create yet more opportunites for transactional funding LOL little self serving I know

Jay I would guess those are probably stuff with Fannie or Freddie.

Haven't had anything excepted recently but pretty sure HomePath stuff requires 10% EMD for a cash purchase.

Shaun Reilly, Real Estate Agent in MA (#9517670)
1-800-774-0737
Originally posted by @Jeff Morelock :

There's a lot of that going on in the Tampa Bay area on CL. They're even using photos in the MLS listings and not even photo-shopping the MLS logo out of the photos.

In the deal I mentioned just before your post I had some people get in touch with me trying to sell it to me at like $55K+ and their packages had the pictures I had taken of it.  When I said they were trying to daisy chain my place they insisted it must be a different one.

I then asked why one of the pictures had my father in law in it?  :)

(Note: These are some of those really crappy wholesales that give the good ones a bad rep...)

Shaun Reilly, Real Estate Agent in MA (#9517670)
1-800-774-0737

Might be fun to contact one of these guys to see just how full of BS they really are.

Originally posted by @Jay Hinrichs :

@Bill Gulley  not sure about each market but the last thing most people are going to do in hot and competitive markets is create competition for themselves.

.....................................

but again if your working a very hot market.. why would anyone do this seem like business suicide to me.

 Not what I meant Jay, I think those that have a clue could speak on BP about correct techniques, correcting bad habits, bad ideas.....that is, if they know. Didn't mean train the competition down the street. :)