Why do you buy from a wholesaler?
Hilliard, OH · Member since 2015 · 54 posts · 18 votes
Not sure if this is the best place to get the feedback I'm looking for, but hopefully someone has a keyword filter up just in case.
For those of you who buy from wholesalers on a regular or semi regular (open to interpretation) basis, what is your main driver?
Is it the fact that they have done a lot of the legwork for you? Do you trust their ability to spot good deals for your hold or flip strategy?
If you are a wholesaler who feels you have a good understanding of why your buyer continues to utilize your services, please feel free to chime in.
In a nutshell, any investor looking for a specific property will buy from any source - MLS, wholesaler, etc. The deal has to be right for that investor, and if it is, and the seller gets out of a home, the wholesaler makes a cut for finding the deal and getting under contract, and the buyer gets an investment property - it can be a win all around.
Wholesaling is a tough thing to do well, as you have to know a lot about comps, neighborhood, how to attract people to contact you somehow with off market homes, and how to look at a home and estimate rehab costs accurately. A lot of gurus will sell people the idea that you can wholesale properties with no money, which is what causes a lot of people who do it to be complete garbage who have no idea what they are doing.
If someone is a buy and hold person, or maybe a flipper, and they have a great deal brought to them... why wouldn't they take it? Ultimately, it's the end buyer's risk to purchase the home, regardless of source, and they should always do their due diligence as well and not just trust that someone isn't trying to sell them a bad deal made to look good.
Not a direct answer, and not from a wholesaler as I'm a Realtor, but hopefully my two cents help.
In a nutshell, any investor looking for a specific property will buy from any source - MLS, wholesaler, etc. The deal has to be right for that investor, and if it is, and the seller gets out of a home, the wholesaler makes a cut for finding the deal and getting under contract, and the buyer gets an investment property - it can be a win all around.
Wholesaling is a tough thing to do well, as you have to know a lot about comps, neighborhood, how to attract people to contact you somehow with off market homes, and how to look at a home and estimate rehab costs accurately. A lot of gurus will sell people the idea that you can wholesale properties with no money, which is what causes a lot of people who do it to be complete garbage who have no idea what they are doing.
If someone is a buy and hold person, or maybe a flipper, and they have a great deal brought to them... why wouldn't they take it? Ultimately, it's the end buyer's risk to purchase the home, regardless of source, and they should always do their due diligence as well and not just trust that someone isn't trying to sell them a bad deal made to look good.
Not a direct answer, and not from a wholesaler as I'm a Realtor, but hopefully my two cents help.
Wholesaler's fill a very specific (and very valuable) niche in RE. In hot markets like California, it's quite difficult to find good deals on the MLS. Prices have climbed high and the competition is fierce. Wholesalers are basically "deal hunters". They spend a lot of time and focus on marketing to off-market properties. They find the motivated sellers, estimate rehab cost, ARV, and do all the negotiating with the seller. Once they have the deal locked down, they can assign it to another buyer. This saves the end investor a lot of time and energy. They can focus on the actual financing, rehab and flipping of properties instead of worrying about the deal source.
Hope that helps!
If you intend to use an unlicensed broker:
Here is what I tell anyone that might do business with an unlicensed broker:
1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
Unlicensed brokers generally have no insurance. From personal experience most just pull their figures from thin air. They have no license, insurance, etc. They have nothing to lose. There is no accountability and I have seen the high majority of them to not be worth a dime. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO. What protects the public (both buyer and seller)?
True Tony. The problem is these unlicensed brokers are often accepted as bringing some sort of value to a transaction. Many new people don't know better. They way they represent themselves as bringing value is probably not true. Unlicensed brokers is a better term IMO. They are indeed acting as agents, skirting laws, and acting with no accountability. Look at what @Percy N. stated: over emphasizing ARV or under emphasize rehab costs. When that happens, and a new investor has trusted this person, what happens? Agents know better than making these representations. Unlicensed brokers don't care! Who holds them accountable? What insurance policy do they have? What license do they have to lose?
If you follow these simple rules I believe you will weed out most of the people that bring no value:
1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
If they can't meet these simple guidelines what work have they really done? I had one idiot start paging me with "deals". 300K ARV. Purchase 220! 500K ARV. Purchase 300K! This guy was sending me information on MLS listings! Took about five or six texts before I could get him to quit texting me. Got my info from BP:)
I appreciate the conversation and feedback on here. The general consensus I get is that the quality of the analysis is always a bit up in the air or is just something to be re-reviewed as a general rule of thumb. Most seem to agree on the generic value of someone essentially being a deal finder or marketer for you.
Follow up question to: @Pratik P. @Omid A. @Percy N. @Tony Gunter and @Kevin O'Brien
If there was a dedicated listing service on the web for these types of deals, would you utilize it to browse for them? The point would be not just list the deals but also provide a quality rating system for the wholesalers presenting the deals. Barrier to entry w/ cost to list could also be another mitigating factor. Benefit to the wholesaler would obviously be increased visibility and buyer pool.
I see something like this streamlining that deal transition period for all parties - hypothetically. Which is why I'm seeking your feedback.
Disclaimer: Make some assumptions that the above has also been flushed out w/ additional common sense features. My background is in web development/consulting.
I would say that by nature wholesaler's are opportunistic. Coupled with not being licensed it creates an aggressive mentality towards representing a deal better than it really is. Which means you as the buyer should take the steps that @john thedford mentions above.
It sounds like you have a product somewhere in between Zillow and Craigslist. As a newb investor I would be attracted to a single platform that takes accurate comps and values against wholesaler offerings. If there were some way to obtain accurate rehab costs you would have an effective tool for suckers like me :)
It wouldn't provide the comps, but rather feedback from other investors like yourself. I don't think that is a value added product generally and definitely based off the feedback. Every investor has their own perspective when they look at those, so a system generating that would still be redundant.
The rating system is more so for the investors to reflect open feedback on wholesalers and deals as they evaluate them on their own. The intended benefit is to allow good wholesalers to shine and make life easier on the investor (really both parties at that point).
The direction is intended to incentive quality wholesalers and discourage the opposite. At least for it to be a beneficial product anyway.
@Riley Gilson something like you're proposing would potentially violate real estate marketing laws in Ohio at least. My experience is that I sell the vast majority of my houses to people that we pick up the phone and call vs. people that hear about it from any other marketing that we might do. By vast majority, I mean over 90%.
@Sean Cole The thought is that it would be designed to abide by them. Focusing more on the contract then the property.
We are making some liberal assumptions here that there is no risk from that standpoint in the way it is managed. :)
Do appreciate the feedback though that you tend to reach out to more people to get them sold. The hope here would be to help drive more passive interest if you had that rapport. Might also create a sense of competition/urgency although not the prime directive here.
The good wholesalers don't need to advertise their properties on the web. They have investors lined up to purchase. What you would get online are the properties that cannot sell, or the bad deals. As an investor and real estate broker, I would not trust any wholesale deal that is advertised online.
@Riley Gilson I understand what you're getting at. The advertising issue is very easy to overcome. The passive nature of it isn't - for me, at least. The other major issue that I'd have is that my deals would be lumped in with all the other yahoos who fancy themselves wholesalers. I already get enough crap from folks on BP just for being a wholesaler. I wouldn't put myself up for any more abuse or guilt by association.
This listing service already exists ... it is called the Multiple Listing Service (MLS), used by licensed brokers, agents, and unlicensed assistants to market listed homes for sale and a historical database.
Sounds like you want to stand up a "shadow MLS" for unlicensed brokers. Not only are there potential legal issues with doing this, as mentioned, but it also defeats the very purpose of wholesalers. Investors want off market properties for under retail price ... the second those properties get listed on your proposed site (assuming it can legally be done), then they are no longer off market and the competition shoots up accordingly. If investors wanted to buy listed properties, they would just go to the MLS ... they are going to wholesalers to get unlisted properties, so why would they go to a shadow listing service to find unlisted property? What would be the benefit to the investor?
@Riley Gilson I wouldn't post anything or do any kind of "advertising" for a property that I have under contract, online. Because this brings me too close to the position of a real estate agent. I am NOT selling someone's house for them. I am NOT representing anyone in any transaction. No I do NOT have a house "for sale". Despite what some respectable investors think, like @John Thedford, REAL wholesalers do not act anywhere near an "unlicensed broker". I don't need a license to go into contract to buy something and then assign the contract. If I think a property is a really great deal but I don't have the cash on hand to close it for myself, I will assign that contract over to another investor who will close it. And yes, I want to make money for 1. finding the off-market deal 2. spending money on marketing 3. estimating rehab costs. 4. negotiating with the seller. 5. starting escrow and sort out any liens on the property.
You should NEVER take a wholesaler's word regarding the numbers on a property. Even if they are your best friend and the best wholesaler on the planet. If you don't know how to analyze a deal or are too lazy to do so, then who are you really going to blame? The wholesaler? The seller? YOU?! There is no insurance to protect you against stupidity!
Hopefully I made it clear why wholesaler's (the real ones) bring value to real estate. Feel free to shoot me a message if you have anymore questions about it.
HI all. I live in Ontario and must buy everything remotely. So I get my properties from trusted sconces i most cases individuals that I have met . What they have in common is reliability and
the ability to works will with other. I have full teams all are licensed all are bonded all have references . To me it does not matter if they are a wholesaler or an agent weather they are just starting or experiences its how they fit in the team or if they are willing to assist in building a team in there area . I am always looking for new areas.
Please note that all of this is speculation at this point. I just wanted to get some feedback on the concept because conceptually it sounds like it might solve some "issues" in the industry. From the sounds of it I seem to be wrong. Which is OK, that was the point.
@David Faulkner The concept would essentially be a listing service. I don't follow your logic though. Do investors want to buy unlisted properties merely for the title of being unlisted? The MLS is not the place to buy properties as a savvy real estate investor. However, investors who leverage wholesalers currently and see the benefit, just want good deals w/ less work on their part. (generalization of course)
The concept wasn't described to be another MLS w/ all the database etc, but rather a very simple listing service. Which, is something - albeit in a very indirect and inconsistent manner - investors subscribe to when working with a wholesaler.
Perhaps you can elaborate on your thought for me? The benefit would be broader access to deals below market value w/ increased ease of doing so. I thought that would be clear, but again the feedback seems to be generally opposed to such concept so I have a bias there I guess.
I think of it like this analogy. It's like shopping for a car, without having the option to look online. Sure I could call 7 dealerships for the car I want. Deal w/ 7 different people, ways of doing business, and price/quote formats. Or, I could look online w/ an easily digestible source of information about the cars. We are just talking about cars that are 5 years old w/ say specific features - to make the analogy seem more realistic.
@Pratik P.
You should not necessarily trust an agent either. Trust is earned by operating professionally and honestly. The unlicensed brokers do seem to have more of a challenge due to lack of knowledge, lack of funding, and a "make money at any cost" mentality displayed by many. The upside to dealing with an agent is their liability. Unlicensed brokers can say anything and probably get away with it. The two most common reasons agents are sued is misrepresentation of value and fraud. Agents do have something to lose. Unlicensed brokers have no accountability.
As a noob myself, i would consider buying from a wholesaler for the potential savings from a typical 'on market' deal.. that said, not all wholesalers are honest reputable people.
So, I guess you take the good with the bad.. (but of course, do your own DD on the property)
Granted, we all know how @John Thedford feels about wholesaling - but - I on the other hand didn't find it to a "sketchy" (for lack of a better term) practice as some refer to it.
@Pratik P. I agree with you that nobody should be taking anyone's word in a business transaction. That applies to all industries even outside of wholesaling.
My understanding is that in states even like mine (OHIO) you can wholesale and market a contract but you cannot market a property as though you would if you were an agent. You are representing the "Deal", not the house or their interest in the house. The deal or what I'd call from an investors perspective a "Lead" is something that you found and did the legwork on. Therefor, you should be compensated for said work.
There is clearly a market niche for wholesaling as the MLS an agents alike don't typically succeed in fulfilling investor needs. (generalization) There is a distinction between selling a personal interest in something and selling something for someone else's benefit.
If the concern was increased scrutiny from regulatory agencies is a concern, could you elaborate? Frankly, if I wanted to go after a wholesaler (as a regulator), I'd simply need to approach one as an investor and get added to their buyer's list.