Better Wholesaling Strategy

Better Wholesaling Strategy

New Jersey, NJ · Member since 2015 · 327 posts · 137 votes

I am not a wholesaler or a beginner investor but I do think i have abetter strategy for wholesaling and would like your input.

I am very familiar how wholesaling works, I have never wholesale but I have purchase deals from wholesalers. This strategy implies to the New York and New Jersey Market, every market is different and these two are the only ones i know and can speak off. You do need capital to make this work but loans can also be done. 

SOLUTION: Why not just purchase the deal yourself and sell it after close? post it up on the MLS for a one time fee (On my flip properties I paid that one time MLS fee and saved 3% by eliminating the listing agent) the MLS will get you max exposure bidding wars which would maximize your profit in comparing to just selling to a group of buyers in a buyers list. This method would have you close on the property in 1-2 weeks max rather than 30 days if your buyer has to use a hard money loan or going through the re-assigning contracts of other investors.

Wholesaling is not an easy job and alot of drama and games are played behind the scene and many deals have falling apart because of it. I believe that if a wholesaler purchases the off market deal or even an auction deal, he/she could eliminated all the stress and games involve and just re-sell fast. Technically this is consider flipping but your not doing any renovation so I call it hybrid flipping. The flaw you have to pay closing cost and capital gains but the better profit makes up for it and wholesalers do pay self employment tax because they get issue a 1099-tax form so its almost even.

Whats your opinion on this?

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Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes
9y

@Account Closed says, there are cash buying investors who have agents scouring the MLS for them daily. If we don't have a cash buyer on the hook with in 48 hours, we open it up to the MLS - for the other 500 or so cash buyers that are not on my list, but on some Realtor's cash buyer list.

We just closed one of these deals last Thursday. Bought December 23rd with private money. Started marketing December 23rd. Let the phone ring over the 23rd, 24th and 25th. Investors started actually looking at it the 26th - had 3 offers the end of the day. Had a couple of cash offers on the 27th, put it under contract with the best cash offer on the 28th and closed it January 5th and paid off the private lender and put our profit in the bank. This one did not go in MLS, but we had 4 or 5 Realtors reach out who wanted to sell it to their cash buyer on their list and ADD their commission on top of our price.

Sometimes we will double close these too, but we don't have many title companies that will do this anymore in Kansas City.

4.  The houses that are more retail houses, don't need much and the potential wholesale profit is about the same as a realtor commission - we just list those.  Generally these are rented rental property or owner occupant buyer houses.

Other than the Owner Occupant Buyer Houses and sometimes  even those might have an interest for the landlord who wants a better rental . . . all get marketed to our investor buyer list.

Not all wholesalers only assign the contract . . there are many out there that actually buy them . . . most HomeVestor's buy them and then sell them.

I wholesale in Kansas City - all of the above work well here . . . the thing is finding the good deal and knowing what a deal is. Because there is very limited inventory on MLS, a good deal, even a marginal deal goes fast. But it's always been that way - at least for the past 17 years. A good deal, is a good deal, is a good deal and a cash buyer is ready to buy it tomorrow if you can get it front of him. If it's not my cash buyer in 48 hours, I would love to pay a buyers agent 3% to get me a cash buyer who can close in 5 days - we have even paid more than 3% on our low end houses - sometimes $2,000 or $3,000 might be way more than 3%. But it's fast, I get my cash, and we go on down the road to the next dea.

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  • Investor · Orlando, FL · Member since 2016 · 1k+ posts · 780 votes
    9y

    One of the purposes of wholesaling is NOT to have to put any money to buy or sell the property. 

  • Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Account Closed - I love hearing people think outside the box. Keep thinking like that and you'll come up with an innovative idea that will make you serious money. I don't think this is the one, though.

    Two things- wholesalers either don't have or don't want to put up the money to close. The whole point is finding a deal for someone else. The assumption that there will be a bidding war is a very dangerous one. 99+% of people on the MLS are not interested in anything that wholesalers are dealing with, so the benefit of listing is really low. You know the saying: "If everyone is your target audience, no one is your audience."

    I also think you have the timelines to close exactly opposite. What are you basing your 1-2 week closing on? Right now 30-45 days is standard, and when you open it up to MLS buyers, you're really only adding retail buyers who will want the whole time to do their due diligence and think about whether to go through with it. If you're working from any kind of decent buyers list and you have any kind of decent deal, you're bringing that deal right to your target audience: people who have the capital and experience to identify and fix problems, and are interested in closing quickly, putting their capital to work. That's the only way to get a deal closed in 2 weeks.

    If you close yourself and then list, not only are you putting up your own cash (including closing costs and due diligence costs), you are then listing, showing, waiting for offers, and waiting for the buyer's due diligence period as well. Even if you somehow attract a cash buyer bidding war (which is extremely unlikely), you're going tie up your money and wait a month or two for the deal to happen. Not to mention you will be giving up 3% to a buyer's agent - that's part of the agreement when you list on the MLS.

    The bottom line is that you would need the MLS to raise your price significantly just to make the same profit you'd make on a traditional wholesale, and you'd be putting up your own capital, and making the process take a lot longer.

    I hope that all made sense. Keep thinking, though!

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    9y

    Agree with William, and there are ways to close the deal without your money, just have the correct strategy so that you'll have a binding and valid contract with the intent and ability to close, I've never said you have to use your own money! :)

  • New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Stephen Anderson yes and that old strategy seems to lead to many bad experiences from what I read through some forums here on BP, why not change the wholesaling game where the success rate is much higher.
  • New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Kevin Siedlecki what if you don't use the MLS, and have your buyers/investors list, don't you think it would be less stressful, less time and work to sell your own property that your wholesaling rather then someone else's property whole could change their mind at any given moment?
  • New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Here is a recent forum a wholesaler who went bankrupt doing so. It seems taking a gamble on a property that's not even yours seems to be a high risk financially. http://www.biggerpockets.com/forums/12/topics/380162-went-bankrupt-trying-to-wholesale-heres-my-sage-advice
  • Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Account Closed - I don't think that makes a difference. If the seller is going to change his mind, it doesn't matter if you are buying or assigning the contract. He's not going to be any more likely to change his mind on the assigned contract than he is on sale to you. To the seller its the same thing. 

  • Real Estate Investor · Raleigh, NC · Member since 2012 · 427 posts · 297 votes
    9y

    Michael Quarles calls this wholetailing. I know people who have done it. 

    I get your thought but it is two different things. Now you have to a) have the money to close and b) deal with retail buyers, real estate agents, contracts going back and forth, bickering over tiny things, etc. With your method within the first week I probably have to see e-mails or talk to 20 different agents, look at 15 different offers, etc. Or I can call up a buyer I know is legit, give him the lockbox, and 2 hours later have it sold. 

    For me b) is 10x more of a hinderance than a. 

    I see you say this "Wholesaling is not an easy job and alot of drama and games are played behind the scene and many deals have falling apart because of it. I believe that if a wholesaler purchases the off market deal or even an auction deal, he/she could eliminated all the stress and games involve and just re-sell fast."

    Where does the stress get eliminated? Instead of talking to buyers I actually know I have to deal with 20 different agents or buyers I have never met, 75% of which are probably wasting my time.  How is this better?

    edit

    To be honest, I have thought about doing this with some properties and I might try it next year. However, I do not see how it is less work or stress. 

  • Investor · Orlando, FL · Member since 2016 · 1k+ posts · 780 votes
    9y

    I've been doing it for 17 years with no problems. You just have to know how to do it right.

  • Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    Good post in that link. It sounds like he went bankrupt just from marketing. He never even got a chance to assign a deal! I don;t think it's relevant for our conversation here. It doesn't matter what your exit strategy is if you run out of money before you ever make a deal.

  • Investor · Madison, CT · Member since 2014 · 710 posts · 458 votes
    9y

    @Account Closed's thought-experiment?

  • New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Eric F. That drama statement is more directed to the seller. For example let's say you find a good off market deal from a grandma, do you know how many times a grandma changes her mind even after signing a contract? More than I could count cause in this market it happen to me so why not just buy the property yourself, eliminate the stressful seller and deal with another kind of stress with 75% you mention. In this business your always going to have some sort of stress but I believe getting stress from agents wasting your time is much more better stress than sellers constantly changing thier mind and inflicting false hope that your might or might not have a deal.
  • New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Stephen Anderson your market is more friendly than this shark market in NYC and NJ. As I said I am only speaking on behalf of those 2 markets, if I was in your market, I am sure it would but much more different.
  • Investor · Orlando, FL · Member since 2016 · 1k+ posts · 780 votes
    9y

    You can and I can easily help you.

  • Investor · Orlando, FL · Member since 2016 · 1k+ posts · 780 votes
    9y

    @Kevin Siedlecki I mean wholesaling. I've been doing 'it' for 17 years, first in St. Louis Missouri and now in Orlando FL.

  • Investor · Orlando, FL · Member since 2016 · 1k+ posts · 780 votes
    9y

    @Account Closed you may think this is an old way of doing things but it is still VERY EFFECTIVE. Why change something THAT IS NOT BROKEN!!

  • New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Stephen Anderson it's not broken in your market and the places you stated you invested in St. Louis Missouri and now in Orlando FL. You have no idea how NYC and NJ works. Wholesaling is not a universal method that should work in every market. THANK YOU for CONFIRMING is NOT BROKEN, i never stated that it was BROKEN to begin with.
  • Bill R.Pro Member
    Investor · Branford, CT · Member since 2014 · 131 posts · 67 votes
    9y

    My 2 cents: I  have been in the game a while. Have done my share of rehab flips - single and multi families as well as wholesaled a lot of properties - single and multi families. I have assigned contracts, double and simultaneous closings, bought without end buyer and then sold without any rehab. Have used end buyers money to fund double closings, used private money lenders, my own money and transaction funding to close deals. I can say the most cost effective way to get it done is assignment of contract. There are a lot of moving parts to wholesaling but when done correctly it can operate as smoothly as any traditional closing - maybe easier. I have no anxiety when dealing with my core group of buyers and probably less stress when I do deal with buyers I haven't worked with before than selling to traditional buyers with inspections, mortgages, and just a unsure attitude. 

    When done correctly from start to finish assignments go as smoothly as any traditional closing - commercial real estate closing have been using assignments forever and still do. Like anything else attention to detail and being knowledgeable in your field makes all the difference.   

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    agreed wholesaling as taught on BP is quite regionalized... it works in markets were there is a plethora of excess inventory.

    in Markets were the market is quite tight there simply is not enough properties to sell whoelsaler. IE fixers which most wholesales are of course. 

  • New Jersey, NJ · Member since 2015 · 327 posts · 137 votes
    9y
    Jay Hinrichs you are spot on. Here in NYC there are 0.01% wholesalers in this market because attorneys don't let thier client do any business with them. But many investors have the assumption that wholesaling is a universal tool that is suppose to work in all market. I was just trying to see if there is a better strategy option for this market.
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    @?  anything I personally aim at I close on ... end of that discussion

    the only double escrow deals I have done have been very large land deals.

    were I bought a property got them approved for 20 to 5o homes then sold to big home builder.

    but i had to put up real EM and spend 75 to 150k in getting the approvals before the builders would buy them.. but these are mid 6 figure spreads.. so it works.

  • Wholesaler/ Investor · Springfield, MO · Member since 2016 · 55 posts · 20 votes
    9y

    @Account Closed if your market isn't good for wholesaling, what about lease options? You can wholesale those too. Look for properties that are over leveraged and can't sell with a Realtor or normal bank loan because it won't appraise out. If that isn't something that you can do in your area then do regular wholesaling somewhere else to get started. Cris Chico has a virtual wholesaling program meaning that it can be done in other states without you being there. 

  • Rental Property Investor · Arlington, TX · Member since 2012 · 788 posts · 640 votes
    9y

    IMO most wholesalers are "all hat no cattle".  While they do serve a purpose most sellers would be better off listing their property with a local Realtor.  I just can't stand that the majority of contracts have a weasel clause and they have no intentions of actually closing on home.   I guess I'm old school where a hand shake actually means something.   I like and use wholetailing on my current acquisitions.  Just picked one up Tuesday on the Courthouse steps at $40K which I will be relisting at $57K. 

  • Investor · Orlando, FL · Member since 2016 · 1k+ posts · 780 votes
    9y

    My question to you 'northners' is do you have tax deed auctions? What about pre-foreclosures? What about probate? What about vacant houses? This is the best way I find discounted houses. I'm sure that every area has them, you just have to go after them and NOT do what every other investor is doing. Then when you get a good deal wholesale it!!

  • Wholesaler · Arnold, MO · Member since 2013 · 348 posts · 183 votes
    9y

    @Rocky V. You're taking a 43% cut on your wholetail deal? Why? Is that to cover the costs of the strategy you're using?

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