Why am I running into the WORST wholesalers?

Wholesaling
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Why am I running into the WORST wholesalers?

Joshua Feit
Atlanta, GA · Member since 2014 · 240 posts · 130 votes

Hey BP! 

In 2017, so far I have run into about eight wholesalers who were:

-Marketing properties they did not have under contract
-Daisy-chaining deals 3 and 4 deep
-Marking properties up 200 or more percent
-Dealing with properties that were not theirs to market

Is this normal? Or did I just manage to dive to the bottom of the pool?

More importantly, what are some good ways up front to tell if I am dealing with a reputable wholesaler? Thanks for the advice!

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Jeff Filali
Rental Property Investor · Broken Arrow, OK · Member since 2016 · 1k+ posts · 1k+ votes
9y

I got tired of dealing with bad wholesalers also, so once I found a really good legitimate one, I partnered up with them to work with me fulltime.  I provide them with leads, they do all the leg work and negotiations and acquisitions of deals for me, then once they have them under contract, I have first right of refusal to purchase the property at the contracted amount, plus I pay them a flat acquisitions fee.  On the ones that I choose not to purchase myself, they get to wholesale them to whomever they choose for whatever markup, and once sold, they pay me a flat fee for the leads I provided. Its a win win.

I do try to educate wholesalers who contact me with bad deals, it happens daily. Usually someone has sold them on the ideal and thrown them to the wolves with no real direction. I typically see the same issues you do, inflated ARV's. misleading Repair Costs, etc. The majority of the wholesalers out there are more like bird dogs working for someone else and trying to learn. Most get burnt on any deals they do generate and only last a few months trying.

My biggest pet peeve are the ones who call me representing themselves as an investor wanting to buy one of my homes, when they know they don't have any money and have never purchased a property in their lives. If they said they're a wholesaler or even working with investors looking, that's one thing.  But, I've even asked, so are you the investor or are you wholesaling?  And they start scrambling for words and usually lie.  When they do lie, I get their contact info and tell them Ill send them a purchase agreement and wiring info. I usually never hear from them again.  Be YOU, be Honest, be Successful!!  There's nothing wrong with wholesaling, if done right. 

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  • Ryan Ahlgrim
    Investor · Sapulpa, OK · Member since 2013 · 146 posts · 50 votes
    9y

    Here's a related question: Are there any investors on here who actually NEED wholesalers to sustain their business model? I've been buying rentals and flips in Tulsa right off the MLS no problem on my own. I've never once relied on a wholesaler to bring me a deal.

    (It might be important to add I'm not trying to rip on good, legit wholesalers. I'm sure they're out there.)

    0Reply
  • Erik Larson
    Investor · Chandler, AZ · Member since 2017 · 33 posts · 10 votes
    9y
    Originally posted by @Tim Ryan:

    Because too many people on BP are telling newbie investors that wholesaling is the best place to start "and generate quick cash so then you can flip with the money then save that and then buy large apts and then retire in a couple years"
    LOL

     Yep this is what I'm seeing as well. Sadly more than 1/2 the wholesalers I've come across in PHX are guesstimating and pulling numbers out of the air and don't have a solid line on the house in the first place.

    0Reply
  • Asim Alam
    Professional · Tucker, GA · Member since 2017 · 138 posts · 29 votes
    9y

    I feel your pain, @Joshua Feit!

    0Reply
  • Robert Molloy
    Investor · Connersville, IN · Member since 2014 · 28 posts · 4 votes
    9y

    Wife and I are about to move to Indiana to be closer to her folks. We have one rental property there and are looking to accumulate more. In the meantime, wholesaling deals sounds like a great way to generate some cash and fund our business. 

    Couple of questions for all the pros out there:

    What is the best way to establish yourself as a legitimate source?

    Are any of the "info marketing" mentors worth hooking up with? 

    0Reply
  • Luke Mitchell
    Contractor · Albany, GA · Member since 2017 · 57 posts · 33 votes
    9y
    Originally posted by @Ryan Ahlgrim:

    Here's a related question: Are there any investors on here who actually NEED wholesalers to sustain their business model? I've been buying rentals and flips in Tulsa right off the MLS no problem on my own. I've never once relied on a wholesaler to bring me a deal.

    (It might be important to add I'm not trying to rip on good, legit wholesalers. I'm sure they're out there.)

    This is a sound question. As a contractor who is looking to break into the wholesaling side of REI, I would love to know if it's being made out to be something that it's not. Maybe it works in the bigger markets like NYC or LA, but will it work in everyday USA?

    0Reply
  • Rafael Norat
    Investor · Lodi, NJ · Member since 2013 · 487 posts · 179 votes
    9y
    Reputation of course. They should have a good name within the community of investors. Look at their website and see how they advertise, ask them for comps, follow what they advertise throughout the year and see if they are overpricing and how their properties are selling. Let your criteria define the relationship. Stick to your numbers, offer them what works for you, and see if you build a relationship. You may need to go though many to get to one solid lead as with anything else.
    1Reply
  • Rafael Norat
    Investor · Lodi, NJ · Member since 2013 · 487 posts · 179 votes
    9y
    To add, upfront impression can only show part of the picture. Over time you'll tell what's really there.
    0Reply
  • Ralph C.
    Real Estate investor professional · Suwanee, GA · Member since 2016 · 233 posts · 81 votes
    9y
    Originally posted by @John C.:

    Sorry I must have missed something. To me a wholesaler was someone who had the wherewithal to close with their own funds or credit and often did so then resold with a reasonable amount of earnest money at risk (can be held in escrow with their attorney of course). Worst case any good wholesaler will have no problem teaming up with a hard asset-based lender to finance the transaction (could be a double close to save money of course). But only if the deal really made sense. If it didn't then they should walk away or look at other more creative approaches.

    The folks you guys are speaking of as "wholesalers" I would call "bird dogs" or "transaction engineers". Putting houses under contract with "weasel" clauses and "and/or assigns". The problem to me is what happens if they are not able to perform after promising the moon and the stars to their seller who may be counting on them for one of their biggest life situations.

    So the litmus test to me would be if a hard asset lender would be willing to lend on it. Nothing wrong with marketing a property that you have under contract (in my mind the Real Estate Board may disagree) as long as you have the ability to close if not able to find a buyer in time (which I'm pretty sure a judge would agree with).

     Agreed, if you can't close it or are not going to, then you aren't really wholesaling. Its more along the lines of bird dogging or assigning depending on how you handle/flip the contract.

    1Reply
  • Tony Gunter
    Investor · Canton, GA · Member since 2014 · 728 posts · 501 votes
    9y
    caveat emporium So having said this, what's the big surprise?
    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    I ran into another deal today. Owner is being scammed by one of the local unlicensed broker frauds. The "inspectors" weren't inspectors at all. They were people the frauds wanted to assign the contract to. I gave the owner an education. He was pretty upset. I called DBPR, put him on the phone, and these frauds are in for a surprise!  I did happen to check and they are already in the state database for complaints for unlicensed brokering. I have seen them lurking on BP too. I go out of my way to report every one of these frauds. They are a public nuisance. The state investigator told me that most of the victims of these cons are the elderly and people with a poor grasp of the English language. I can find no legitimate place for these guys except possibly prison:)  I have no idea why these people are accepted in the industry. If you want to broker real estate, either get a license, or close and then resell. Maybe a good portion of these guys cannot get a license due to criminal records. The frauds I mentioned above have been kicked to the curb...they just don't know it yet:)

    4Reply
  • Bill Florence
    Investor · Boulder, CO · Member since 2015 · 137 posts · 36 votes
    9y

    Normal. It is a very 'low barrier to entry' biz so a lot of posers and scamsters. Be patient and do a lot of due dili' or avoid that segment of the market and create your own deals.

    0Reply
  • Andy Rumple
    Wholesaler and Real Estate Broker · Indianapolis, IN · Member since 2009 · 438 posts · 293 votes
    9y

    When you find one of us and look into our eyes........ you will know.

    0Reply
  • Iverem Rose
    Brooklyn, NY · Member since 2016 · 152 posts · 44 votes
    9y

    @Joshua Feit

    Unfortunately, your experience with wholesalers is very common as most have no idea how to provide true value to their clients. Wholesaling is such a popular strategy for high priced GURUS because it's one of the easiest, cost effective strategies that can benefit many looking to get into real estate investing with little to no money. Given its perception, I believe most wholesalers mistakenly think they can make a lot of money without doing the work necessary to EARN it. Sites like BP are a godsend because it provides a forum where investors experienced or new can learn all there is to know about real estate investing (the good, the bad and the ugly) without the UPSELL.  

    With that being said, one thing I would to do when presented with a property from a wholesaler is to google the property's address if provided. 9 times out of 10 is probably listed on the MLS or some other site by someone else. If that's indeed the case, then you are already know that the deal is likely part of a daisy chain. Ask the probing questions like how long have they been ''wholesaling'' and how are they finding their deals. Their answers will let you know whether they are worth dealing with in the first place

    1Reply
  • David Walls
    Investor · Chicago, IL · Member since 2014 · 81 posts · 35 votes
    9y

    This should not be normal @Joshua Feit and those actions are what make wholesaling somewhat frowned upon. But remember there's 70% of people who are terrible at what they do and 30% who are amazing in any occupation. 70% of agents, rehabbers, McDonald's workers, property management companies, etc. are terrible at what they do. You just have to find the 30% who take pride in what they do and are good at it. Sorry you've ran across the bad 70% crowd so far. Good wholesalers could bring you some awesome deals.

    1Reply
  • Matthew Olszak
    Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
    9y

    @John Thedford Keep it up! Too many people think the only people who are harmed by these frauds are the investors who believe their made-up numbers. I don't care about them (buyer beware)...I care about the homeowners who worked their whole life to purchase their home, then upon believing that the wholesaler is some sort of professional, allow themselves to become victims to this nonsense.

    I have seen it first hand - I managed a property for a client that was going to rebuild their distressed property but had to go through the motions with the city first. Mailbox was packed with scribbled letters, letters printed crooked from a cheap inkjet, letters full of typos. Huge promises that they have cash or have cash buyers ready to buy asap. Idiots - the owners would have to pay the wholesalers to make this deal work since anyone could buy an empty lot for less than it'd cost to tear down what was left of the house. But they swore up and down they had cash ready to buy at a great price because they were investors who had tons of property in the area and knew how to make it profitable. When I pushed for just $1k EM, pof, and a 10 day close w/ no contingencies, I was routinely told OK. Then upon asking for their email address to send the docusign link for the contract: "Oh, we need to discuss with our investment group", or "Click",  or "I only work directly with owners (I wasn't asking for a commission from either)."

    I ask to all and the OP: Why bother engaging the 'services' of these wholesalers? Wouldn't be be more cost effective to engage a marketing professional and lead service to generate your own leads totally hands off? Especially since the vast majority of their numbers are garbage anyhow and you have to do all the research yourselves.

    Threads like this always get lots of responses from the law-skirting wholesalers that they don't do business like that, they are professionals, etc etc. They only wholesale deals that don't fit their criteria - criteria that is essentially impossible to meet in the marketplace. 

    Wouldn't it be nice if there was a way to protect the less educated homeowners from these scammers? A law that would regulate the industry, a law that would require certain disclosures and prevent false statements? A law that would weed out all these fraudsters so the 'real' wholesalers could help homeowners sell their properties? A law to hold licensees accountable and as a consequence of doing business dirty loose the right to do business in their state.

    That law exists in every state - like the Real Estate Licensing Act of Illinois. Wholesalers skirt around it with this 'equitable interest' nonsense, but little by little, the states are closing that loophole. Can't happen fast enough.

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Matthew Olszak

    I will! I have met the victims of these frauds...and I am not referring to potential investors. I have met the owners who were lied to, mislead, deceived, etc. Look at our statutes now. The unlicensed brokers are done! It is IMPOSSIBLE to be an unlicensed broker without violating the law now. The only way around it would be to close and then resell. Agents in other states need to copy this one statute below (475.43) and encourage their respective agencies to adopt similar language. BTW---BP has a LOT of these unlicensed brokers. I recently turned in one obvious fraud. I was surprised a few days ago to see he had viewed my profile. I was not aware he was a member until then. I did sign my name on the complaint. He may or may not know that yet but I have nothing to hide.

    I am writing letters to various agencies, the governor, etc. Licensed agents need more accountability too. Now they are playing the assignment game and skimming lots of money and costing unsuspecting owners lots of money. An agent should have to give full disclosure and written comps at a minimum. This would help hold them accountable. 

    The 2016 Florida Statutes

    Title XXXII
    REGULATION OF PROFESSIONS AND OCCUPATIONS    		Chapter 475
    REAL ESTATE BROKERS, SALES ASSOCIATES, SCHOOLS, AND APPRAISERS    		View Entire Chapter
    475.43 Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved. History.—s. 3, ch. 22861, 1945; s. 3, ch. 76-168; s. 1, ch. 77-457; ss. 27, 42, 43, ch. 79-239; ss. 2, 3, ch. 81-318; ss. 28, 30, ch. 88-20; s. 10, ch. 91-89; s. 4, ch. 91-429; s. 15, ch. 93-261; s. 376, ch. 97-103; s. 41, ch. 2003-164.
    0Reply
  • Ashlee Doerr
    Real Estate Agent · St Augustine , FL · Member since 2016 · 8 posts · 0 votes
    9y
    Hi everyone! My husband and I are really wanting to begin our real estate investing career but don't know where or how to start. My husband is a county fireman and owns a small gun shop in St John's county and I am a local real estate agent. We are thinking maybe wholesaling would be the best place to start. Is the market still hot for that? It seems as though when I am able to pull up rehab projects, they are gone within hours. Maybe I need to see about wholesaling in another area outside of st John's county. I have read about and talked to several people who have complained about wholesalers in their area. What makes a bad wholesaler? How much time is actually devoted to wholesaling? Thanks in advance for the help...this website is a true Godsend!
    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Ashlee Doerr

    Feel free to PM me. I am an agent, investor, and HML.

    0Reply
  • Paul Hutton
    Investor · Tampa, FL · Member since 2016 · 12 posts · 1 vote
    9y

    Im in tampa and st petes buying sfh and theres alot of bad actors here to wholesaleing. My advice forget theee clowns and get a good realtor

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    There are very few streamlined wholesalers.  Most attempt to daisy chain and are not polished.  With that said, they still get their hands on good deals from time to time.  It is important to have the AOS and take control of the deal if you want to close it and you notice they are not experienced enough.

    0Reply
  • Bill Hallman
    Real Estate Agent · Sun City Center Fl · Member since 2013 · 48 posts · 8 votes
    9y
    That is why working with a investor friendly licensed agent that works both on and off MLS properties is invaluable.
    0Reply
  • Charles Kao
    Specialist · Grand Rapids, MI · Member since 2016 · 1k+ posts · 611 votes
    9y
    Joshua Feit Their is rarely a deal when two wholesalers are involved so just look at the deal. 70 percent below ARV and minus repairs is way too unrealistic from a wholesaler and if it is that low other investors eill bid it up to 80 percent anyways. Just keep this in mind wholesaling is basically likes it own market. Deals are about as frequent as on the MLS. If you want to sort through them then don't. I have worked with wholesalers where most of deals they have I would not even offer on but others I have purchased. I will say this however do not be afraid to offer your price. I had a wholesaler I offered 50k on a 70k house offering and 6 weeks later they said they would take it. Wholesalers are not bad people and you have real estate agents saying investor special on bad deals all the time so its not just happening in wholesaling. When you offer on a deal as soon as it is accepted ask for the the original PA from seller, if they won't provide it then it likely means they want to double close because they are making a high markup fee. If that is the case then you know you have room to lower your offer.
    1Reply
  • Joshua Feit
    OP
    Atlanta, GA · Member since 2014 · 240 posts · 130 votes
    9y

    Great discussion here. Looks like we hit a nerve.

    @Brandon Turner @Mindy Jensen I think this may be a good topic to address directly in a podcast. Thoughts? I know I'd love to hear some good debate about the merits and demerits of wholesalers.

    0Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    The market for "wholesale" properties is shrinking and consolidating.  It has always been a questionable area at best.  Given the supply of these types of assets is shrinking faster than a cotton T shirt in the dryer, the wholesalers are getting more desperate.  I believe the behavior will continue to decline.  If you are working with a wholesaler, take everything with a grain of salt and verify it.

    0Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Lesley Resnick

    Are you referring to licensed agents or unlicensed brokers? Familiar with 475.43. This shuts the door on the frauds that want to play the assignment game to subvert licensing laws. I turn every single one in and for good reason. I have met the victims of these frauds lying to owners. I met one yesterday where the unlicensed broker took people through the property on several occasions telling the owner they were there to "inspect" the property. Nice play on words. Once I educated the owner, he was mad but not surprised and stated he thought the "buyers" were cons. I called DBPR, put him on the phone with them, and a case has been initiated. Here is the statute the makes it illegal for them using assignment contracts and not being a licensee. The "equitable interest" does NOT allow them to market property with a license. 

    The 2016 Florida Statutes

    Title XXXII
    REGULATION OF PROFESSIONS AND OCCUPATIONS    		Chapter 475
    REAL ESTATE BROKERS, SALES ASSOCIATES, SCHOOLS, AND APPRAISERS    		View Entire Chapter
    475.43 Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved. History.—s. 3, ch. 22861, 1945; s. 3, ch. 76-168; s. 1, ch. 77-457; ss. 27, 42, 43, ch. 79-239; ss. 2, 3, ch. 81-318; ss. 28, 30, ch. 88-20; s. 10, ch. 91-89; s. 4, ch. 91-429; s. 15, ch. 93-261; s. 376, ch. 97-103; s. 41, ch. 2003-164.
    0Reply
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