I'm hoping some experienced wholesalers know how to deal with this problem. I have been targeting probate homes in the Northern Virginia, Washington, D.C. and Suburban Maryland areas. I send direct mail to the executors. The market is hot in the DC area and executors know it. They get lots of letters from investors and offer to show the property to all interested investors, usually on a weekend. I have run into the same wholesaler's assistant at every one of them. This has happened 3 times in the past few months. The wholesaler offers a much higher price than I can afford to pay in each instance. When I check the land records a month later to see what the properties have sold for I see that the prices paid were quite high. And that's without accounting for the wholesaler's fee because that is paid out of settlement and is not reflected in the sales price. The only thing I can think of is the wholesaler has a lot of "buy and hold" buyers on his list and perhaps some newbies who pay too much. I spoke with one seller who told me that one wholesaler offered to beat any other offer by $5k. That seems like a risky thing to do but it does keep his foot in the door and he can back out later if the numbers don't work. He also tells them that he would have the right to see the next best offer if he needs to escalate his offer $5k over theirs. What do experienced wholesalers do when they face steep competition? Thanks in advance for your insight.
Welcome @Lance Young !
Wow, brother.... I feel you. The first question I have is.... how many cash buyers do you have on your list? Second, have you tried going onto CL to talk to the people advertising their rentals there to see if you can get any of them as cash buyers? Land lords looking to increase their portfolio are a great resource for higher paying cash buyers.... Just my two cents, for what its worth....Best of luck.
@Lance Young they are using escalator clause.. standard procedure in hot multiple offer environment.
if your a fix and flipper.. you will have a very hard time beating out a buy and hold investor.. it just is what it is.
market is saturated with wanna bee wholesalers and others that are able to close...
one thing you may want to do is look at the auction companies.. they weed out most wholesalers.. because you need bigger deposits just to bid and then usually a bigger NON refundable EM which is something most wholesalers won't do I never have an issue beating those guys out in this arena.. your up against other TRUE cash buyers though.
Thank you for the feedback, Jay. I'm a fix and flipper and can pay cash for about half of the deals I run across. That isn't helping when I'm up against seasoned wholesalers who have lots of folks who will pay more than me. I am finding out the hard way that I cannot beat a buy and hold investor. Your post only confirmed my suspicions.
You have a good point about auction companies. I've never tried them because I thought it would be a much more competitive arena since the companies advertise heavily and have hundreds or maybe thousands of investors looking at their auction properties. Have you purchased properties through auction companies?
Brian, thank you for the good advice. I have been a fix and flipper for years. Recently, I've decided I need to get into wholesaling because I keep getting outbid by wholesalers who have high-paying buyers. Paying too much for a property runs contrary to everything I've learned about real estate investing. I've been putting my efforts into improving the way I find deals and have not put any effort into creating a buyers list. I was going to wait until I found a good deal that I could make money on before finding buyers. I figured that if I could not find a buyer for the wholesale deal that I would do the deal myself.
Your post woke me up to the fact that I need a high-paying buyers list so I can then make higher offers and remain competitive. My biggest fear is what if you get an offer accepted at a relatively high percentage on the dollar and cannot find a buyer? For example, last week I made an offer to an executor for a townhouse that had a fair market value of $230k. It needed $20k-$25k in renovations. I offered $170k. Later that day the executor texted me that he had accepted a higher offer. I had good rapport with him so he told me what all the other offers were. $160k, 170k (my offer), 175k and 178k. He countered the $178k offer with $180k and the wholesaler accepted and agreed to pay $180k. That's 78% of fair market value! I was left shaking my head in disbelief and wondering how I was going to continue making a living in real estate! At that price a fix and flip investor would be lucky to make $5,000. And that's IF everything goes right and you don't go over budget on the renovation. I am guessing that the wholesaler has a buy and hold investor because it doesn't make sense otherwise.