The Truth about Wholesaling!

752 Replies

There are so many people and companies out there who claim to be wholesalers and many more newbies who claim to want to start out in wholesaling as a means to get started in the biz.

Let me tell you about a recent experience with a so-called wholesale deal: You be the judge too!
A property was offered to me as a wholesale purchase.
It was offered at $270k with only $10k in rehab (so claimed the wholesaler) and the exit value they provided was $350k. With these numbers, the deal is at 80% of value which is pretty much the most I could pay. I explained that the exit price appeared to be on the high side (just from my expert knowledge of the area) and that $10k in rehab is pretty rare. I was then told that they may be willing to sell to me at $260k (so obviously they had at least $20k in mark-up at their OG price, which by the way is fine if the deal had a good spread, this one was bare)
With that reduction in mind, I went to the property.
It was very close to the freeway and the freeway noise could be heard quite loudly from the yard and slightly from the inside with all doors closed. This decreases values some what. Next, I found that the condition of the property was no where close to $10k in minor rehab. The kitchen had no place for a refrigerator with the current layout and it was poorly designed. The cabinets appeared to be newer, but done cheap and laid out poorly. The countertops needed replacement to granite, and new kitchen appliances. All flooring needed to be replaced, there was some foundation issues from the earthquake of 94' (Northridge quake), the bathroom was in need of a full gut and rehab new, all bedrooms needed new light fixtures, closet doors, and some electrical upgrades, plus the driveway needed to be re-surfaced and the chain-link fence removed and replaced with a more appropriate wood fencing for curb appeal. Both interior and exterior needed paint, and all windows should be replaced new (requiring some minor stucco repairs as well.)
After my evaluation, it was determined that the exit value was $300k ($319k as the max high list point) and the rehab was $30k and could be $35k.
At a $260k purchase and $30k rehab with $310k exit, this deal is at 93.5% As such, it is an oxymoron to use the word deal to describe this investment. I only pray that some sucker does not get screwed on this property.

The moral of the story: To be a true wholesaler, you must give out true and accurate figures, otherwise you make a bad name for yourself.

To be a true wholesaler you need these 3 main ingredients:
1. The ability to contract RE at great discounts.
2. The ability to build a real buyer's list (real cash buyers with a real proof of funds)
3. Ability to evaluate your market and ability to peg rehab numbers. Both of these require a vast knowledge of the local market conditions and the know-how to quote repair items.
Without ALL 3 of these items, you CAN NOT be a successful wholesaler.
To add a 4th item, you should be honest, provide accurate numbers, and provide as much due diligence to your potential buyers as possible. This will allow you to keep your buyers coming back for more deals.

Nice post Will!

The vast majority of wholesalers that send me deals have similar problems. I generally don't even look at deals from "wholesalers" anymore unless they are recommended by some folks in our local community that I trust.

@Bryan - Good advice to ignore all but the proven ones.

The property I posted about above was offered by a company called Arrow Capital Group here in CA. If anybody else has had similar experiences with them, please offer your words of wisdom here.

Yep, good points, Will.

Like you, I would immediately be suspicious of a wholesaler opportunity claiming only $10k in rehab costs. Most properties in decent shape in this market disappear really fast and don't need a wholesaler to find them.

Amen to that, I am dealing with one of those so called " Whole Salers" my self, I have learne a valuable lesson in the beginning of my career in this real estat business.

Originally posted by Will Barnard:
@Bryan - Good advice to ignore all but the proven ones.

The property I posted about above was offered by a company called Arrow Capital Group here in CA. If anybody else has had similar experiences with them, please offer your words of wisdom here.

Here's a quote from their site:

"Arrow Capital Group is a real estate investment and consulting firm that leverages its extensive experience and expertise to provide superior value and returns to its clients"

Seriously if that is the same company that you dealt with Will they need to really change that quote big time.

It is the very same one James, I agree.

Thats a horrible experience indeed. And I hate to hear you wasted your time there. But it makes me curious about what happened next.

Did you tell them what the real rehab costs were? Or did you leave them only with an "I pass"?

When I read your post Will, the first thing that came to mind is that anyone that is going to be successful in real estate needs to have something to offer. It can be the money to make deals an/or it can be expertise, if you invest neither you are not likely to get very far.

A wholesaler is offering a form of expertise in there being able to find and negotiate good deals. Their ability to provide good estimates of rehab costs and their ability to find good comps in determing a likely ARV.

Maybe they are a new company that have ambition but lack some experience in evaluation. I hope you left the same results you described in your post on their website or emailed them what you found. Maybe it will give them some insight as to what to do/not to do before putting another property like this on the market. All of us begin making dumb mistakes and misjudgements, it's only bad when we ignore feedback from those who can offer wisdom.

@Jimmy & Morris - I did inform them of the actual and true numbers and took it a step further. I informed them in writing (via email) that I would keep an eye on the property and any future public recordings (transfers of title) to make sure some other investor does not get taken.

I will wait and see if they ignore or act upon my advice, ball is in their court now.

Perfect Post Will,

You hit the nail on the head. Too many pretenders in the wholesale field. It gives the good ones a bad name. Many don't know that it actually takes hard work & skill to get something under contract that has enough spread to wholesale.

Honestly, I think the issue is that so many of the so-called "gurus" preach wholesaling as a great way to get involved in REI, but they don't talk about marketing, etc.

A good wholesaler is good because of what Charles said above, but to take it further, they're good at marketing and finding the deals. ALL the time, I have wholesalers in the area sending me deals they got off the MLS--negotiated it down from list about $10K and then marked it up $15K-20K. Why would I want an MLS deal that I have access to and then pay $10K above list price??

There is no logic in the thinking and although I do believe the MLS is a decent lead source, it is also the most competitive and easiest to access. I've purchased 2 properties from wholesalers out of the hundreds I've seen, which says a lot about wholesalers, in general. The sad part is the good wholesalers sometimes get a bad rap because the bad/lazy ones don't know what they're doing.

WOW! It's good to hear the reality.

As a Wholesaler, I do believe I may have been headed toward becoming a victim of "one of those gurus" who say prepare to be wealthy and there's nothing to it.

I guess that's why I've been a little dissappointed in my results. The expectations were WAY too high.

The unfortunate thing about wholesaling is that I don't hear from investors enough, or they are very protective of their knowledge and expertise. Investors typically say "no thanks" to the deal, but don't give the kind of feedback that's been given here. While I know it's not their job to do so, and it's fair that I go through some of the same challenging times they went through (or DIDN'T go through) it is so so appreciated when genuine feedback is offered...thanks Will, Charles, and the rest of you.

I'm also glad there are those out there like Morris, who realize some are just starting out and are practicing what they may have learned.

I'll definitely take heed to these comments because I only want to sell a quality product/service!

I wonder if many wholesalers feel the same way...

@invmatchmaker I totally agree with you. As a newbie I hope to get feedback from investors as to what makes a deal appealling to them or why they are passing up on what I think is a great deal.

I hope more of the investors in this forum comment on "the truth about wholesaling" so that those who want to be more informed can learn from it.

A knowledgeable wholesaler knows what the investor wants.

If it is a rehab/flip he knows that the most that I'm going to pay is 70% of the ARV minus the repairs.

Ray in Ct

Originally posted by Raymond B.:
A knowledgeable wholesaler knows what the investor wants.

If it is a rehab/flip he knows that the most that I'm going to pay is 70% of the ARV minus the repairs.

Ray in Ct

Raymond, how many deals have you completed where your all-in was 70% or less? I am curious because this number, while a common goal for most, is not the "most" active investors will pay in this current market unless the property value is under $100k.
I always aim for 70% all-in or better, but to be frank with you and everybody, getting a deal on a property at $200k acquisition or more and at 70% all-in, that is a homerun in today's market. To stay busy and active, I and others must hit many singles and doubles with the occasional triple to stay in biz.
Is it different in your market?

@ Brandi & Invmatchmaker - I am happy to share my knowledge and experiences here on BP and I am glad you find it beneficial. Thanks for your replies and votes to all!

My investing strategy is currently in rehabbing/flipping. I have noticed that some wholesalers underestimate the repair costs (sometimes significantly) and overestimate the ARV. Maybe the deal is better for someone looking to buy and hold, but the wholesaler should specify that.

Originally posted by Mr_Investor:

Here's a quote from their site:

"Arrow Capital Group is a real estate investment and consulting firm that leverages its extensive experience and expertise to provide superior value and returns to its clients"

What does that mean? Leverage extensive experience and expertise?

This is pure BS! So many kids out of college are getting so full of it with sensational catchy hogwash that I guess they think dazzels us into thinking they really have something....pure BS. Puffing, look that term up! I would never have answered anyone after saying that!

I think the moral of Will's post is caveat emptor.

As part of everyone's due diligence, unfortunately, you have to assume that everything is a lie.

I understand the idea behind putting lipstick on a pig, but to embellish a deal to where it's not even recognizable, makes you wonder how these people sleep at night.

Originally posted by SolidReturns:
I understand the idea behind putting lipstick on a pig, but to embellish a deal to where it's not even recognizable, makes you wonder how these people sleep at night.
My thoughts exactly Loc! Thabnks for the post.

Yes Will after seeing a lot of posts from California i have to say your market is very different.

its not hard to find 70% arv minus repairs here. However prices have driven down now and you can finally cash flow again in Florida. But there is a lot of inventory and a lot more to come in reos.

For instance Im currently advertising a cash flowing block home with no rehab needed for 29k. the previous owner paid 120k for this home in 2005. The end buyer will begin collecting rents and have their money back within 5-7 years depending on how they manage the property.

I think you are right that too many folks are trying to get into Wholesaling without learning how to do due diligence. Hopefully forums like these will help them understand how important it is.

Thanks for the reply Jimmy. Investors must also remember that EVERY market is different. What works in one, may not in another, what happens in one, may be different than what happens in another.

Well it's good to know that it's not just me that's seeing narrower margins here in SoCal. :)

This was a great post and discussion. It's seems as though everything I have read about wholesaling portrays it as the fastest and easiest way to get started in RE investing. It doesn't seem plausible for a newbie to be able to locate a deal and accurately estimate repairs with little to no experience. Does anyone have any resources they use to accurately estimate repairs?

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