The Truth about Wholesaling!

The Truth about Wholesaling!

Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

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.

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Member since 2010 · 16 posts · 124 votes
15y

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.

See this reply in the discussion

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Suzette, in my opinion, it is the wholesalers responsibility as a real wholesaler to provide legitimate rehab and exit value numbers. Your questions are valid ones and here is my response on that -
    Though each rehabber may choose different finishes and have different qualities, it is fair to say and expect that the area and neighborhood are the detaining factors to rehab finishes and qualities. Therefore, if the neighborhood calls for granite, new windows, and stainless appliances, then each and every rehabber should be dong those finishes, thus, the wholesaler should be capable of delivering the accurate costs of the rehab. At minimum, the wholesaler should have identified an itemized list of repairs necessary to obtain he given exit value which would at least allow for the rehabber to estimate from the list.

  • White House, TN · Member since 2013 · 47 posts · 5 votes
    13y

    I am new to this business and I don't think you have to think everyone is lying. I think these guys were being less than honest. But for me I could definatly leave something out by mistake and wouldn't try and cheat anyone as that doesn't help me in the long run. I do think you have to do your due diligence so someone elses mistakes don't screw you.

    I hope that if I am doing something wrong the investor could at least point it out so I can become better at what I do.

    I enjoyed reading this post but seems like the wholesaler here is giving people in the biz a bad name. But it happens in every biz. I am working on my first deal right now and if there isn't any money on the table for me I will just bird dog it since the place belongs to a friend and I want everyone to win.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Larry, just to be clear, we are not saying that "everybody" is lying or that everybody who is a wholesaler acts in this fashion. What I have illustrated is what not to do by the example of a few who I would consider to me morons rather than wholesalers. These types that do lie or dont perform due diligence, or dont have any clue on exit values or rehab estimates should not be in the business until they do learn the proper methods. This thread was an educational example of the classic what not to do so that BP members looking to get into wholesaling can learn the correct ways.

  • New York City, NY · Member since 2013 · 11 posts · 1 vote
    13y

    wow! This post is very eye-opening and educative! I spent all morning reading every single line. It is was interesting to also see Jerry Puckett in his early days in December 2010. It feels like myself right now. These days Jerry too is a major reference point for investors when it comes to probates and marketing. That encourages me as a new-and-aggressive-ready-for-action investor.

    So, I want to start with a wholesale strategy because it presents a lot less risk for the new guy like me working without a mentor... And since most you experienced investors don't take lousy deals from newbie wholesalers, my gathering is that you still analyze ALL of them before tossing some away.

    Therefore, for my wholesale deal to get your attention, it needs to be ethical, honest, profitable (for my buyer), and have estimates made by field experts such as realtor comps and contractors/inspectors rehab estimates & ARV's and in good locations. And of course have a touch of common sense...

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Bizi Kayumbi:
    And of course have a touch of common sense...

    Bingo!!!

  • White House, TN · Member since 2013 · 47 posts · 5 votes
    13y

    Bottom line is as a wholesaler you either have a deal or you don't! You can't make the numbers up to make a deal work that is just common sense. Seems like if you want to do this business over the long haul find real deals and don't bite the hand that feeds you.

  • Real Estate Agent · Austin, TX · Member since 2013 · 14 posts · 1 vote
    13y

    @Will Barnard

    Thanks for the education. This is a fantastic thread. I subscribe to the modeling theory and strive to do, be and learn from those that are achieving success. That said, could you share some of the deals you passed on and wholesaled? I didn't want to sign up for your buyers list and "muddy" up your list(At least not without asking first)

    Thx - Jim

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Jim Deason:
    @Will Barnard

    Thanks for the education. This is a fantastic thread. I subscribe to the modeling theory and strive to do, be and learn from those that are achieving success. That said, could you share some of the deals you passed on and wholesaled? I didn't want to sign up for your buyers list and "muddy" up your list(At least not without asking first)

    Thx - Jim

    It would be my pleasure Jim. I am going off of memory here and will have to look up files to confirm accuracy. Also, I want to point out that I have not wholesaled anything for over a year now for two reasons. 1. With competition for deals so fierce, there are fewer and thus I keep everything I can get my hands on. 2. With my experience and resources, I have the ability to find money and or means to keep them.

    Last wholesale deal looked like this: $460k purchase, $65k rehab, $679k exit. A tad tight but an easy rehab and enough room for decent profit for the wholesale buyer. I will pull files to grab more examples from the past for you.

  • Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    13y

    sounds really good

    Thank You @Will Barnard

  • Lake In The Hills, IL · Member since 2013 · 2 posts · 3 votes
    13y

    I agree that wholesalers need to have the complete package. Mine includes:

    1. Thorough independent property inspection with reports that are a minimum of 45 pages long. (My inspector is a GOD)

    2. Estimate of repairs based on the "Godly" inspection (if necessary)

    3. Independent Appraisal

    4. Thorough Title research and snapshot of current liens.

    5. Tax Assessment research and costs.

    6. Complete Carrying Cost Analysis of all monthly utilities and HOA fees

    7. The opportunity to utilize my auction sale coordination services that sells the property in approximately 30 days.

    Too many "so-called" real Estate professionals - in all areas of this business ... are just too lazy is seems :/

  • Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    13y

    Its not "the" way, its "a" way.

    I do find it very interesting that Will has not wholesaled a deal in over a year. Things have changed drastically since then.

    Everything is regional, some markets you need a packet and the 70% rule works. Others the 70% rule should be put in the smithsonian and an inspection would be overkill and not even entertained by buyers who do their own homework.

    It comes down to knowing your market and what you need to do to make it happen, simple as that. Remember that when you follow this advice, because if you are listening to someone in Ohio on how to wholesale and you are in Los Angeles you are likely to be getting inaccurate advice.

    This is all regional.

  • Lake In The Hills, IL · Member since 2013 · 2 posts · 3 votes
    13y

    Yes ... it is "a way" and a good way I think.

    One thing I would like to add about what I call "Over-rehabbing".

    There needs to be more common sense and understanding not only of the specific neighborhood selling prices but also of the demographics. You have to look at the median income and average family size to start so that the home will be appealing to the typical "end-buyer" for that specific neighborhood.

    For example ... A family with an average annual income of 50-60k and the standard 2 children wants solid and sturdy construction and is not worried about granite counter tops and crystal chandeliers that their darlings will just be pulling out of the ceiling when they swing on them. They DO appreciate easy to care for and maintain flooring and walls that wipe clean from messy fingers. Neat, clean and easy to maintain is what this end-buyer wants. So lining the bare floors with expensive marble tile is not going to bring in a better price from this end-buyer because they do not want it and are not going to pay for it. Good solid ceramic or laminate that can be swiffered clean is all they need and want.

    I have seen some re-hab flippers do a beautiful job on properties according to their own tastes and with the thought of increasing resale profits with more expensive upgrades but are not in line with the demographics of the neighborhood. They then wonder why it takes a year or so to re-sell their over-priced investment.

    Just an observation I have had over the years. :)

  • Fort Worth, TX · Member since 2013 · 5 posts · 0 votes
    13y

    @Will Barnard I understand that you have witnessed a bad deal and that they underestimated repairs and had the wrong values but still the statement that you made that you agreed with bryan hancock that you should not trust any wholesaler but the proven ones I am a new wholesaler and how would any investor know rather I provide good deals or not without giving me a chance I mean come on people this post is really discouraging for new wholesalers just because someone was notfied of a bad deal and wasted their time we have nothing to do with that nor are in your market so how would you know if it is some scam or not

    @Bryan Hancock

    @Nemi W. also @nemi W. you should not discourage new wholesalers just because your results suck

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Billy Gardner:
    @Will Barnard I understand that you have witnessed a bad deal and that they underestimated repairs and had the wrong values but still the statement that you made that you agreed with bryan hancock that you should not trust any wholesaler but the proven ones I am a new wholesaler and how would any investor know rather I provide good deals or not without giving me a chance I mean come on people this post is really discouraging for new wholesalers just because someone was notfied of a bad deal and wasted their time we have nothing to do with that nor are in your market so how would you know if it is some scam or not

    @Bryan Hancock

    @Nemi W. also @nemi W. you should not discourage new wholesalers just because your results suck

    Billy, I have a strong inclination you only read the first page or so of this thread based on your comments and @ mentions. Nemi was not negative at all and regardless of any market, there is the right way and the wrong way to wholesale. I would also add there is not just one right or wrong way either.

    My intent, which I believe was accomplished, was to show others new or semi experienced, how to make a good name for yourself and how to become successful at this strategy.

    To answer your specific question, a buyer may not know if you are new or seasoned, but IF you learn your market and the proper ways to get real deals, then when you send them off, the buyers on your list will pay attention simply based on the numbers. They will know there market and if your offering states the exit is $200k, they will know within a few minutes if you have done proper due diligence and provided an accurate assessment. If you have, that buyer will be calling you, rest assured! It is all about the numbers and your job as a new wholesaler is to learn the ropes, then go get a real deal to offer your buyers. More specifically, one that meets the criteria of your buyer.

  • Salt Lake City, UT · Member since 2013 · 164 posts · 73 votes
    13y

    @Will Barnard

    I'm glad your still involved in this thread. I see a lot of back and forth about repair cost, but what is the best way for a new wholesaler to learn how to accurately account for repair cost and present it for those of us who don't have a rehabbers background?

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Jason Fraser:
    @Will Barnard

    I'm glad your still involved in this thread. I see a lot of back and forth about repair cost, but what is the best way for a new wholesaler to learn how to accurately account for repair cost and present it for those of us who don't have a rehabbers background?

    Great question, I don't believe anyone has asked me that in this thread, though I have posted the answer in other threads in great detail.

    Step one, get a repair check list. A really nice guy has given one to the community of BP which can be found right here:

    http://www.biggerpockets.com/files/user/BarnardINC/file/70-repair-cost-form

    Next, spend lots of time at Home Depot and/or Lowes filling in material costs on your checklist. You will notice that these stores also have tags for install costs for many of the items. Keep in mind these prices are high and much higher than a good rehabber can do them for, especially when quantity is present. But you will at least get a free idea of the most it should cost for install. Next, start calling contractors and form relationships with them. Let them know that you are building a business and plan on running full rehab projects. Rather than waste their time sending them out on bids for homes you may never get, let them know that if they could have you over to any of their ongoing projects and walk them with you, you can get a basic understanding of how much it costs to say, paint the interior and exterior of a 1500 sq. ft home. How much to install 12 new windows, how much to . . . . And so on.

    Once your list is filled up with the material and labor costs, you simply walk each potential purchase and start making a list of repairs. When you send out the deal, you provide the list of repairs. Even without a repair budget sent, the itemized list will allow the wholesale buyer to calculate it, providing photos and or video is also a great tool.

    One last and best quick tip I have given is to divide the house into sections. For example, kitchen (cabinets, counter tops, and appliances), painting, roof, stucco, windows and doors, plumbing, electrical, rough framing, finish framing, landscaping, bathrooms (toilet, vanity, mirror, tub, wall tile), flooring, etc. this will allow you to (after you walk many homes and practice) walk through a home and quickly add up a repair estimate my each category of the home. As an example, the cookie cutter 1500 sq. ft. Homes I used to do would run me about $7k for kitchen, $3k for baths, $5k for paint, $1k for front and $1k for back landscaping, etc. as I walked the home, I simply added one kitchen, 2 baths, front and back landscape and had a subtotal of $20k. Then I added flooring, electrical, plumbing, windows and doors, etc to get the total.

    How was that for an answer?

  • Salt Lake City, UT · Member since 2013 · 164 posts · 73 votes
    13y

    great answer Will. Actually I found your answer in a similar thread before I saw it here. I copied and pasted the answer in Evernote so I can refer back to it and downloaded the repair cost form.

    Thanks again for sharing your knowledge and resources.

  • Real Estate Investor · Austin, TX · Member since 2013 · 50 posts · 6 votes
    13y

    @Will Barnard

    Thanks for the post. I am looking for wholesalers for my next purchase. You post is a good education to start with for me.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Happy to be helpful, one hand washes the other I always say.

  • Wholesaler · Brooklandville, MD · Member since 2013 · 149 posts · 29 votes
    13y

    Excellent resource again Mr Barnard thanks

  • Professional · Mesa, AZ · Member since 2013 · 12 posts · 0 votes
    13y

    @Will Barnard -- Thanks for such a great and complete response. The repair cost estimate doc is great, too!

  • Wholesaler · Brooklandville, MD · Member since 2013 · 149 posts · 29 votes
    13y

    This past saturday, I've printed out the checklist and I was in Home Depot for at least 4 hours lol. Other than being bugged of the sales staff in the kitchen sales floor it was an enjoyable. However I was getting tired and I was starving too. I've left doing as much as I can grabbing samples and among other things. I may go back or check out online it was a treat on how much fun it was.

    My phone is buzzing like their is no tomorrow now so I need to review my findings and make it work. The recent REIA event gave me a better idea on the average cost of repairs based on SF. (Baltimore has tons of rowhomes so you'll kinda have an idea.)

  • Investor · Ambler, PA · Member since 2013 · 44 posts · 4 votes
    13y

    I read every line of this topic and I want to thank @Will Barnard for being realistic in investing. I didn't know wholesalers had such a bad reputation. I will keep everything in mind when dealing with investors in the future. I think this is great stuff and look forward to reading all the other post.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    thanks for the kind words @Kenneth Shelley

    I am happy to hear that you and others have found it valuable.

  • Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    12y

    Just closed a wholesale here in Orange County netting a $48,000 wholesale fee, the deal sold @ 85% of ARV less repairs to a rehabber.

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