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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  • Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    12y

    Well done @Tim G.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by Tim G.:
    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.

    Wow, nice profit for you and likely none for them. Please tell me how in the heck can anyone make money flipping with only a 15% margin to cover holding costs, resale costs, and have anything left for profit?!

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

    @Will Barnard there is room to make money on the deal still or they wouldn't take it on.

    Just a nice example of what is possible wholesaling if you get a little lucky but also know your market and who to sell to very well.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by Tim G.:
    @Will Barnard there is room to make money on the deal still or they wouldn't take it on.

    I could argue otherwise and state that they could be rookies and have over estimated ARV or underestimated rehab, but it makes no difference. I am happy that you have made money on the deal. I was simply pointing out to others that they should think 3 or 4 times before taking on a deal with only a 15% margin. Of course this buyer could be all cash, no leverage and have minor holding costs and perhaps are licensed so they can reduce sales costs as well. Regardless, their ROI will be very, very low at that level of spread.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by Tim G.:
    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.

    I just bought one at 80% of ARV. Not something I would ordinarily do. However, unless we run into another full blown financial crisis in the next few months, I know it will sell (extremely low inventory). I had the seller carry back 90% of the purchase price at interest only for 120 days. 1960s tract house, nothing pretty, no new kitchen etc. I'll do just what's necessary to get it sold, mostly likely to an FHA buyer. No home run, but easy it's to see the exit and the light at the end of a relatively wide tunnel.

    When it sells I'll post the details here on BP. This will be a true economy flip (as opposed to creating "exceptional homes" and branding, lalalala) and I think it will be interesting to look at what works (and doesn't work) in different markets.

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    12y
    Originally posted by Tim G.:
    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.

    Tim,

    Great job!!!

    Maybe you can post a copy of the check for those who are skeptical or new.

    Big Henry

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by K. Marie Poe:
    Originally posted by Tim G.:
    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.

    I just bought one at 80% of ARV. Not something I would ordinarily do. However, unless we run into another full blown financial crisis in the next few months, I know it will sell (extremely low inventory). I had the seller carry back 90% of the purchase price at interest only for 120 days. 1960s tract house, nothing pretty, no new kitchen etc. I'll do just what's necessary to get it sold, mostly likely to an FHA buyer. No home run, but easy it's to see the exit and the light at the end of a relatively wide tunnel.

    When it sells I'll post the details here on BP. This will be a true economy flip (as opposed to creating "exceptional homes" and branding, lalalala) and I think it will be interesting to look at what works (and doesn't work) in different markets.

    Though that is a tight deal by my standards as well, if you are not using any leverage, you certainly have some room for error and room for profit if you move it quick. I look forward to hearing the results of that deal from you K.

    Will

  • Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    12y
    Originally posted by Henry M.:
    Originally posted by Tim G.:
    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.

    Tim,

    Great job!!!

    Maybe you can post a copy of the check for those who are skeptical or new.

    Big Henry

    It was a wire, and I've posted my fair share of checks here. You'll just have to take my word for it.

  • Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    12y
    Originally posted by Will Barnard:
    Originally posted by Tim G.:
    @Will Barnard there is room to make money on the deal still or they wouldn't take it on.

    I could argue otherwise and state that they could be rookies and have over estimated ARV or underestimated rehab, but it makes no difference. I am happy that you have made money on the deal. I was simply pointing out to others that they should think 3 or 4 times before taking on a deal with only a 15% margin. Of course this buyer could be all cash, no leverage and have minor holding costs and perhaps are licensed so they can reduce sales costs as well. Regardless, their ROI will be very, very low at that level of spread.

    For a rehabber I agree, but I guess I'm here to stress to the wholesalers you should think 3-4 times before sending out a deal lower than you need to. This forum by its nature is very conservative and I don't disagree with it. But... this is a thread on wholesaling.

  • CA · Member since 2011 · 762 posts · 182 votes
    12y
    Originally posted by Tim G.:
    @Will Barnard there is room to make money on the deal still or they wouldn't take it on.

    Just a nice example of what is possible wholesaling if you get a little lucky but also know your market and who to sell to very well.

    I'm impressed. I didn't think there were rehabbers that would do that. I've always thought wholesaling was a lot of work and very low margins so I never paid much attention to the concept, but now I'm rethinking. What is your exit strategy if you can' t find a buyer? Do you lose your EMD? This is a monster thread that I haven't read so I hope I'm not rehashing things. I remember you saying in another thread somewhere that you do massive direct mailing, is that how you got this one?

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y
    Originally posted by Tim G.:
    Originally posted by Will Barnard:
    Originally posted by Tim G.:
    @Will Barnard there is room to make money on the deal still or they wouldn't take it on.

    I could argue otherwise and state that they could be rookies and have over estimated ARV or underestimated rehab, but it makes no difference. I am happy that you have made money on the deal. I was simply pointing out to others that they should think 3 or 4 times before taking on a deal with only a 15% margin. Of course this buyer could be all cash, no leverage and have minor holding costs and perhaps are licensed so they can reduce sales costs as well. Regardless, their ROI will be very, very low at that level of spread.

    For a rehabber I agree, but I guess I'm here to stress to the wholesalers you should think 3-4 times before sending out a deal lower than you need to. This forum by its nature is very conservative and I don't disagree with it. But... this is a thread on wholesaling.

    Indeed, this is a thread about wholesaling. Thanks for pointing out the conservative nature of the forum. I'm still surprised when I hear anyone suggest that a seller (wholesaler or otherwise) needs to leave "enough room" for the buyer. It's the buyer's job to figure out what that means, whether that buyer be a landlord, a rehabber or an owner occupant. I've yet to meet a rehabber that leaves enough "meat on the bones" so that the end buyer ends up with equity. I never understood $5K or $10K wholesale "fees" either. Sell it for what the market will bear, just like everyone else in the business. Why sell it to the rehabber that wants to clear $75K, if you've got a buyer that has a crew to keep busy and is happy to clear $40K?

    That being said, I've been been contacted by enough wholesalers to know that many of the properties they are presenting aren't deals at any price for anyone. I never present anything I sell as anything other than property address and asking price. If a rehabber needs anything more than that from me, I know they don't know what they are doing.

    Thanks for keeping it real, @Tim G.

  • Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    12y
    Originally posted by K. Marie Poe:
    Originally posted by Tim G.:
    Originally posted by Will Barnard:
    Originally posted by Tim G.:
    @Will Barnard there is room to make money on the deal still or they wouldn't take it on.

    I could argue otherwise and state that they could be rookies and have over estimated ARV or underestimated rehab, but it makes no difference. I am happy that you have made money on the deal. I was simply pointing out to others that they should think 3 or 4 times before taking on a deal with only a 15% margin. Of course this buyer could be all cash, no leverage and have minor holding costs and perhaps are licensed so they can reduce sales costs as well. Regardless, their ROI will be very, very low at that level of spread.

    For a rehabber I agree, but I guess I'm here to stress to the wholesalers you should think 3-4 times before sending out a deal lower than you need to. This forum by its nature is very conservative and I don't disagree with it. But... this is a thread on wholesaling.

    Indeed, this is a thread about wholesaling. Thanks for pointing out the conservative nature of the forum. I'm still surprised when I hear anyone suggest that a seller (wholesaler or otherwise) needs to leave "enough room" for the buyer. It's the buyer's job to figure out what that means, whether that buyer be a landlord, a rehabber or an owner occupant. I've yet to meet a rehabber that leaves enough "meat on the bones" so that the end buyer ends up with equity. I never understood $5K or $10K wholesale "fees" either. Sell it for what the market will bear, just like everyone else in the business. Why sell it to the rehabber that wants to clear $75K, if you've got a buyer that has a crew to keep busy and is happy to clear $40K?

    That being said, I've been been contacted by enough wholesalers to know that many of the properties they are presenting aren't deals at any price for anyone. I never present anything I sell as anything other than property address and asking price. If a rehabber needs anything more than that from me, I know they don't know what they are doing.

    Thanks for keeping it real, @Tim G.

    @K. Marie Poe Thank you! I enjoy the encouragement and support of this forum but can't shake the feeling the wholesaling forum is comprised of non wholesalers telling new wholesalers how they would like to see wholesaling done. I just want to make sure real world examples are being shown that work. You make a perfect point about "leaving meat on the bone" no rehabber does that for an end buyer. They let the market dictate its value.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by K. Marie Poe:

    This thread has taken a bit of a turn but I want to address a few things posted above here. First, lets make sure we are talking apples and apples. In no shape or form does a retail end buyer have anything to do with investors and most of them will pay full retail pricing for a home they want to live in. The statement that wholesalers should leave enough room for the rehabber is simply stating that they will be unsuccessful in selling a deal if such room does not exist! It does not mean they should take only a $5k wholesale fee when they could get $10k or $20k. The correct part of the statement is that the wholesaler should sell it for what the market will bear. In Tim's latest case, the market allowed him to sell at 85% to some buyer. Perhaps this buyer has some different strategy, perhaps not, it makes no difference. Point is, new or seasoned, a wholesaler WILL need to leave enough room to attract a buyer in the present market conditions and for what that market will currently bear.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by Tim G.:

    Perhaps I missed it, could you point out who these non wholesalers are who are telling wholesalers how they would like to see wholesaling done?

    I agree, real world examples are perfect to help teach others coming into the business or wanting to improve on what they have already accomplished. I believe I have posted numerous real life examples in this thread and others on wholesale deals that closed and some that did not.

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    12y
    Originally posted by Will Barnard:

    First, lets make sure we are talking apples and apples. In no shape or form does a retail end buyer have anything to do with investors and most of them will pay full retail pricing for a home they want to live in. The statement that wholesalers should leave enough room for the rehabber is simply stating that they will be unsuccessful in selling a deal if such room does not exist! It does not mean they should take only a $5k wholesale fee when they could get $10k or $20k. The correct part of the statement is that the wholesaler should sell it for what the market will bear. In Tim's latest case, the market allowed him to sell at 85% to some buyer. Perhaps this buyer has some different strategy, perhaps not, it makes no difference. Point is, new or seasoned, a wholesaler WILL need to leave enough room to attract a buyer in the present market conditions and for what that market will currently bear.

    Will,

    I couldn't agree with you more nor said it better. I also agree with Tim in the since that if you can generate a profit such as his, then by all means do it. And I know Will agrees. But the "Truth About Wholesaling" is this is not a normal profit margin. The average wholesale profit may hover between $5K to $10K for a home under $150K. Now that does not mean if purchased right you couldn't generate a $30K profit. It truly is contingent on three things. The numbers, the individual buyer you can attract, and the market in that specific area.

    To go a step further, profit on average from what I've personally witnessed and experienced can roughly run between $20K to $25K on higher end homes starting at $250K+. Of course, keeping the same contingencies as mentioned above in mind.

    In one of our wholesale deals we generated a net profit slightly over $55K on a property we short-sold with the bank. We sold it for $325K which the home's ARV was worth roughly $415K. The 3,500 sq. ft. home just needed paint and it was sold to a very greedy investor (lint in our pockets was too much profit). We used a HML (really before transactional funding was a household name among investors) to secure the transaction with the bank and flipped it the same day to an investor who wanted to live there temporarily then move onto another home/project.

    So it can be done.

    But with MLS and its history and potential wholesale deals working against negotiations with investors, not to mention the fluctuating market in some areas, makes it very difficult to always pull off those types of numbers Tim G. or I have mentioned.

    Here's one more point I would like to make. I too think there should be enough meat on a bone to entice the buying investor back. Just in case you lock up another potential wholesale deal in the bag. Let's be honest, I too don't like leaving money on the table, so to speak, but if you want to generate a REAL buyer's list with investors who can perform immediately, then offer REAL deals which can provide you with a quick exit and profit and a generous profit for the investor putting in the work on the rehab.

    This is not to say you cannot make a living at wholesaling, but wholesaling in my view is to either fill in the gap or help supplement your course in real estate for rehabbing and holding or flipping properties.

    The bottom line, the more of a risk (even if calculated) the better the profit should be for the rehabber.

    I've been on both sides of the coin many times and really know as a wholesaler, you are dealing with greedy investors at times who will want the deal for a small fee or try and circumvent you even if you are not dealing with the buying investor directly. This may happen when advertising a property you have which may go beyond your personal buyer's list. That may be a better subject on the Truth of Wholesaling. It's not just about research, due diligence, and presenting a good product in wholesaling for the buying investor but it is also about Position, Relationship, and Protection between you and the seller.

    Okay, I think I went on too much with my gibberish.

    That's my two pesos!

    Big Henry

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y

    Henry, in my opinion, your two pesos were priceless! Nicely done.

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    12y
    Originally posted by Will Barnard:
    Henry, in my opinion, your two pesos were priceless! Nicely done.

    LOL! - We old-schoolers have to stick together... Which does include Tim G. & even a quick mention of K. Marie Poe ;P

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

    I'm only two years into this business. I'm still a rookie!

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    12y
    Originally posted by Tim G.:
    I'm only two years into this business. I'm still a rookie!

    Who said anything about time on the job. Tim, my friend you don't look a day over 75.

    Lol. J/K.

    Even 2 years is a wealth of knowledge.

    Big Henry

  • Pittsfield, MA · Member since 2011 · 3 posts · 0 votes
    12y

    her is something if you want to get great deals work with the wholesaler give the criteria and walk through with them if you help them and can help and show them what they need and need to to you have molded someone who will latter come to you with the deals you want and if you take there deal you will have someone who will com to you first every time

  • Flipper/Rehabber · Seminole, FL · Member since 2010 · 859 posts · 316 votes
    12y

    Quick fix for newbie wholesalers?

    Do not offer investors rehab numbers or ARV at all. Simply give investors an address, purchase price, list of things that need repairs, and offer to show them the property if they are interested.

    This way the "experienced pros" in your area wont be talking about how you underestimate repairs, and over-estimated value.

    Happy hunting!

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by Jimmy C.:
    Quick fix for newbie wholesalers?

    Do not offer investors rehab numbers or ARV at all. Simply give investors an address, purchase price, list of things that need repairs, and offer to show them the property if they are interested.

    While this appears to resolve the issue on the surface, I don't believe it is the answer. First off, in order to calculate what your offer to any seller is going to be for a wholesale deal that is a fix and flip, you need to know the exit value and approx.rehab numbers, otherwise, how do you know how much to offer!

    The biggest point I want to make clear here for both wholesalers and rehabbers, is that you must learn your market so you can calculate accurate exit values and you must learn how to get reasonably close in estimating repairs. Without these two skill sets, you will likely make mistakes, offer wrong and not complete a successful wholesale or flip.

  • Investor · Atlanta, GA · Member since 2013 · 104 posts · 30 votes
    12y
    I'm a real wholesaler that don't do properties off the mls. I market for properties that's 20-40% below market to absentee owner and distressed properties that I see while driving. I know how to evaluate repair cost from research and education. I don't do reo's, short-sales of foreclosed properties. The truth is as a wholesaler one does have to spend money, mostly on marketing an driving. So please lazy so-called wholesalers do it right get some more training or just stop all together. Thanks,
  • Financial Advisor · Raleigh, NC · Member since 2013 · 71 posts · 11 votes
    12y

    It's simple...know your market, know your buyers, know how to structure a deal, know how to close a deal, lock it up and bring it to the table.

    Add value and keep it real...everything else will take care of itself.

  • Rehabber · Smyrna, GA · Member since 2013 · 864 posts · 510 votes
    12y

    Wow, what a thread.

    Not too much that hasn't been said, but I hardly ever look at wholesalers leads anymore. I'll give new ones a shot or two, then move on when I realize its a waste of time.

    My favorite is the "this one will go fast" stuff, like that is ever going to motivate me to make an offer before I do my due diligence, especially when I hear it on every single deal.

    Anyway, my add is that the market has actually changed a lot since the thread started. Between the buy and hold guys and newbies around here, the wholesalers are selling these things for what would be a certain loss for a rehabber. I'm with Will, buying at 85% is almost certainly a loser with holding and sale costs...Hard to blame the wholesaler, though. I sure as heck dont blame them for selling to a willing buyer, especially if its a hedge fund that should know better. There are guys around here that make a living off of ripping off new guys, though. I bad mouth them every chance I get. Its almost painful to see the numbers they pitch their properties at, its not even close to reality.

    My experience is exactly whats been discussed- that we're just seeing a LOT of wholesalers who just dont have the experience to judge things right and they are going out making offers before thy have a clue. We're already seeing some of the results of all the 'Guru training' on wholesaling with proof of funds letters (which are just silly) and special warranty deeds restricting transfers within 30-90 days and such. The banks are reacting to wholesalers locking up property they have no ability to buy and backing out when they cant find a double close.

    It also cracks me up when I see the same house from 3-4 different "wholesalers" all with different numbers. I get them when they are actively listed, too. Cracks me up, especially when their price is over the listing...not really sure if they think nobody's gonna notice or what.

    BTW, Any buyer using numbers given to them by someone that makes a profit when you buy whether you make money or not should have their head examined. I use other people's numbers to weed out the ones that are obviously off my numbers, but after its got my interest I completely ignore what they gave me, and usually make fun of them if they are off by a large margin so they learn something. Gently to some, pretty rudely to ones I think know better.

    I get realtors and wholesalers argue with me on my ARV and rehab estimates all the time. VERY rarely do they have any experience or understanding in what it actually takes to rehab a house, they are just trying to talk you into their next payday.

    Tim, $48k on a wholesale deal? That ridiculous...and awesome.

    J.Scott, it was an hour ago when I read it, but I liked your post on just now thinking you could be a good wholesaler. I've done 100 or so rehabs and still screw something up every time...I cant work on thin margins, I'd go broke!

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