The Truth about Wholesaling!

The Truth about Wholesaling!

Will BarnardPro Member
Moderator
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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  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    12y
    Originally posted by @Tyler Jaeger:
    @Will Barnard and @Henry M.

    What a great thread and great people!

    If I could ask for just a little guidance I have two questions.

    As someone looking to one day run a full service real estate business how should I begin? Is wholesaling the best place to start building capital and “learning the ropes”?

    Thanks in advance!

    Sincerely,

    Tyler Jaeger

    Tyler,

    First and foremost, welcome to the BP Family.

    Before you begin, you must answer several questions... One already being answered, as you have stated you want to run a full service real estate business.

    Here's a few questions and thoughts for you:

    Define: Full Service? In other words, break it down into increments. I have a friend who every time they eat (especially steak), they begin to choke as if the food is not going down properly. I tell him, take small bites and chew into tiny bits. It has helped. However, sometimes he gets too excited and begins choking again. LOL! It sounds funny, but I feel for the guy. Anyways, take your vision (not goals) and break it up into small pieces. Research, Read, Practice, and Master... Once you have conquered one element then move onto the next.

    Will you have a license?
    Will you have cash?
    Will you borrow?
    How is your credit?
    What is your business plan?
    What aspect of real estate is most important to you?
    Are you a people's person?
    What are your strengths?
    What are your limitations?


    What is it you are trying to accomplish? An example, let's say I want to make $10K per month from a passive source in order for me to leave my job and live life as a person who manages people not property. In other words, through holding and renting/financed selling real estate. Do I need 10 homes or 20 properties, etc...?

    I could go on but for the sake of most readers, yes wholesaling is a good way to start, however, I think it would be much easier to acquire property (i.e. multi-plex), fix it up, and rent it out. It really is and should be designed to your area.

    Read the real estate news in your immediate area. Learn your area. Choose the strong and avoid the weak areas. Once you understand the market in your circle, then formulate the best plan of action for that specific area.

    I am a real estate investor. Yet what I find and do in San Antonio,Texas, I find I am unable to do in Austin, Texas. So in my case, my immediate area has a different plan of action due to it's aggressive market conditions. I've just succumbed to remain investing in real estate in SATX until I learn the Austin market completely.

    Wholesaling is all about learning the market, due diligence, and understanding all aspects from acquisition to costs of repair/rehab to estimating fair market value and even understanding prevailing exit strategies of your area (s).

    Either way you cut it, you have to take one element at a time. Keep in mind, each element may have a dozen components to master before you can get to a full service real estate business.

    Just my two pesos.

    Big Henry

  • vancouver, British Columbia · Member since 2014 · 5 posts · 1 vote
    12y

    Henry M, excellent advice.

    Cant really do much if I don't know what the market in my area is doing. I'm signing up for as many news letters as I can.

    Cheers!

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    12y
    Originally posted by @Tyler Jaeger:
    Henry M, excellent advice.

    Cant really do much if I don't know what the market in my area is doing. I'm signing up for as many news letters as I can.

    Cheers!

    Tyler,

    No problem buddy.

    Try BiggerPockets to possibly learn what others are going through in or near your area.

    If limited, considering your location or area you are wanting to invest into, then try just some good old fashion Google. It is not always necessary to pay for education. As you will come across those selling their info. Some good, some bad. In this day & age, just read all the free information you can get your hands on via internet or the local book store.

    Lastly, Google "Real Estate", then click onto News link. I would setup a whole new Email address (this way it is dedicated for this purpose and your education), then use the Email Alert system to notify and Email you any info regarding real estate, be it general (real estate) or specific (real estate: wholesale, laws, regulations, Safe Act, Dodd-Frank, Market, etc).

    Keep us posted.

    Just my two pesos.

    Big Henry

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    The truth?

    By the time you learn to be a good wholesaler, with off the street stuff, you won't need to be a wholesaler. :)

  • Investor · Lakewood, WA · Member since 2014 · 119 posts · 8 votes
    12y

    Man I am really old school. Whatever happen to the day when the RE Investor who dealt with Wholesalers actually got what was stated. My story on that is a good one though, I dealt with a couple of wholesalers (partnership) who actually gave me what was stated with the exception of a few properties they were trying to sell me, at that time I had already aquired quite a few properties and had a good stream of passive income coming in, enough to pay the mortgages. Back then we had NoDoc Loans. Now if you were looking at the paper it would look like if I sold these houses I would at least break even after closing, but that was on paper. Without repeating myself I explained that in another blog, but to make a long story short these guys were buying properties in Lots (I am assuming they were HUD Foreclosures) and they did not inspect these last few houses that they wanted me to buy. They told me they were basically minor fixer uppers and it may cost at least $5k to fix them (mostly cosmetic). They took me out to the houses, they were Row Houses (Baltmore, MD) and from what I saw it looked more like I needed to tear down the whole street in order to fix these properties, yes they were that bad. Even the neighborhood looked bad, and I took a rough guess on how much it would actually cost me, more like $50k per house (there were 5 of them) the houses were at Fair Market Value worth about $160,000 per unit but in an area where everyone was paying a low ball of $85,000 per house and living in them, yes it was that kind of neighborhood. After quickly calculating on what I needed in order to fix these houses up, and thats from looking at the outside, I didn't even bother going into these places I turned the deal down, it was one of those "if its to good to be true" type of deal..After that these guys never contacted me again. Sigh oh well lol...

  • Boston, MA · Member since 2012 · 16 posts · 0 votes
    12y

    As a newbie in wholesale I appreciate the quick reality check. Beside the best way to get good relationship it about being accurate. Not about the first deal it's about the one after. If you burn your bridges with your buyer might as well call it quits.

  • Burlington County, NJ · Member since 2014 · 16 posts · 14 votes
    12y

    Wow!! I just read through the whole thread (yes, I really did!!). Thanks everyone for your input. Pretty eye opening for a newbie. @Will Barnard thanks for starting this and for your straight up no nonsense advice, along with everyone else's (love the baseball analogies - guess I'm in a farm team now).

    I've also learned that by being a real estate agent and working in the construction industry, how much basic knowledge I have for rehab and wholesaling. But I know I still have much to learn. :)

    I just decided to become an investor and am so glad I "stumbled upon" this site before falling into the "guru" trap.

    Thanks again!!

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

    Welcome aboard @Account Closed I am sure that with enough effort here on BP and in the field, you will be called up to the show real soon! Thanks for the kind words.

  • Rental Property Investor · Tarpon Springs, FL · Member since 2014 · 32 posts · 22 votes
    12y

    Well....I did it...I actually read this entire string...from the beginning....all i can say is WOW...great info and well done to the mentors.

  • Tampa, FL · Member since 2014 · 18 posts · 3 votes
    12y

    This is extremely informative. It is important to be cautious

  • Real Estate Investor · Bessemer, AL · Member since 2014 · 22 posts · 3 votes
    12y

    very good post. I am fairly new to wholesaling, but i read every booki could getfor a year before i attempted my first deal. The gurus make it seem anyone can wholesale houses and thats not true. It is hard work if you are doing it right. Our first objective as wholesalers should be to leave alot of meat on the bone for our end buyer. Wholesalers should know make our money on volume not the big score.

  • Newington, CT · Member since 2014 · 12 posts · 8 votes
    12y

    Wow!! yes Henry and Will I did read this amazingly long but informative thread.  As a newbie with the thought of wholesaling initially my eyes are more open to this.  I get the sense that many investors, those who don't wholesale don't particularly view wholesalers in high regard, I hope that's more the exception and not the norm.

    I still want to start with this strategy to build a cash position for bigger and better strategies such as buy and holds.  I want to learn this strategy to get started and for sure honesty and transparency is the way to go…I plan on working with local investors so I can truly understand what they want and I will do my best to give them that in a fair way.  I believe in building good honest relationships…do that and the rest will hopefully follow.

    I appreciate all this advice and am glad to be a part of this great community

    Thanks

  • Real Estate Investor · Saint Louis, MO · Member since 2014 · 21 posts · 7 votes
    12y
    Originally posted by @Henry M.:
    Originally posted by @Tyler Jaeger:
    @Will Barnard and @Henry M.

    What a great thread and great people!

    If I could ask for just a little guidance I have two questions.

    As someone looking to one day run a full service real estate business how should I begin? Is wholesaling the best place to start building capital and “learning the ropes”?

    Thanks in advance!

    Sincerely,

    Tyler Jaeger

    Tyler,

    First and foremost, welcome to the BP Family.

    Before you begin, you must answer several questions... One already being answered, as you have stated you want to run a full service real estate business.

    Here's a few questions and thoughts for you:

    Define: Full Service? In other words, break it down into increments. I have a friend who every time they eat (especially steak), they begin to choke as if the food is not going down properly. I tell him, take small bites and chew into tiny bits. It has helped. However, sometimes he gets too excited and begins choking again. LOL! It sounds funny, but I feel for the guy. Anyways, take your vision (not goals) and break it up into small pieces. Research, Read, Practice, and Master... Once you have conquered one element then move onto the next.

    Will you have a license?
    Will you have cash?
    Will you borrow?
    How is your credit?
    What is your business plan?
    What aspect of real estate is most important to you?
    Are you a people's person?
    What are your strengths?
    What are your limitations?


    What is it you are trying to accomplish? An example, let's say I want to make $10K per month from a passive source in order for me to leave my job and live life as a person who manages people not property. In other words, through holding and renting/financed selling real estate. Do I need 10 homes or 20 properties, etc...?

    I could go on but for the sake of most readers, yes wholesaling is a good way to start, however, I think it would be much easier to acquire property (i.e. multi-plex), fix it up, and rent it out. It really is and should be designed to your area.

    Read the real estate news in your immediate area. Learn your area. Choose the strong and avoid the weak areas. Once you understand the market in your circle, then formulate the best plan of action for that specific area.

    I am a real estate investor. Yet what I find and do in San Antonio,Texas, I find I am unable to do in Austin, Texas. So in my case, my immediate area has a different plan of action due to it's aggressive market conditions. I've just succumbed to remain investing in real estate in SATX until I learn the Austin market completely.

    Wholesaling is all about learning the market, due diligence, and understanding all aspects from acquisition to costs of repair/rehab to estimating fair market value and even understanding prevailing exit strategies of your area (s).

    Either way you cut it, you have to take one element at a time. Keep in mind, each element may have a dozen components to master before you can get to a full service real estate business.

    Just my two pesos.

    Big Henry

    Kudos to you @Henry M. I had the same questions being a beginner to and trying to align the steps and you made me think with these questions to ask myself. In my road to real estate I want to own hotels, because of my present job (I travel for a living as a healthcare provider) I want to own hotels geared to helping those in my industry. Thats my ultimate goal but its so many avenues I've since learned that I also want to take. Thank you for letting me see the pieces and small steps I have to apply first to become as successful as I can be. 

  • Investor · Atlanta, GA · Member since 2013 · 922 posts · 336 votes
    12y

    Interesting.  

    1.  Being knowledgeable about your market

    2.  know your fix up costs

    3. get realistic comps with in a 60day of sale. 

    4.  Practice ethics!  in all aspects of business

    You want to develop long term relationships.   If you are deceptive/unethical as a wholesaler, investor, agent, broker etc..... you will weed yourself out!

  • Saint Louis, MO · Member since 2014 · 3 posts · 0 votes
    12y

    I'm one of the newbie wholesalers you speak of. I have recently started telling my potential buyers that "since I don't have access to the MLS I am not able to give accurate figures for ARV". When they ask about repair value I say "It needs light (or a lot) work, I suggest you go out and judge for yourself because you may want to do more or less repairs".

    I hope I am making the right decision by saying this. I don't get backlash, but rather positivity and they do in fact go take a look at my property.

    Bianca Hood

    [email protected]

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Bianca Hood:

    I'm one of the newbie wholesalers you speak of. I have recently started telling my potential buyers that "since I don't have access to the MLS I am not able to give accurate figures for ARV". When they ask about repair value I say "It needs light (or a lot) work, I suggest you go out and judge for yourself because you may want to do more or less repairs".


     If you can't estimate the resale value or the repair value, how are you determining how much to offer the seller for the purchase of the house?

    The problem is, if you're just guessing at a purchase price, you're going to be wrong most of the time -- and if you start sending bad deals to serious investors, they will quickly start to ignore your calls and emails.

    I would suggest that you solve both the problems you're facing -- learning to estimate accurate ARVs and learning to estimate rehab costs.

  • La Vergne, TN · Member since 2014 · 1 post · 0 votes
    12y

    As a new investor and starting out with wholesaling, this is exactly what I DON'T want to be.  I've spent a lot of time learning about the wholesaling process and the upside to it, but it's very beneficial to hear the horror stories from buyers!  The repair cost estimates are extremely important to get right!  This is what I'm currently researching for my area (Nashville).  What resources and methods have rehabbers and successful wholesalers utilized to determine repair cost estimates for their properties?

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Andrew Adamany:

    What resources and methods have rehabbers and successful wholesalers utilized to determine repair cost estimates for their properties?

    BiggerPockets has a book on the topic (I'm the author):  

    http://www.biggerpockets.com/flippingbook

    And there are a lot of great threads here on BP about it...use the search functionality...

  • Real Estate Investor · Dundalk, MD · Member since 2014 · 12 posts · 1 vote
    12y

    Great post Will,

    I am a wholesaler in Baltimore who has had a lot of the education from seminars, podcasts, and books.  The presentation is that all you have to do is find a deal, post on craigslist or some other site, and collect your check.  I am quickly finding out that it is a whole other world, and one I'm pleased is not so easy.  If it was, there would be many many more rich wholesalers.  So, taken everything I know and have read here, this is what I have come up with.  To be a good wholesaler that investors want to work with, you have to do a couple things.  

    1.  Find a deal(make sure it is one and see the previous posts on here for how to do that).

    2.  Contract it at the right price

    3.  Take pics of the house and get 3 quotes from contractors

    4. Make a flyer that you can email with all the vital info to any potential investor. Include pics, comps(addresses to show how you got your ARV), the 3 quotes from contractors, and the vital info on the property itself.

    So, to all the experienced investors out there, is this how you want your wholesaler to present a property?  Or am I missing something?

    -Jason

  • Investor · Washington, Washington D.C. · Member since 2012 · 239 posts · 168 votes
    12y

    It sounds like you do a very thorough job, Jason, more so than do a lot of wholesalers. But thought I'd offer my perspective in response to your query.

    I bring buyers and sellers together where there is a good deal, regardless of whether it's a wholesale, a listed property, an auction, a tax lien property, estate sale, whatever else. The flyer doesn't matter. The numbers and the seller's motivation are all that matter.

    FWIW, though, I will not let my buyers cement a deal based only on the seller's repair estimates, as that is part of the buyer's due diligence. We work through the different scenarios at various price points and financing options to set a goal on how we want to do the deal, and go on from there. 

    I work and buy in Baltimore, so will probably run into you sooner or later! 

    Thanks,

    Nancy E. Roth

  • Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
    12y
    Originally posted by @Jason Collins:

    Great post Will,

    I am a wholesaler in Baltimore who has had a lot of the education from seminars, podcasts, and books.  The presentation is that all you have to do is find a deal, post on craigslist or some other site, and collect your check.  I am quickly finding out that it is a whole other world, and one I'm pleased is not so easy.  If it was, there would be many many more rich wholesalers.  So, taken everything I know and have read here, this is what I have come up with.  To be a good wholesaler that investors want to work with, you have to do a couple things.  

    1.  Find a deal(make sure it is one and see the previous posts on here for how to do that).

    2.  Contract it at the right price

    3.  Take pics of the house and get 3 quotes from contractors

    4. Make a flyer that you can email with all the vital info to any potential investor. Include pics, comps(addresses to show how you got your ARV), the 3 quotes from contractors, and the vital info on the property itself.

    So, to all the experienced investors out there, is this how you want your wholesaler to present a property?  Or am I missing something?

    -Jason

     You must be burning through contractors like mad.  It usually won't take long for contractors to figure out that you are not an actual buyer, and that they therefore have no real chance of getting the work they are estimating for.  Your buyers will have their own preferred contractors.  Unless maybe you are paying for quotes?  In which case that sounds expensive.

    I am small time.  Buy, mid-range rehab (major enough to encompass roofs, furnaces, kitchens, etc, but I'm not buying flood properties or gut jobs), rent.  But I estimate myself, by and large.  A couple things I have had people I already know take a look.

    I think you need to learn to do this, in order to do what you are trying to do at any volume. 

  • Involved In Real Estate · Brooklyn, MD · Member since 2014 · 18 posts · 6 votes
    12y
    Get a Realtor on your team and then you will have access to the MLS Data. Explain, straight up to your potential team member how you plan to conduct your business and if it's a win-win for everyone, your team will grow. All you have to do is be loyal  to that one person and they will be loyal to you...If not, there never was a team!

    Originally posted by @Bianca Hood:

    "since I don't have access to the MLS I am not able to give accurate figures for ARV".

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    12y
    Originally posted by @J Scott:
    Originally posted by @Bianca Hood:

    I'm one of the newbie wholesalers you speak of. I have recently started telling my potential buyers that "since I don't have access to the MLS I am not able to give accurate figures for ARV". When they ask about repair value I say "It needs light (or a lot) work, I suggest you go out and judge for yourself because you may want to do more or less repairs".

     If you can't estimate the resale value or the repair value, how are you determining how much to offer the seller for the purchase of the house?

    The problem is, if you're just guessing at a purchase price, you're going to be wrong most of the time -- and if you start sending bad deals to serious investors, they will quickly start to ignore your calls and emails.

    I would suggest that you solve both the problems you're facing -- learning to estimate accurate ARVs and learning to estimate rehab costs.

    Exactly!!! One of the main messages in this thread is that to be a wholesaler, you must have the skill sets of a rehabber which includes BOTH estimating rehab costs (without relying long term on 3 contractor bids for every possible deal) and calculating ARV's (you can't do that without having MLS data of previous sold properties (hook up with a realtor or some service that provides such data).

    The question keeps coming up, how do I estimate repair costs (that has been answered numerous times here in this thread and in others on BP) and how do I get MLS access for comps, again, that too has been answered.

    THERE ARE NO SHORTCUTS, you must go all the way and get all the knowledge and all the skill sets if you plan to be successful at this strategy.

  • Real Estate Investor · Dundalk, MD · Member since 2014 · 12 posts · 1 vote
    12y

    Nancy, I try to be reliable and dependable.  It sounds like a lot of wholesalers are lacking those 2 qualities.  

    Richard, I believe you would be right.  Although I haven't used that strategy yet, I can see how you could burn through contractors.  Also, I'm not sure of the ethics of that strategy since you know your not using that contractor to repair the job.  I have chosen to do it differently.  I am not inept at judging repair cost so I will give a breakdown of repair costs and pics to show the repairs needed.

    Thank you for everyones posts on this site.  It is a big help to new wholesalers who want to do it right!

  • Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
    12y
    Our neck of the woods we usually grab something for 15 and wholesale for 22. Those are big numbers hoss! Lol
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