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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  • Indianapolis, IN · Member since 2012 · 63 posts · 5 votes
    12y

    Funny, I've been looking at hundreds of wholesale "deals" and slowly eliminating all of them as crap with a little bit of research and sometimes a few phone calls.  Will is 100% correct on what a wholesaler should do to add value.  However, in my experience wholesalers rarely even look at the properties and just make numbers up that sound good.  Its unfortunate, because I'd happily pay someone to bring me deals to invest in if they were really profitable deals.

  • Grand Island, NE · Member since 2014 · 35 posts · 4 votes
    12y

    Will Barnard.... Great article!!! I love this website and I learn A LOT all the time form all you guys, and also everybody very nice comments, buy the way I am a newbie, could any one tell me what is OG? sorry if it is a dome question... Thank you very much and have a great day.

  • Real Estate Consultant · Eugene, OR · Member since 2013 · 178 posts · 39 votes
    12y

    My approach is to ask my buyers what areas they're looking to buy in. I also find out what return they're looking for. For example, one of my buyers wants to be all in at 80% of ARV. They want 10-12% return on cash invested. Of course, I also know what type of properties and rehabs they want.

    Armed with this information, I can market to these homeowners. 

    I know that there are many ways to skin a cat when wholesaling, but this makes sense to me because I'm "beginning with the end in mind".

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

    Will Barnard.... Great article!!! I love this website and I learn A LOT all the time form all you guys, and also everybody very nice comments, buy the way I am a newbie, could any one tell me what is OG? sorry if it is a dome question... Thank you very much and have a great day.

     OG is short for "original" and there are no dumb questions!

    I use that a lot, but you did not reference the sentence you were referring to so somebody may have meant something else. Please copy and paste the sentence you found that so I can be sure for you.

    @Travis Daggett that is exactly what you and others should be doing and yet another main message in this thread from me.

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

    Its safe to say that the number of folks wholesaling in FL has risen sharply in the past 4 years.

    At this point we are no longer shocked when someone tries to sell us our house back. 

    Instead, if we don't hear it pitched back at us, we know that we're not marketing the deal hard enough.

  • Real Estate Investor · Oakland, CA · Member since 2012 · 52 posts · 17 votes
    12y

    Another newb here who read every single post in this thread. Just wanted to say thanks to the BP community and all who participated. We are grateful. 

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

    Another newb here who read every single post in this thread. Just wanted to say thanks to the BP community and all who participated. We are grateful. 

     Wow! Where ever did you find the time to read 20 pages of 10+ posts! If you can accomplish that, you can accomplish anything. Thanks for the kind words, I am happy to know it was a helpful topic.

  • Investor · Houston, TX · Member since 2014 · 10 posts · 2 votes
    12y
    Sorry for the newbie question, but isn't 70% ARV minus repairs doubling up on repairs?
  • Investor · Los Angeles, CA · Member since 2009 · 39 posts · 8 votes
    12y

    It's leaving room for unforeseen expenses & profit. I'm a newbie also.

  • Wholesaler · Oak Point, TX · Member since 2014 · 14 posts · 1 vote
    11y

    @Travis Daggett wrote:

    My approach is to ask my buyers what areas they're looking to buy in. I also find out what return they're looking for. For example, one of my buyers wants to be all in at 80% of ARV. They want 10-12% return on cash invested. Of course, I also know what type of properties and rehabs they want.

    Armed with this information, I can market to these homeowners. 

    This was the first suggestion from my coach @Joe McCall, and it's really helped me to get started. The buyer is your customer, so if you're in business to serve customers and help them solve problems (and we all are!!) 

    Find out what your buyers are really after, and then focus your efforts on serving them! 

  • Kim HandelmanPro Member
    Real Estate Agent · Guilford, CT · Member since 2014 · 193 posts · 88 votes
    11y

    This post has been very helpful but these comments are exactly why I'm afraid to pull the trigger and start. I've never done a deal but I have what I think is a great deal right now. It's a duplex. Hasn't been updated since it was built in 1950. With my untrained eye, It needs a kitchen and bath overhaul in both units (so 2 kitchens and 2 baths), all new floors except good hardwood in larger unit, a paint job and some yard work. I'm estimating about $35k. There are very few 2 unit properties in this town but it's a beach town so I know it will rent well. My realtor says ARV is $290K. I can get it for $180K. As a wholesaler I was hoping to get $15K out of it. Plus there are realtors involved so that's $11K. That leaves the rehabber with $84K to play with but I'm worried that I'm not seeing things and I'm going to piss people off on my buyers list. Does this sound viable?

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Kim that's reasonable at the price level and buy price you're at. Good luck

    Gosh, I would have thought we could have gotten to the Truth about Wholesaling by now, LOL

    Congrats Will, longest thread on BP I'm sure!

  • Rental Property Investor · Kansas City, KS · Member since 2014 · 604 posts · 222 votes
    11y

    @Darrell Morris - the 70% rule covers rehabber profit and holding costs (insurance, utilities, debt service, etc.) during the rehab. Typically the rehabber will make about 20% of ARV as profit.

  • Real Estate Coach · New Zealand / USA · Member since 2014 · 296 posts · 82 votes
    11y

    @Kim Handelman why not get a couple of General Contractors to come in and give you a written quote for the work? That'll impress your end buyer much more than your "estimate", and could also provide the investor with someone to carry out the work once the sale is complete (they may of course have their own GC). 

    One word of caution though, get a recommendation from your local REIA about which GC's in your area are "Investor" friendly, good workers producing good quality results, who are reliable (ie: turn up when they say they'll turn up), and provide value for money.

    Then go for it!

  • Miramar, FL · Member since 2014 · 54 posts · 25 votes
    11y

    It took me a day and a half but finally done reading every post on this marathon of a thread (Sleep, what's that). I'm new to BP of a few days now and very new to real estate investing. I also have chosen to use "wholesaling" as my means to an entry into investing and for some of the same reasons as was mentioned. When I first began reading this thread, I was also saying to myself that man I may have taken the wrong turn here and will never get off of home-plate with such a bad and dirty name (wholesaler) attached to me. It did start of as seeming to be a continued bash on the name and someone saying why wholesalers are the worst! But as I read on, I did understand what you @Will Barnard  were trying to and DID accomplish with this thread. I will be back to this as a reference again I'm sure! A big thumbs UP!

    As a result of the thread, some really good points were made by many folks @Henry M.  to name just a few. Please everyone else I didn't leave you out because the input was not good. I just can't remember them all but honorable mention to each and everyone because you made the thread what it is!

    So from 2010 when this thread began to 2014 I would imagine that the thinking is still the same. Which is like anything that we do in life worthwhile, wholesaling can be tough, doing it right makes it a bit easier.

    -Know your markets

    -Know your buyers (their wants)

    -Know the basics of this business as a whole. Some strategies show themselves the more you know and can recognize situations

    -Know how to valuate what you think are your deals (not just CMA's, but CMA's that draws from relevant data - ACTIVE, SOLD, EXPIRED, CANCELED, PENDING, etc.)

    -Know your buyers (their wants)

    -Know how to determine ARV

    -Know how to estimate repairs (not so much for the buyer as they will do their own due diligence) so that you can at least be in or around the right ballpark

    -Singles, Doubles and I would say Triples (if you have good wheels) are where you are at. But if you get a pitch in your wheel house, then you have a green light to aim for the fences!

    -Know your buyers (their wants)

    I may have missed some. I wanted to do this list all from memory to be sure I got the grasp of what it means to be a good wholesaler. Oh here's one that I might have forgotten. Know who your buyers are!

    Thanks again all for this thread. As a newbie I can tell you that it was most eye opening and regardless of what was once thought about it.. ENCOURAGING!

    Best to you all. The ones that are actually making it happen, continued success. To us that are just trying to get there. Remember, the Pros were once in the Minor leagues too! They got called up and so can we. We may strike out every now and again, we may even set the league record for it. But all we need to do is to keep swinging. Bunt if we have too. The key to the game is to get on base, move that runner around into scoring position, then come on home. AND, if we get up to the plate enough times, we will eventually see a pitch we like and can handle. Guess what that is!

    OK, sorry got carried away with the baseball stuff but just wanted to end it fun and keeping with the thread!

    -Marvin Dean

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    11y

    Marvin Dean,

    I must admit, you are a breath of fresh air. I believe those who you have mentioned as well as those others who have contributed to this and other threads, are appreciative in reaching at least one... One who may take the time to learn and that one is you.

    We are all here in this BP Family to help and guide you in the best direction possible. Your success is our success. It's about promoting team players and one day, I am utterly confident, you will pay it forward.

    Thanks again for your sincere comment/post.

    It looks like you are on the right path, grasshopper.

    Lol.

    Stay in touch.

    Your peer,

    Big Henry

  • Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    @Darrell Morris & @April A. 

    The 70% rule ... (ARV * 70%) - Estimated Rehab Costs = Maximum Allowable Offer

    The idea is that the 30% you are deducting from the ARV will cover...

    • Buyer's Closing Costs to acquire the property
    • Holding Costs (PMI, accrued taxes, insurance & utilities) for the duration of the rehab & marketing time
    • Seller's Closing Costs to sell the rehabbed property

    The difference between the Sell Price and the total of the costs I just outlined is the potential profit for the deal at the price of the Maximum Allowable Offer.

    As a wholesaler, you have a duty to your Buyers. Your duty is to provide them with profitable deals. Remember, they are the ones accepting all the risk in these deals. If you are providing them with high quality opportunities, I can guarantee you they will have NO problem with however much you are making. Remember, the 70% Rule is just a rule of thumb. Most buyers will be thrilled with a 20% ROI.

    Don't be greedy.  Make your profit, but leave margin to ensure your buyers not only profit appropriately for the risk they assume, but also that they have extra "wiggle room" in case something goes south with the rehab.

  • Investor · Torrance, CA · Member since 2014 · 70 posts · 24 votes
    11y

    Well said, @Hattie Dizmond !

  • Chicago, IL · Member since 2014 · 29 posts · 25 votes
    11y

    Hey thanks so much for that!

    I am brand new to RE and coming from the direct response marketing world, i've learned to read past the hype of various products and services. 

    I think that the reason why people inflate info/data/numbers is either incompetence OR lack of integrity. Either way, not something i'd be attracted to.

    As a new person to the field i will learn to watch and listen carefully. Thanks again!

    LG

  • Investor · Saint Louis, MO · Member since 2014 · 113 posts · 43 votes
    11y

    Most wholesalers don't have any idea how much things cost to repair, how to comp houses in certain areas, or how to negotiate a deal so that it is attractive to their buyer. I've probably done at least 300 real wholesale deals and I'll be the first to admit that I didn't really know those things either when I first started 12 years ago. I learned by showing the property and listening to what people had to say. Over the past 12 years I've probably rehabbed close to 300 properties too, so I know what things cost. Most people just guess. I think it's funny when I see other wholesalers posting a property with an ARV of $250k, when I know we might only be able to get $185k retail. $50k in rehab, when I know with out even looking at it that it's going to cost closer to $80k. Good wholesalers are hard to find indeed.

  • Investor · Minneapolis, MN · Member since 2014 · 332 posts · 74 votes
    11y
    Originally posted by @Jerry Puckett:

    Talk about the proverbial two edged sword... Well, thanks Will, and all the other seasoned, experienced, hard working others who made this thread what it is. On the one hand, it's great to have the tips and insights, so that's what I choose to carry away. OTOH, it's a bit of a bitter pill to swallow to know there is such a stigma attached to my chosen profession.

    I think it likely that used car salesman have a better reputation than wholesalers. I admit that I am relatively new, my business fledgling and small. And to make it just a little tougher, I have to overcome the stereotype of the smarmy salesman who uses deception and weasel clauses to take advantage of others ( not to mention being labeled "ambulance chaser" because I work probates).

    The brightest side is this: sounds like none of you are willing to boycott wholesalers all together. So as long as I stick to my business plan and never bring my buyers trash, things should work out fine. One day I'll have enough capital saved to be able to join the fix and flip club and then ease on into buy and hold. Who knows? Maybe I'll complain about wholesalers to.

    Jerry, I've been doing rehabbing for 14 years, and want to transition into wholesaling completely. I'm a re broker and licensed builder, and still margins on flips are very low. I only do flips on the houses that I couldn't wholesale. If I had an ability not to do any flips, I would not do that, too much work, too little money, a lot of liabilities and uncertainties, you never know exactly how much it would cost to fix up the house, how long would it take to sell it and for how much it would sell for. I made less money on deals where I was certain that I would make 25k for sure and made only 5k. Only this year I had 5 houses like that.

    Plus you never know if you sell a house or not, for example I have 6 properties on the market now form 130k to 360k and every month is costing me 10k only in holding costs.

    Thus I want to do wholesaling only, and do rehabs only if I couldn't wholesale.

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    11y

    @Marvin Dean Aside from being a "breathe of fresh air" as @Henry M. was just starting out when he first read this thread and posted. At first he was taken back by it, but then realized all the good nuggets inside and has since become what I consider one of the top wholesalers on this site, so kudos to him as well.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    Well, here's 400!

    Marvin, if you get to learn everything that's need to make a good wholesaler, you'll probably stop wholesaling and flip your own with a  GC, or use L/Os or installment contracts and buy yourself. Your market and seller's circumstances will determine if wholesaling is the best strategy, going out with just the mind set of wholesaling, well, you might starve to death in most areas, that's fitting a square peg in a round hole, sometimes it fits, most of the time it doesn't. :)  

  • Miramar, FL · Member since 2014 · 54 posts · 25 votes
    11y

    @Will Barnard - I didn't mean to suck you back into this thread, just wanted to acknowledge you, it and all of the others that made it a really great read. NO MATTER THE LENGTH... :-) I just got done a few days ago listening to one of @Jerry Puckett Podcast.

    @Bill Gulley - has been keeping one eye on me, so most appreciative!

    BTW - Guess which thread I've been on again. ;-)

    Cheers all and as long as us first-timers can reference/learn from you all-timers, we soon will have good stories to tell!

  • Jerry PuckettPro Member
    Wholesaler · Fort Worth, TX · Member since 2010 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Will Barnard:

    @Marvin Dean Aside from being a "breathe of fresh air" as @Henry M. (...R.I.P. my friend) and the personal time you spent with me in Denver I saw the light....and got it right.

    BP Rocks!!

    You are well on your way Marvin Dean

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