The Truth about Wholesaling!

843 Replies

AJ,
If you can make the trip up from San Diego, I will be speaking at Rosie's RE club next month (2nd Thursday in January 2011) in Los Angeles about this very subject along with many others. The main topic is the truth about starting out in RE.

You may find the club info by going to Rosie's profile - Rosie Nieto - BP Member.

Sounds like a great topic Will, Any of us that has been investing for long knows that you can make good money in RE, but the chance that it will happen overnight or with no effort are extremely slim.

Knowledge, connections and resources go along ways in building a successful RE business.

Originally posted by Will Barnard:
I will be speaking at Rosie's RE club next month (2nd Thursday in January 2011) in Los Angeles about this very subject along with many others.
You may find the club info by going to Rosie's profile - Rosie Nieto - BP Member.

Is this at her "Naked Investors Club"? I would love to come up there and see you speak. I'll check Rosie's profile for details.

Great post Will. This exactly the kind of feedback we need. There are a lot of pretenders out there, and it's easy for new people to be led astray by that. Even those of us that start out with good intentions.

This is the first time I have ever had anything to do with a blog or forum. I just joined today. In the past 30 minutes I have enjoyed browsing through all the posts. With all that said, I came across this topic and wanted to weigh in.
In my opinion, unless the wholesaler is seasoned in rehabbing houses for several years and/or has the license required to rehab a home, they have no business giving an estimate on the rehab cost.
Wholesaling, if done the right way, is one of the more difficult aspects of real estate investing. There are too many "infomercial" investors out there that have a "get rich overnight" mentality. And will say anything to flip a deal know matter how it effects the person buying the home.
Wholesaling is about: Relationships, repeat clients, and making sure that your client makes more money then you do on each deal. Wholesaling is not about home runs, its about singles and doubles. Pardon the baseball analogy.

Originally posted by Will Barnard:
You may find the club info by going to Rosie's profile - Rosie Nieto - BP Member.

Ok, I can't seem to find her profile. What am I doing wrong?

I'll try her on Facebook. I'm sure I've seen her there before.

Yes, it is The Naked Real Estate Investors Club.
Here is her website for info:
http://nakedrealestateinvestorsclub.com

A Charlie - Welcome to BP Nation. Glad to have you here and that you find value in the site. As for the baseball analogies, you are talking to the right person. I refer almost all deals to hits/baseball so I feel right at home with yours.
Best wishes to you.

@ All - Thanks to all for your comments and votes, your participation in this thread is greatly appreciated.

Update:
Here is a copy of an email I received from this company in response to my email to them:
"I am sorry you feel that way about the property and our analysis. We were hoping to build a relationship with you that could have proven to be mutually beneficial in the future just as it has been for many other investors we have worked with. We are investors just like you and have closed, rehabbed and sold many properties for profit over the years. For deals that we choose to wholesale like the one you looked at, we encourage all of our prospective investors to due their own research and diligence prior to making any decision. We also clearly specify that our assumptions are only estimates and not to be construed as accurate in the report.

In this case you would have chosen to do more rehab than we would have. However, rehab expense is largely subjective and contingent on many factors including cost of labor, materials used, and the extent to which one chooses to improve the property. In addition, the numbers we used to determine Fair Market Value were real data pulled from Title records. We use a standard metric which is disclosed in our profile sheet that takes the median price point from comparables from the last 9 months within a ½ mile to a mile radius of the property and within .25% of the subject’s square footage.

I am sharing this information with you because it is not our intention to mislead or take advantage of anyone through our offerings. We recognize that people will have varying opinions on a number of different factors as you did in this case. However, our objective is to remain consistent with the methodogly in which we present information and allow our investors to come up with their own conclusions."

I have my own thoughts on this response, anybody else care to share theirs?

My first thought is it sounds almost like they are batch processing properties. They're method for doing comps is the last NINE months and up to a MILE away? We're trying to keep our comps within the last three months, or six at most. And how often is a property a MILE away comparable? Also, it seems like they are just running a program to calculate the value - not the best way to give useful comps. There is no mention of number of bedrooms/bathrooms, lot size, whether there is a pool or a view, school district, etc. To be fair, maybe that's in their disclosure, I don't know. But running a property through a program to get a comp is about as helpful as using zillow. Which is to say, dangerously misleading for the unaware.

And yes, rehab costs can vary quite a bit and the amount of rehab is certainly subjective. One thing, though, is some of the rehab estimates I see seem to be for rehabbing for a rental, not rehabbing to resell, which can be a very large difference. For a property presented as potential flip opportunity, if I see a rehab estimate from a wholesaler that's less than $20k-25k here in SoCal, I'm immediately skeptical.

Well, it doesn't mean this company doesn't have any potentially decent properties, but it does mean that the numbers they are giving (for the ARV at least) are essentially worthless. Of course as buyers of a property, we need to "do our own research and due diligence", but it would be nice if theirs was a little more accurate to start with.

Excellent points Mike. Most of the successful wholesalers I know are either one person, or a small group of people. It seems that each property needs a personal touch as far as researching comps/rehab, etc. I've noticed that they also focus on an area or two and know that area back and forward. We have a big "wholesaling" company by me that not a lot of people take seriously because they're just a deal factory. Many properties in and out, and most of the people there just work on commission and couldn't care less if the end buyer gets a deal. I'm not in this for a long time yet, but them's my 2 cents :)

I agree with Mike G. To add additional thoughts, I feel that the "rehab estimates is subjective" comment is a poor excuse for a justification. In my mind, particularly when you market a property at a top end retail price, you need to do a top notch rehab, not just place lipstick on a pig. Doing so would not get you anywhere close to your "suggested value" at exit. Therefore, this entire email was just a bunch of smoke blown up my rear to justify their claims and numbers.

I stand by my opinion of this company and the deals (or no deals as they are) they presented to me and could not trust that any numbers given by them on any future opps would be anywhere close to the truth.

It's good you got this email back, because it shows where their stance of doing business is. Basically, if you read between the lines, they are saying "we will do a very basic assessment of our deals, but it's essentially buy at your own peril". I am assuming they are targeting the novice investor who may or may not end up making money, and not concentrating on getting repeat, loyal customers by getting dead on real estimates that are typically reliable. That email sums everything up.

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.

Edward, not all wholesalers operate this way. And frankly, I don't understand why any of them do. It just doesn't make business sense to me. Yes, they may dupe a number of novice investors, but those people are going to feel bitter, won't work with that wholesaler again, and will recommend the same to others. And experienced investors are going to look at the numbers and just shake their heads, like Will did.

And yes, I'll buy from wholesalers and other investors. It doesn't matter to me where a deal comes from, as long as the property and numbers work.

One other comment regarding Will's note about rehab costs. Like he said, if you want to resell your property at a good value and have it go quickly, you can't just slap some lipstick on it. So, yes it IS subjective, but the money spent is also greatly reflected in the ARV and Days-on-Market.

Originally posted by Mike G:
And yes, I'll buy from wholesalers and other investors. It doesn't matter to me where a deal comes from, as long as the property and numbers work.
Very true! The ONLY thing that matters really is the numbers, not where the deal came from. If by an agent, if by an asset manager, if by a FSBO, or if by a wholesaler, the key factor is the numbers.

Well I think its true that rehab costs can differ depending on your exit strategy. If a person wants a property to be "rent ready" that can be done cheap. Materials can be purchased in bulk. Craigslist can be used to locate cheap materials, appliances, and labor.

Of course if you are flipping to a retail buyer you are probably going to spend more money on the rehab, right? And in some cases you need licensed contractors to come in, totally different ball game.

I enjoy doing wholesale deals as most my experience comes on the other side of spectrum with background in Home Remodeling as Family Business. I try to give new investors options, and help them make smart choices in renovation, and I found alot of return business do to this approach.

Originally posted by HMP:
I enjoy doing wholesale deals as most my experience comes on the other side of spectrum with background in Home Remodeling as Family Business. I try to give new investors options, and help them make smart choices in renovation, and I found alot of return business do to this approach.

As a contractor now doing some wholesaling, I imagine you have a better eye on what repair costs might be assuming that you are not overbuilding or otherwise overdoing. If you are comps are good you should have some advantage when working with buyers and sellers.

As a new wholesaler I know that putting the deal together properly is the key to doing repeat deals. The end buyer should make the largest profit on the property. Properties are a dime a dozen but if you don't have anyone to buy from you then it's a waste of time.
These posts remind me of the opinions people have about satellite technicians, which is my current occupation. I totally agree with them. I'm a service tech so I go and fix problems customers have with their service. Subcontractors are the worst. I've seen cables lying on the ground outside, dishes mounted on roofs improperly, and no customer education on the equipment. This job can be stressful but I make sure the customer is satisfied with the work that I do. It can be very upsetting constantly going behind someone fixing their sloppy work.
I never had any satellite experience prior to this job and consider myself a pretty good tech so I feel that I can overcome the stereotypes of wholesalers and build a good reputation.

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

Originally posted by Will Barnard:
The ONLY thing that matters really is the numbers, not where the deal came from.

These two quotes appear to contradict, but I understand where y'all are coming from. I know that if a deal is good enough, I WILL find a buyer. But my point as stated earlier is that some of you guys are likely not to even give me a listen because I'm not "known", or sufficiently proven to your taste. The wholesaler reputation alone is enough to get many doors shut.

Will, (or any of you other pros) what is the key to getting your first and initial attention? Ideally, I would like to know all of your preferences first, but with the above expressed attitudes, the only thing I can think to do is call you when I believe I have something deal worthy. Of course, if I'm wrong, then I've "bothered" you haven't I? :lol:

Jerry, you are taking two quotes from me from two different posts. Had they been in the same response, then you would be correct that they contradict each other. In this case, each quote was in response to two different specific items.

That said, let me clarify to answer your last question. I actually give each new contact a "first chance", the prove yourself comment for me is that on that "first attempt" you had better not try and bull **** me or I toss you in the trash like I did with the contact this thread is about.
Doing this first chance does get me into several positions of my time being wasted, however, I still continue to give these first chance opps to people because I was once new too, and I know how it feels to be ignored or not given the time of day. (and that feeling sucks royally!).

Hope that clears it up.

Merry Christmas to all. I have to get back to the family.

Will Barnard

Thanks Will. Just to be clear, and sometimes that's difficult in print, I meant literally that the two quotes APPEAR to contradict, but I understand that in reality they don't. The reality of the situation is that a good deal can sell itself. No matter what reputation wholesaling has I can't see seasoned investors throwing money away.

Wholesalers are like any other group; there are good individuals and bad. Thanks for pointing that out Will, and trying to establish a standard for separating the wheat from the chaff.

@Edward:

Where wholesalers blow it with me is sending me garbage. If you send me something legit or only forward me real opportunities worth pursuing I would love to speak with you. We have already met in person so this is really more of a general comment.

I agree that it is crappy you have to overcome the bad reputation set by your cohorts. I experienced a similar problem when I ran a coaching program. Dems da breaks unfortunately! Provide outsized value and you will develop a great reputation naturally just like you would in any other business.

Originally posted by Bryan Hancock:
Dems da breaks unfortunately! Provide outsized value and you will develop a great reputation naturally just like you would in any other business.

I agree wholeheartedly! And that's a large part of why I named my company what I did.