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.

669Reply
12,293 views

Most Popular Reply

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

911 Replies

Jump to latestLatest
  • wholesale/assign/whatever · Levittown, NY · Member since 2015 · 33 posts · 14 votes
    11y

    @Kathy Persall, You must have had an extremely easy life  I raised my daughter on my own from the time she was 6 months old, no support, no child support. It was extremely difficult, but I ended up with an amazing, beautiful, smart and funny young adult. I married the love of my life in 1999 and he adored me and my daughter. We were married until June 2005 when he was killed in a car accident by a drunk driver. My husband was an Attorney and we had 3 homes. God blessed me with a period of time that I could stay home, raise my daughter and be a wife a mother. That was gone in a day. 

    I was a corporate flight attendant prior to meeting my husband and that isn't a job that you can go back to. Here I am a good Christian, a good person and trying to keep a roof over my head. Us..."so called wholesalers" are not all bad. Some of us work morning noon and night to do the right thing and work extremely hard while trying to learn all of this. A nice person will help you and pick you up or at least ask if you need help, in your time of need. A stuck-up person will shoot their mouths off and walk right past you. 

    We all have to answer to God someday. I'm not worried. 

    Karen

  • Cypress, TX · Member since 2015 · 11 posts · 0 votes
    11y
    Originally posted by @Will Barnard:

    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 decreses 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 electricla upgrades, plus the driveway needed to be re-surfaced and teh 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 oximoron 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 (larger, the better)
    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 true 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 yoru buyers coming back for more deals.

    i agree thats the biggest problem i have found so far.

  • Cypress, TX · Member since 2015 · 11 posts · 0 votes
    11y

    people are truly not honest and that gives wholesalers a bad name all together espicially when you are the one trying to be legit and do the right thing.

  • Cypress, TX · Member since 2015 · 11 posts · 0 votes
    11y

    i mean i agree with @kathy that all of us wholesalers are not bad.

  • Cypress, TX · Member since 2015 · 11 posts · 0 votes
    11y

    oops i meant karen i agree with karen

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

    Wow, I just realized that my initial post creating this thread has just surpassed the 100 votes mark! 25  thread pages later, here we are still actively discussing this topic. Thanks to all who have participated and hopefully learned from this thread.

  • Darren SagerPro Member
    Investor · Tampa, FL · Member since 2013 · 2k+ posts · 1k+ votes
    11y

    Yeah @Will Barnard

     that's worthy of another vote!

  • Seattle Area, WA · Member since 2014 · 44 posts · 2 votes
    11y

    After reading thoroughly through this whole thread I’m pretty sure @J Scott's books were only mentioned a few times so I thought I’d put them out there again. The Book on Flipping Houses and The Book on Estimating Rehab Cost are must reads! Especially since the accuracy of estimating cost seems to be one of the most important pieces to wholesaling. If your just starting on your journey and are on a tight budget like myself, you may not have the funds to buy these books. Guess what, my local library had both copies available! Check yours! Just make sure after you cash that first check to go and purchase both because your gonna wanna keep these on your shelf for reference!

    Since this is my first post in this thread I just wanted to thank everyone for their input! Let’s keep it alive! To 500 post and beyond!

  • Involved In Real Estate · Missouri City, TX · Member since 2015 · 12 posts · 0 votes
    11y

    Boy, wealth of practical knowledge folks, sure go a long way for newbies like me don't ever stop teaching and giving back! 

  • Houston, TX · Member since 2015 · 57 posts · 8 votes
    11y

    As a wholesaler trying to start off the right way, I hear so may negatives about wholesalers. To clarify what qualities an investor looks for in a wholesaler, I feel it would be safe to under promise and over deliver, wouldn't it? We're dealing with thousands of dollars at any given transaction, I don't take stuff like that lightly. Someone help a noob out, school me haha. 

  • Realtor/Investor · Ft Lauderdale/ Miami Florida · Member since 2015 · 311 posts · 104 votes
    11y

    I am having the same issue. The wholesaling niche is being tainted and it is really picking up a bad name. Especially in markets like South FL and Southern CA since the prices in our areas are higher. To be a wholesaler one mush truly work hard to provide quality deals. I also found most of the ones here pull homes from the MLS and mark them up. No motivated seller, no deep discounts. They don't even run proper comps. Its scary because new investors who trust the wholesalers and don't really do as much research can really get trapped in a bad deal, leaving them with the mess of trying to figure out how to get back in the game on top.

    As a business person you try not to get emotionally involved but when speaking with these "wholesalers" I find myself upset. And I ask myself "do they think we are stupid"? 

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

    90% of the reputation comes from 90% who are doing things, there is always at least 10% doing things properly, and properly isn't from the gurus or most ofthose trying to make a business out of teaching wholesaling. 

    Most of the issues are ethical, then regulators clamp down on the legality, the techniques used by many are forcing what was an accepted practice off the scope due to some bad apples that think wholesaling is the place to start and digging into an owner's equity to cut a deal for more than they should be. It's a lack of understanding valuations of the profession as much as the property which is exaggerated by gurus as if the sky is the limit. There's the problem, gurus selling a program instead of teaching real estate or business. 

    End of rant! LOL

    Congrats Will on the longest thread on BP I believe! :) 

  • Professional · Missouri City, TX · Member since 2015 · 3 posts · 0 votes
    11y

    OMGosh! This is a fascinating thread! I am re-entering the real estate arena (after getting severely burned) and I am leaning towards wholesaling, at least initially. I am thrilled to have read the information all of you have shared. Thank you! 

  • Real Estate Agent · Fitchburg, MA · Member since 2014 · 83 posts · 25 votes
    11y
    For the new wholesalers out there, i just started a wholesaling business this past January and planned for a very slow start and included a very fair amount of time and money to account for the learning curve. One tip I recommend is to find a good contractor who knows what they're doing, and when you think you've found a good deal, perform your own SOW on the property first, then pay the contractor $100 to give you an estimate of the rehab costs with a breakdown of everything. It is important to let the contractor know up front that you are paying him for an estimate to learn from so that you are not giving him the impression he is getting a job out of it. Then simply compare the two evaluations and learn from it. Evaluate where your costs were wrong, and areas that need work. I'd do this 5 to 10 times before trying to wholesale anything. You'd be surprised at which parts of your own SOW were incorrect. This is an excellent way to learn! Mike
  • Investor · Palm Bay, FL · Member since 2014 · 49 posts · 25 votes
    11y

    I completely agree. I get loads of offers from wholesalers. 99.9 % are warmed over REO deals or the same HUD properties I have already passed on. Honestly if its on the MLS or HUD if I wanted it I would buy it without the help of a wholesaler. Plus they are almost never accurate on rehab cost or ARV. BTW money isn't free either. Want to be a wholesaler? Go out and find some real deals, send out those letters put up bandit signs. Those are the ones we buy, those are the deals with meat

  • Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    11y

    Thanks Will. Almost without fail every "wholesaler" that has approached me has given totally BS figures. I have told all of them to stop contacting me. Furthermore, I see them as acting in an unlicensed brokerage manner and hope Florida cracks down as Ohio did. 

  • Investor · Denver, CO · Member since 2015 · 29 posts · 2 votes
    11y

    Hi Will, 

    That is great information regarding wholesaling, and I happy that I found BP. I am a new REI and I am currently taking a course online and so far this seems like a great opportunity, but I would like to find out the process in putting a house under contract as a wholesaler. How can this be done if I am not using any money? How would I find a seller who has a distressed home and is willing to put their faith in me as an investor when I don't even have the finances to purchase their home.

    Thanks for your comments, 

    Jeff  

  • Investor · Chicago, IL · Member since 2015 · 677 posts · 309 votes
    11y

    Especially for off market properties the wholesale will be the one who will invest the least amount of money into a deal but also the one who can invest the time to do the work to evaluate, cost, and determine a realistic ARV. The wholesale should be the one to do accurate an complete research on the property. So many newbies and experienced wholesalers offer a useless service.

    I see in their marketing adds, " Buyer must do own due diligence". A buyer would do their own due diligence anyway however we expect a wholesaler will provide a good starting point using reliable figures. They are getting paid. We do not expect to pay someone for $5K to $20K for simply getting a property under contract but to assure us of a good deal and to be provided with accurate and reliable ARV and repair figures. They must also know the market around the area of the properties they offer.

    In short a good wholesale is a true professional that deserves to get paid for offering something of true value. 

    I had a young newbie wholesaler contact me recently offering a 4 plex at a price of $195K with an ARV of $399K. Repairs figures were quotes as $40K. When I called them to ask them how the ARV and repair figures had been determined or derived at he told me he would need to call me back because he would need to ask the owner. He called be back and told me the owner had derived his figures from an insurance quote 5 years old and so were the repair figures.

    Maybe on a per deal basis the wholesaler puts in the least amount of money however they do need to be a professional offering a much needed expert service and proper property evaluations, realistic ARV and current repair figures derived from actual contractor quotes and estimates plus that information should be coupled with real life experience at doing rehabs, knowing actual material costs and the ability to estimate the time each needed tasks will require to accomplish.

    The problem is I think that many if not most wholesalers are lazy and offer a very unprofessional and useless service. There are however many that are professionals and offer a good service but no one is born an expert and certainly most newbies have no idea what a buyer or rehabber requires of them. 

  • Investor · Chicago, IL · Member since 2015 · 677 posts · 309 votes
    11y

    They say there is a sucker born every minute. In today's wholesaling environment I get the feeling all these folks are looking for that sucker to sell their properties and deals to. 

  • Richmond, TX · Member since 2015 · 1 post · 0 votes
    11y
    Thank you very much for you advice,as a newbie all the advice I can get is highly appreciated. Thank you, Steve.
  • Investor · Tucson, AZ · Member since 2015 · 55 posts · 8 votes
    11y

    Thanks for the example.

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

    I think an update is due on this thread regarding wholesaling and how it is being done wrong - not to bash wholesalers, but to teach everyone why so many are failing so they won't follow down that path. Considering how many thread pages this has, the high activity levels, and the number of votes i have received for posting it, I think the info below will be well received.

    I am getting a ton of wholesale deals from people with numbers that are just terrible. What is happening is many people have gotten the word that I do higher end flips so I get a lot of over a Million purchase plus rehab deals in my inbox. They all claim I must look at it right away as they have a great deal for me. I quickly glance at the numbers and even more quickly toss in the trash where they belong. here is why in my opinion:

    Most of these so called deals have anywhere between $200k and $400k in gross spread (difference between ARV and costs of acquisition plus rehab). Now typically most would jump when they see a spread like that and rightfully so IF it was a deal like $500k purchase, $100k rehab and $800k ARV, but NOT when it is $1M purchase, $100k rehab, and $1.3M ARV. Note that both deals have the exact same gross spread of $200,000 but the first example the total cash outlay is $600k where as the second example is almost double that. Thus, the cash on cash, IRR, & total profit numbers are way too poor to even touch the second example which is the typical I get from people.

    So if they come from a BP member via PM or reference BP in the email, I typically don't just ignore them but try and explain that their deal is way too tight for me and that the ARV would have to be $1.5M or better for me to even look at it.

    I hope this info helps those who think that these higher price points with what appear to be high spreads to negotiate better (lower) purchase prices and not waste their time or that of others.

  • Real Estate Agent · Chicago, IL · Member since 2015 · 238 posts · 101 votes
    11y

    @Will Barnard This has been a very informative thread, thanks for getting this converstion started. Quick question for you...In your opinion, what is the minimum CoC return in order for you to consider buying a deal?

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    11y
    Originally posted by @Gerardo Dominguez:

    @Will Barnard This has been a very informative thread, thanks for getting this converstion started. Quick question for you...In your opinion, what is the minimum CoC return in order for you to consider buying a deal?

    That all depends on each deal as there are som many variables I really can't say that there is a set minimum cash on cash. Some deals require heavy rehabs (thus more time and effort) while others are more simple. Some sell fast and some take longer, but if I had to give a number, I would say that for an active investment like a renovation flip, I would want to see at least a 20% COC return, but again, if the deal took a year, then 20% would not be good enough for me.

  • Los Angeles, CA · Member since 2015 · 9 posts · 0 votes
    11y

    What books or articles would you recommend to gain more knowledge on how to be a good wholesaler? 

Join the conversationCreate a free account to reply, vote on answers and follow this thread.