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

    This thread just popped up and I responded in it. It is a good read and holds plenty of answers to questions raised in this thread. Since my thread has the exposure, i thought I would help this other one by linking them.

    http://www.biggerpockets.com/forums/12/topics/2201...

    @Angel Colindres- Other than reading this thread and others on Biggerpockets? I'm not sure you can find any books on the topic that would encompass what is spelled out here on BP, particularly in this thread.

  • Syracuse, NY · Member since 2015 · 15 posts · 2 votes
    11y
    Great points here. I've hit the ground 2 months ago in whole sale. I've looked at 20 houses or so and realized you really have to have a super good deal to wholesale. People were calling me but we not motivated to sell. Knowing the rehab costs is difficult at first, I brought a contractor with me on a few properties. Now I can evaluate my seller with much greater speed an accuracy over the phone. The last thing I want to do is waste my buyers time. My partner and I have increased our marketing, I know that a highly motivated seller is coming our way. Thanks for the great post.
  • Los Angeles, CA · Member since 2015 · 19 posts · 1 vote
    11y
    Originally posted by @Lee Amody:
    Great points here. I've hit the ground 2 months ago in whole sale. I've looked at 20 houses or so and realized you really have to have a super good deal to wholesale. People were calling me but we not motivated to sell. Knowing the rehab costs is difficult at first, I brought a contractor with me on a few properties. Now I can evaluate my seller with much greater speed an accuracy over the phone. The last thing I want to do is waste my buyers time. My partner and I have increased our marketing, I know that a highly motivated seller is coming our way. Thanks for the great post.

    My partners and I are in the same timeline as you. We have sent out about 7000 yellow letters and are on our second round. We got a decent amount of tirekickers, but we did manage to get one decent deal under contract. We are scrubbing the same list and sending out postcards this time. 

    I think one thing we need to work on is our buyer network. Fortunately our terms in the purchase agreement give us a good amount of time to build this up. We've been attending RE investment clubs across the land and it's been really encouraging to hear all the feedback on what we've accomplished in 2 short months. Keep it going man! Best of luck!

  • San Francisco, CA · Member since 2015 · 786 posts · 717 votes
    11y
    Seems like some are negative about wholesalers on here and that may be good for those of us who love and appreciate wholesalers. Wholesaling is a lot of work and I am always willing and eager to help wholesalers learn how to do better ARV comps, construction estimates or structure a deal. If your out talking to off-market sellers, you'll run into 20 so-so deals for every home run deal. And guess who they send their home run deals to? The person thinking that wholesalers are losers or the person trying to mentor them.
  • Real Estate Transaction Engineer · Jacksonville, FL · Member since 2014 · 271 posts · 74 votes
    11y

    I've recently decided to do wholesaling. I knew this was not a no money down, no risk, no credit avenue to REI. This costs money, time, sleep, frustration and stress over deals, etc.

    Marketing, promoting, number crunching, negotiating with both the seller and the buyer, knowing your area, estimating rehab costs, sorting through a butt load of leads to find those small %s that are motivated to sell at a working PP. These are all the things a good wholesaler does to make a living. However, it's not an all encompassing list.

    I want to be a dependable, knowledgeable, accurate as I can be, timely, informative, and reliable wholesaler. If there are soo many bad wholesalers out there, I think it would be a cinch to gain trust and close those deals.

    A wholesaler who does all those things I mentioned in the previous paragraph should be able to feel great and amply paid for their hard work. Be an expert, you get paid as an expert. 

    These buyers who spout this is how they think a wholesaler should perform is not fair, as that is from your perspective. If you have never been a wholesaler, how can you dictate the ins and outs of a wholesaler? That is from a one-sided conversation. However, this should give insight to wholesalers to understand what buyers are looking at when they are presented with a deal. 

  • Cleveland, OH · Member since 2015 · 42 posts · 13 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.

     As a budding wholesaler looking to get started in the business. I have always made it a point to be HONEST, FAIR, and INTELLIGENT about what I am trying to do. If I can't assess the rehab myself I find someone who can. If I can't get a property for a strong discount then I suggest other possible means of selling the property and wish them good luck. I have even partnered with a larger wholesaling team in order to better learn how to find leads, assess deals, and get things done. Thank you for your post on the importance of integrity and professionalism.

  • Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
    11y

    Of the few successful / reliable wholesalers that I know, all of them started, and did well as buy & hold, or flipper / rehaber. It would be tough for a newbie, who only experience is a seminal or two from some self-claimed guru, to just jump in and hope to make big buck with no money down.

  • Staff Accountant, Property Management · Brooklyn, MD · Member since 2015 · 5 posts · 1 vote
    11y

    Very informative! I'm looking to start in wholesaling and this is one of the best post  I've read thus far! Thank you.

  • Real Estate Agent · San Antonio, TX · Member since 2014 · 1 post · 0 votes
    11y

    As a wholesaler, I never give a cost estimate on repairs. Their is no need considering the investor is going to either look at the property or send out someone to look at it. I do say things like "the flooring could use replacing and the roof is in rough shape". 

    Just like any professional you do business with, you have to look at several factors. Are they professional, trust worthy, reliable, and educated in the field. I do not think you have to go with someone that a friend recommended or the most popular. Their are always some people out there that are great wholesalers just not good at marketing themselves. 

  • Real Estate Transaction Engineer · Jacksonville, FL · Member since 2014 · 271 posts · 74 votes
    11y

    Hi @Angela Ingram. I was curious. Without knowing the cost of rehab yourself, how to you determine all-in costs for the buyer? How do you know if something is a good deal or not if you don't have some kind of $$ figure, even if it's a rough estimate?

    I agree that buyers should do their own DD and cost estimates and not take the word of the seller or wholesaler, unless there are actual quotes or estimates from reputable CG or subs.

    Flooring (assuming sub-flooring?) and roofing can be costly items and could be ~$4-$10K each. Depends on the sqft and material and the vendor, etc.

  • Miami, FL · Member since 2015 · 11 posts · 0 votes
    11y

    Great information. Thanks!

  • Laguna Hills, CA · Member since 2015 · 1 post · 0 votes
    10y

    I just joined BiggerPockets and this is my first reading or any comments by other "Members". My question is:

    Why are you all discussing a deal that was done by the dates on all your emails, in 2010???

  • Real Estate Agent · Seattle, WA · Member since 2015 · 40 posts · 24 votes
    10y
    Originally posted by @Account Closed:

    I just joined BiggerPockets and this is my first reading or any comments by other "Members". My question is:

    Why are you all discussing a deal that was done by the dates on all your emails, in 2010???

     I didn't read all 27 pages but it looks like BP members are discussing the merits of wholesaling real estate. It's more about wholesaling in general and less about the actual deal in 2012.

    I've had a similar experience with wholesalers in the Seattle/King County market. The only number that I take from a wholesaler is the amount they are offering it to me at. The comps/rehab/ARV/etc all need to be recalculated by the investor who's buying the property. We recently decided to start wholesaling properties ourselves and we expect the buyers we work with to do their own due diligence before they purchase a house from us. I usually run the numbers that we would use if we were buying the house to rehab ourselves and then market the house at numbers "we think" would work for other people. Even with our experience rehabbing, our numbers are still different than other investors in the area.

    I don't think you can get mad at a wholesaler unless they're trying to scam you. It's always up to the investor to run their own numbers and if you as the investor know your market, it won't take long to come up with your own numbers. If we took 25 investors and gave them the address and photos of a property that is going to need a rehab, you'd have 25 different numbers at which each investor would need to buy the property to make it work for them. There are so many variables that go into a rehab and everybody has different rehab costs. My advice or newer investors working with wholesalers is to find people that you believe will be honest with you and teach them how to run your numbers on the property. Most wholesalers are new and don't have expertise in rehabbing so they need help.

  • Fort Lauderdale, FL · Member since 2015 · 12 posts · 1 vote
    10y

    Great post! It really opens up an honest conversation about how to be a Great Wholesaler. I'm also just starting off in the REI business. I'm starting off as a Wholesaler. So all of what had been mentioned does point it what I've read and heard on podcast here on BP.

  • San Diego, CA · Member since 2015 · 9 posts · 6 votes
    10y

    I'm a newbie to REI, in San Diego, CA. My wife and I were taught by a (after the fact expensive) Guru. We were taught the basics, but when we began, just as posted, we quickly found everyone had their own ARV formula and percentage; move on a wholesale within 72 hours before close of escrow to get your check back - not true: Escrow cash checks within 24 hours - CA law; and the idea taught by the Guru, no or small amount of out-of-pocket money would be involved - not true.

    Just like other prospective REI "newbies" we want to do transactions the correctly, without the fear of screwing over anyone. So we are doing our investigation before getting in too deep by asking questions of all parts of Real Estate negotiations. I'd rather be safe than locked up.

    So, as a newbie, I ask how to get the necessary funding to either wholesale or flip property? Suggestion that I've heard: Cash advance credit cards, or to partner up with an experience REI/Realtor.

  • Stockton, CA · Member since 2015 · 4 posts · 0 votes
    10y

    This is a great post and it is great to read all the different feedback on here.   

  • nowhere, MN · Member since 2015 · 4 posts · 2 votes
    10y

    I'm a new investor working in the Seattle, WA area.  I too am beginning with wholesaling because it is the most cost effective way to begin investing that will also give me more depth in knowledge of the market.  I am HIGHLY motivated and willing to learn from my mistakes, although I would prefer to minimize them as much as possible.  

    If there are any investors or fellow wholesalers in the area I would love to network with you and help each other reach our goals.  I pride myself on my work ethic and attention to detail.  I would be more than happy to learn anything that you would like to teach me, or assist you in any way to add value to my business.  

    I look forward to hearing from you and good luck!

  • San Francisco, CA · Member since 2015 · 786 posts · 717 votes
    10y
    Originally posted by @Account Closed:

    I'm a new investor working in the Seattle, WA area.  I too am beginning with wholesaling because it is the most cost effective way to begin investing that will also give me more depth in knowledge of the market.  I am HIGHLY motivated and willing to learn from my mistakes, although I would prefer to minimize them as much as possible.  

    If there are any investors or fellow wholesalers in the area I would love to network with you and help each other reach our goals.  I pride myself on my work ethic and attention to detail.  I would be more than happy to learn anything that you would like to teach me, or assist you in any way to add value to my business.  

    I look forward to hearing from you and good luck!

     Good luck with wholesaling. Please add me to your buyers list. I believe my contact info is in the signature line.

  • Real Estate Investor · Seattle, WA · Member since 2014 · 156 posts · 141 votes
    10y

    Welcome, Max!

    Please, put me on your buyer's list as well!

  • Investor · Boulder, CO · Member since 2015 · 137 posts · 36 votes
    10y
    Originally posted by @Bryan Hancock:

    Nice post Will!

    The vast majority of wholesalers that send me deals have similar problems. I generally don't even look at deals from "wholesalers" anymore unless they are recommended by some folks in our local community that I trust.

    Exactly. About 99% of WS deals I see are not "deals". Experts in the industry learn to filter out the noise and spend very little to zero time on these and accept the noise as part of doing business.

  • Realtor · Atlanta, GA · Member since 2015 · 693 posts · 357 votes
    10y

    I can't believe this post has been around for 5 years and 500+ comments. Literally the biggest, most voted, and longest post I've ever seen. But I agree. Most wholesalers I've talked to are newbies and have no idea what they're talking about. Their version of a deal, is any property that's worth $40k in a D neighborhood that no one wants from the MLS.

  • Lawrenceville, GA · Member since 2015 · 18 posts · 1 vote
    10y

    I'm a new investor and I'm starting off as a wholesaler, Im doing my due diligence and trying not to be some of these wannabe wholesalers or straight out of a guru seminar. Some of us actually want to learn easy or not and make great relationships with other investors. 

  • Real Estate Agent · Seattle, WA · Member since 2015 · 40 posts · 24 votes
    10y
    Originally posted by @Jose Vasquez:

    I'm a new investor and I'm starting off as a wholesaler, Im doing my due diligence and trying not to be some of these wannabe wholesalers or straight out of a guru seminar. Some of us actually want to learn easy or not and make great relationships with other investors. 

     You're buyers will respect you more if your just honest with them. Tell them you're a new wholesaler but you'd like to start sending them properties. Most of the investors will be more than happy to train you or teach you how to comp out properties using numbers that work for them. It's been much easier for us to build our buyers list when we have a property to market but I don't think it would be a bad idea to contact the big buyers in your area and network with them first.

    Investors that buy properties through a wholesaler are trying to save time and money in marketing expenses. That's why majority use wholesaler's or the auctions to purchase deals. They don't have time to waste trying to market and find deals. Approach each buyer with this mentality that you're doing them a favor and all you need is a push in the right direction to start finding them properties. 

  • Lawrenceville, GA · Member since 2015 · 18 posts · 1 vote
    10y

    Thanks a lot for your words man. That's what I want from all this a win-win for everyone! 

  • Real Estate Agent · Arlington, TX · Member since 2015 · 57 posts · 23 votes
    10y

    @Jerry Puckettthe business is a tough one to venture into and, trust me, everybody has a different angle they take in investing. I have guys that want houses already rented at a certain price point and return, some want 70 to 85% all in, some want me to assign them an option. The fact is that everyone is looking for something different, so the key is to get to know a whole lot of those "everyone's" and make it happen. The stereotype will always be there, its the reason I started assigning contracts. I couldn't stand seeing flyers that didn't make sense at the REIA's like the one that @Will Barnard was describing. You will not be able to keep others from doing so much damage; however, what you can do is become a sound 'go to guy" with your endeavors. 

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