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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  • Jerry PuckettPro Member
    Wholesaler · Fort Worth, TX · Member since 2010 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Jake E.:

    @Jerry Puckettthe business is a tough ........ however, what you can do is become a sound 'go to guy" with your endeavors. 

     And so I did Jake. Not sure if you caught it or not, but the last time I posted in this thread was a few years back. I've since gone on to succeed in a very tough market and helped a half dozen newbies (in 2015) become successful enough to leave their Jobs and go full time into RE. Me and @Will Barnard buried the hatchet a LONG time ago. Turns out he and this thread are exactly spot on and probably one of the greatest resources to wholesalers on BP.

    I see you're over in Arlington.....give me a buzz sometime and we can talk shop.

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

     Frank, while this post did start about 5 years ago, it is not just about the specific deal I originally mentioned but rather a guide on what not to do and how to do this process properly. As others have stated, it is one of, if not THE most popular and most voted for posts on Biggerpockets and rightfully so. This topic is very popular with newbies and many of them are led astray by suggestions of easy profits with no money out of pocket, no credit, no experience, etc. That is just not true. It takes hard work, education in this industry, building relationships, and executing in the real world. This is what this thread is about.

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    10y
    Originally posted by @Jerry Puckett:
    Originally posted by @Jake E.:

    @Jerry Puckettthe business is a tough ........ however, what you can do is become a sound 'go to guy" with your endeavors. 

     And so I did Jake. Not sure if you caught it or not, but the last time I posted in this thread was a few years back. I've since gone on to succeed in a very tough market and helped a half dozen newbies (in 2015) become successful enough to leave their Jobs and go full time into RE. Me and @Will Barnard buried the hatchet a LONG time ago. Turns out he and this thread are exactly spot on and probably one of the greatest resources to wholesalers on BP.

    I see you're over in Arlington.....give me a buzz sometime and we can talk shop.

     I remember a long time ago when Jerry was just starting out in this arena and he read this thread (of course then it was much shorter than the 500+ posts today) and he took the impression I was bashing wholesalers. I quickly cleared that up as my intention was to educate newbies on how to get into and through this specific strategy of RE. He then realized what my intent was and we became friends. I also remember the very first (and only) Biggerpockets Summit where we had a few beers together and discussed how far he had come so quickly. Now I consider him the best go to guy on BP for direct marketing and refer people on this site to him all the time (in fact just did again today in a PM to another member). Keep up the great work Jerry and hope to see you soon on my next trip to TX.

  • Fort Worth, TX · Member since 2015 · 80 posts · 16 votes
    10y

    Hi all. New Here. I had some questions about wholesaling, because I was planning to start out that way as a way to learn what makes a REALLY good deal, and as a way to earn a little cash to save up for a nice down payment. I was hoping I could learn from people here, so that, before I go running off half-cocked, I understand what makes a good deal. I'm an honest man, and I have ZERO desire to make money on "suckers". When I go to an investor with a deal, I want to know that he's actually going to be getting the best deal I could possibly bring him, and only then do I want to get paid. I'm also not looking to make grand amounts of cash on each deal. I don't make a whole lot of money with my full time job, so even an extra grand or two would be a godsend. The real "money", so to speak, for me is in the knowledge. I'm basically trying to get paid to learn, so that when I'm on the other side of the coin, and looking for great deals for myself, I really know what I'm looking for. So, for me, ANY solid, actionable advise I can get from real investors is welcome. I don't ever want to be "That Guy"; I just want to be someone who, when investors see me coming, they think, "He's got a decent deal, otherwise he wouldn't be darkening my doorstep". So, how, EXACTLY, do you identify a good deal? What, SPECIFICALLY, are you looking for? When it comes to estimating repairs, what are your best practices? Any help you can give would be great.

  • Wholesaler · Philadelphia, PA · Member since 2015 · 24 posts · 12 votes
    10y

    Hello fellow newbies.  I'm six months into wholesaling and it's certainly been an education.  From my own experience and hearing others' accounts, a growing share of local housing markets aren't conducive to making money in wholesaling.  Homeowners aren't rushing to get out from under their homes like they were a few years ago, especially in markets across FL, CA, AZ, etc.  

    Under current economic conditions, I just don't see how wholesaling is a viable long- or even medium-term income producing strategy.  Maybe it will be again during another major economic downturn and/or housing bubble burst.

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    10y

    Glenn Mayo,

    I know you may not want to hear this, but you should start by reading this entire thread... If you had, your questions would be answered.

    Big Henry

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

    Court date on Monday,  Jan 11th. I hope to bring good news to this thread soon.

    Sorry folks, this post was meant to go into one of my other threads, please ignore as far as this thread.

  • Professional · Columbus, OH · Member since 2015 · 119 posts · 37 votes
    10y
    Originally posted by @Will Barnard:

    Court date on Monday,  Jan 11th. I hope to bring good news to this thread soon.

    Can you save me from reading the entire thread, what is the Court regarding?

    Thanks!

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

    Court date on Monday,  Jan 11th. I hope to bring good news to this thread soon.

    Can you save me from reading the entire thread, what is the Court regarding?

    Thanks!

     Sorry, that post was meant for another thread of mine found here: https://www.biggerpockets.com/forums/67/topics/649...

  • Urbana, IL · Member since 2015 · 11 posts · 1 vote
    10y

    I'm a newbie wanting to start out in wholesaling because I don't have the capital to start anywhere else.  

    I agree about the gurus making it sound like this is a quick way to get rich and not really telling us newbies where to start or what's important when starting.

    But I believe that the only way I'm going to learn the business is with feedback from the people who have been there, done that.  

    Have you thought about mentoring those so called Newbies? Maybe by educating them and showing them how to do wholesaling would help them to present more legit deals.

  • Real Estate Professional · Dayton, OH · Member since 2015 · 423 posts · 187 votes
    10y

    @AngelaCarter

    Consider acting as a bird dog for the dominant wholesaler in your market. You will learn and earn while you do it.
    If you don't want to do that, than consider investing in training. If you think training is costly, consider how much more ignorance will cost you.
    You can find a lot of people that promote themselves on this site. I know one that doesn't who trained me. He paid for himself in 6 weeks. If you are interested, message me.

  • Involved In Real Estate · Camarillo, CA · Member since 2014 · 44 posts · 14 votes
    10y

    1. deals are easy to come by, even the ones on the market have some meat on the bone, it's all how you structure the deal.

    2. money is the easy part, utilizing transactional funding for a few days and paying a few points, done.

    3. Buyers list, here is how I build my list (who by the way are not only investors but ordinary people looking for a home) REALTORS! email, call, meet etc. every realtor in your area, they all have buyers looking for ****, your job now is to then to have your agent/your representative find you the house to fit the buyers needs.  

    4. I am cool with $3k per deal, I negotiate with my agent upfront, I want to buy at 100K tops and the buyer list wants what I have and is willing to pay 105K and it costs me $2k to facilitate the transaction, who gives a ****!  It's easy money and I can do 4-5 of these every week.

    The trick to wholesales is access to data.  Finding and engaging the right sources for this data and then executing your plan.  Oh, what works for me, don't be motivated by money!  Yeah the whole purpose is to make money but if you dont enjoy the process and you cant scale it into a business then you just created a JOB for yourself (nothing wrong with that at all) but if you can master a process and then duplicate it nationwide small chunks at a time then you have a business that pays you without doing any work!

    Just my 2 cents

  • Burke, VA · Member since 2014 · 23 posts · 7 votes
    10y

    First of all, 

    A shout out to @Henry M. 

    I like your attitude and approach to this wholesaling and ability to help new wholesalers.

    @Will Barnard, 

    I appreciate the lengthy posts and the time you take to educate new wholesalers into avoiding big mistakes. This long but rather educational thread has and will help me.

    Also I"m currently reading J. J Scott's book on Flipping Houses. Even though I"m starting off as wholesaler, I realize this book has A LOT of good information that can be helpful towards wholesaler. In order to wholesale successfully I think wholesalers need to look at deals from buyer/flipper's perspective as well.

    All other posts here were just as helpful and thank you for everyone here with their insightful posts.

    @Bill Gulley

    You said

    "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. :)"

    Can you elaborate on this?

    Anyways, to narrow down the focal point of this thread, I would possibly have learned that as wholesaler

    1) do not overestimate ARV

    2) do not underestimate repair values

    3) do your diligence and know the market place very well especially days on market

    I also believe that it's important to line up buyers first but some buyers I contact tells me "just bring me a good deal" without being specific.

    @Hattie Dizmond

    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.

    My reply:

    Is it common that wholesalers will just use 70% rule and start off numbers and offers like that? Maybe is that why (in addition to getting ARV and Repair values wrong) that wholesalers get their name and reputation destroyed?

    How many wholesalers use the "Fixed Cost Method"? (If any of you guys read Brandon Turner's The Book on Investing in Real Estate with No (and low) Money down, I think you will know what I mean by that --> "Fixed Cost Method")

    Is it that wholesalers can figure out all those closing costs, holding costs? seller's closing costs, etc?

    I know the wholesaling calculator here in BP requires you to input all the figures for that. 

  • Athens, GA · Member since 2015 · 16 posts · 5 votes
    10y

    has anyone bought a habitat for humanity house  that's 28 yrs old  im starting out wholesaling ..I sent out a letter and got a lead.. looking up the tax info at the county I found its a habitat house  and info would be great  thanks

  • Montréal, Québec · Member since 2016 · 3 posts · 1 vote
    10y

    Hi. Just to let you know, I'm kinda in the same boat as Angela Carter. And totally agree with what has mentioned. Is that definite possibility.? Please let me know. Much appreciated.....

  • Montréal, Québec · Member since 2016 · 3 posts · 1 vote
    10y

    I do however have my own residential painting business & have good knowledge of what renos would cost. Need to blend this all together. Hope this helps me out........

  • Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
    10y

    Short of working for a pro wholesaler, I'm not sure that I can give good advice on how to become a quality and reputable wholesaler.  The challenge there, however, is that you're really asking someone to train their competition!

    The truth is that the only way to get good at determining ARV is to comp a ton of houses and track where they actually sell to see if you're right or wrong. The only way to get good at determining repairs is to either rehab yourself or have a network of contractors that do rehabs for flippers that you can learn from.

    Because the barriers to entry in wholesaling consist almost entirely of knowledge, most are pretty loathe to actually train people if they fear they'll run off on their own the first chance they get.  That's why I give my people vesting profit sharing - it's designed to make them think really hard about how much money they're leaving on the table to go compete against me.

  • Wholesaler · High Point, NC · Member since 2016 · 4 posts · 2 votes
    10y

    Just starting out as a wholesaler myself in the North Carolina area, and realizing that building a really solid foundation of knowledge and contacts is paramount for our business!  I take great pride in being open and honest and after reading this very long string, it seems to me that we are on the right track.  There are no corners to be cut, this is not a get rich quick, this is a rewarding profession if done right and we intend to do it right.  I would love to connect with more experienced wholesalers and flippers so that we can make sure to get it right, so I would really value any connections.   Great comments and insights on here and it's really good to see the differing opinions.  Thanks...

  • Wholesaler · Wilmington, NC · Member since 2015 · 20 posts · 9 votes
    10y

    A good way to begin to understand repairs is to start with the basics. go online to lowes, compare flooring and square feet as well as windows.  Price cabinets and such as well. also ,to hire a painter it runs about $200 per gallon. equaling about $200 per room. 

    a good way to cheat is to figure $100 per square foot on repairs. =1,000 sqft=10k in repairs. not always right but a ball park.

  • Flipper/Rehabber · King, NC · Member since 2016 · 88 posts · 36 votes
    10y

    I am a buy and hold but if you ever need any advice on repairs I could always give you my recommendation and know a lot of people that's do home repairs in just about every area. 

  • Investor/Rehabber · Hickory, NC · Member since 2015 · 6 posts · 4 votes
    10y

    Melissa,

    I think your math is a little off there...$100 a sq. ft on a 1000 sq. foot house would be $100,000.

    While I do agree with your average total rehab cost (if you are a doiit yourselfer ) $10K on a 1000 sq ft. house is a good starting point, but probably not a generalized rule of thumb.

  • Real Estate Investor · Edinburg, TX · Member since 2016 · 76 posts · 13 votes
    10y
    Great advice to a aspiring wholesaler, one should definitely be very honest and willing to do much due diligence basically work hard because it is a lot you have to get done before you start thinking about selling. Great story I just hope you didn't accept the deal 200+ with a 10k rehab is just unbelievable, sounds like somebody just wanted to make some easy money without the work being put in.
  • Mississauga, Ontario · Member since 2016 · 23 posts · 2 votes
    10y

    Great post @Will Barnard!!

    As a newbie, I can tell its really easy to get swindled if you dont do the proper research.

    Scary how people take advantage of others sometimes. Again, great points to look out for. As I was reading along and saw 10k renos..I though 'Ya right, not even in Toronto, in a sucky part of town" glad you did the thorough research and investigating.

    thank you for sharing!

    Keep it up!

    T.Matthews

  • Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
    10y

    I hope I don't get chewed alive on this chat as I see a lot of bad ideas about wholesalers...but I am doing my first wholesale deal (yikes). The owner is an older man (so sweet) who just can't maintain the property anymore. I spoke to him several times and I will even lower my initial fee of $10K to $5K to fit his goals. Question is: I plan to go with my General Contractor tomorrow to get a true estimate of repairs on the house. I had guestimated $40K of rehab but after speaking with the owner, it might be much more.

    After tallying up the scope of work, I want to come back with the offer. I originally thought to offer $196,340K the ARV for the house is $384,600. (384,600 x .7 = $269,220 - $40K repairs, - $10,400 closing cost (5%) - $12,480 realtor fees (6%) - $10,000 my fee ). House is free and clear, great neighborhood!

    Anyway, I say all this because I think could be a great deal and I don't want to screw it up on either side. I need to come to buyer with a Purchase and Sale Agreement with an "and/or assign" clause. My Google search isn't bringing in any good results. Can someone kindly advise where do I get this doc? Do I get it from the Title company or do I have to find an attorney who is familiar with wholesaling for them to draw it up? Kindly advise,

    Many thanks,

  • Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
    10y
    this is a pic of the house, I hope this is a good deal.
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