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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  • Realtor · Washington, DC Metro · Member since 2014 · 39 posts · 14 votes
    10y

    Hi Will!

    Nice post. As a new wholesaler myself, I'd like to add my 2 cents. I would venture to say the responsibility of due diligence resides with both the wholesaler and the buyer. Any seasoned investor should know not to take a wholesaler's estimation of repair costs or ARV at face value. Questions would naturally need to be asked including "how did you come up with those figures"! The same goes for ARV, one should be asking where this came from. Any wholesaler worth their salt certainly has a partner realtor who provided them with actual comps that you could request a copy of.

    Also, a simple google maps street view will show you if a property is undesirably close to a freeway, etc, which would save you a trip to a property you likely will not have interest in. I disagree that to be a good wholesaler you must be an expert at estimating rehab costs, but if one is not, they certainly should have good contractor partners that can accurately price out repairs and/or rehab costs before they market a deal. I definitely agree with your other 2 "ingredients".

    Ultimately, in my opinion a good wholesaler will have the right business partners and adequate knowledge already in place to provide true and accurate figures to potential buyers. They will also be able to easily answer the question of how they obtained their figures and produce documentation if needed, with a goal of respecting their buyer's time and creating the best mutual win. However, as a serious buyer who values his/her time and money, asking important questions to vet the deal presented to you should be a part of the regular method of operations. 

  • Atlanta, GA · Member since 2016 · 42 posts · 18 votes
    10y

    I work for a company called New Western Acquisitions and I think that's what makes the company I work for so great. There is a team of us working for our investors and the new guys can really learn from the experienced guys. Another reason is we would never purposely lie to get one deal because it could hurt our reputation. I think that is one of many reasons why we have positive feed back from our investors.

  • Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    10y

    Dear wholesalers:

    If you blast an email to half of the city please don't say the property is "off market."  

    Signed, 

    All investors with money

  • Indianapolis, IN · Member since 2016 · 75 posts · 8 votes
    10y

    @Nadirah Dawson If you don't have one yet PM me. 

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y

    Longest thread on BP!  Who would read it all?

    Well, the circus train still takes on more newbies!

    Marvin commented something about pawn shops doing things.

    Pawn shops do not deal in real estate, they deal  with personal property! The ethics and laws are much different, if you deal with real estate as a widget of personal property you have the wrong mind set to be in real estate.

    If you have a PA contract with a seller that allows the seller to consent to an assignment, you have a listing agreement, you're putting yourself in a position to act on a seller's behalf with their consent, now you are a broker! The seller is consenting for you to buy and/or find another buyer, this forms an agency relationship under "Agency Law". (Not real estate law, but Laws of Agency). Once you establish your relationship under Laws of Agency, then real estate licensing laws apply.

    You can study aspects of real estate, how to find a market value, the ARV, costing, title and settlement, but you're still missing the glue that holds these different aspects or functions together for dealing legally and ethically in the industry of real estate. You're still not learning real estate you're learning various functions, and it's unlikely you can value a property correctly without recognizing the underlying factors of the basics of real estate.

    I see someone tried to mention me on the previous page, it failed. What I was saying was that if and when you learn real estate you won't need to  wholesale, you'll have an understanding of the business and know how to take title which leads to greater profits, It's what you don't know that's holding you back and putting you in a position of questionable dealing.

    Just an observation on BP, it appears that our newbies and wholesalers are twenty somethings. I remember my twenties and late teens. Just like most of this group I was on fire, thought I knew more than I did, looked for the easy way, had my eye on the dollar, certainly over confident, and often ignored what conflicted with my thoughts or desires. A lack of wisdom is immaturity. Everyone lacks professional maturity and wisdom in subjects they start out in.

    At 18, I owned a flooring business, that's personal property, basically a wholesaling warehouse targeting contractors and developers, while I made good money I had many business blunders! Then the Army sent me a letter! I matured!

    Point is, when I started off in business I didn't really understand business, that's where you are in your early years, not only do you not understand real estate, you don't understand business practices, laws, regulations, what can be deceptive practices, advertising issues or serious issues like fraud, torts, and criminal acts. 

    Being over confident usually leads to taking unnecessary risks as you tend to throw caution to the wind and rely on what you think you know. 

    You're also feeding off success stories, I have my own, but I can also tell  you about more failures in real estate, not mine but the failures of others. Dealing unethically or illegally is a huge financial risk and the consequences can ruin your life.

    A long time Realtor I knew pulled a rather unethical blunder, he claimed his intentions were good, but that's not how it seemed to  others. His reputation was attacked in the papers, his business fell, obligations mounted, I suppose he saw the dream slipping away and blew his brains out. Yes, that's an extreme instance, but many go broke and fail. More fail following the guru path than succeed!

    I know newbies are in a hurry to make money, but take the time to actually learn real estate first as well  as basic business practices before you leap into your future. Wholesaling is NOT the place to start!

    :)       

  • Sacramento, CA · Member since 2016 · 5 posts · 3 votes
    10y

    thank you for the wise words Will! I attended a seminar about wholesaling real estate but unfortunately did not have the $20,000 to invest in their program, so I have decided to work diligently at finding information on my own and with the help of a professional who will eventually help me learn also. Until I find help, do you have any books that you recommend I read to help me learn how to evaluate markets, and get familiar with the different types of markets there are? I really appreciate your time, and I hope you have a great weekend!

    - Shanai R.

  • Real Estate Professional · Irvine, CA · Member since 2016 · 33 posts · 17 votes
    10y

    Just finished reading through this entire thread. I'm a newbie who has been studying REI for only two weeks, and found this thread through "The Ultimate Beginners' Guide to Real Estate Wholesaling":

    https://www.biggerpockets.com/renewsblog/2015/01/3...

    For me, this thread started off as an emotional roller coaster, causing me to reconsider whether engaging in wholesaling was a good idea altogether for a newbie, but after reading through it all, I am confident that I have a solid idea of what I need to continue to learn and do to have a successful start. Thanks to all who contributed, and I look forward to sharing future success stories (and unsuccessful ones as well lol)!

  • Real Estate Agent · Arlington, TX · Member since 2016 · 10 posts · 3 votes
    10y

    @Carlton Francis Agreed! This thread gives you a much clearer understanding of what it takes to make it as a reputable wholesaler than anything that I've read anywhere else. I wasn't actually including it in my options for getting started until reading this. Good luck to you. 

  • Real Estate Professional · Irvine, CA · Member since 2016 · 33 posts · 17 votes
    10y

    @Matthew Thompson And you as well!

  • Wholesaler · Atlanta, GA · Member since 2016 · 19 posts · 14 votes
    10y

    Been digging through this thread. What a wealth of knowledge here. Thank you.

  • Wholesaler · Madison, WI · Member since 2014 · 7 posts · 7 votes
    10y

    Adding my two cents to this insanely long post because, well, why not? 

    Wholesaling is a numbers game. You need to go through a lot of leads to find a true deal. If you have the patience, drive, and work ethic to do the work, you can bring deals to the market that work for everyone. There are a lot of different approaches you can take to get your leads (mailing lists, birddogs, virtual wholesaling). Whichever approach, book, or coach you follow, it takes work to find deals.

  • El Dorado, AR · Member since 2016 · 27 posts · 2 votes
    10y

    I have read many of the post and have been amazed at the level positive feedback given from everyone's point of view from new to seasoned investors. I to am a newbie, but I think I have a firm grasp of what it takes to wholesale even though I haven't been able to sell my first home yet.  I'm still educating myself on every detail required to be successful in this sector of the business and not waste my time or anyone else's. 

     It's like someone said, If you offer people a bad deal disguised as a good deal knowing you're trying to get over on somebody, you WILL NOT last long.  Your name will leave a bad taste in peoples mouth. For what I've gathered so far your reputation can make/ break you in this game.  I personally am not into wasting anyone's time because of the time it takes to find deals and market them and find buyers, why play around with that?

  • Realtor · Richmond, VA · Member since 2016 · 20 posts · 7 votes
    10y

    This post is awesome love how you laid out the numbers as an aspiring wholesaler i was concerned with the numbers and how to truly analyze a deal this post certainly helped me figure some stuff out. Thank you!

  • High Point, NC · Member since 2016 · 1 post · 0 votes
    10y

    This is great to know. I am a newbie and I joined this forum to get more information since everything out there costs an exuberant amount of money and most of the information is geared towards wholesaling for someone just starting out. I know that in order to be successful you have to understand the business but how does someone who doesn't have the experience in the business start out. Is there another way to get into the business that doesn't require a large sum of money or great credit to get started besides wholesaling. Please advise.

  • Grapevine, TX · Member since 2016 · 19 posts · 8 votes
    10y

    I'm trying to wrap my head around the "70% rule" when buying from a wholesaler. Can someone tell me what expenses the rule includes? For example, if I take an ARV of $100,000 * 70% that equals $70,000. I then turn around and subtract rehab costs (let's say $15,000). But do I also subtract things such as expected holding expenses while rehabbing, my expected profit, what the wholesalers profit would be, etc?

    Thanks!

  • Toledo, OH · Member since 2016 · 2 posts · 1 vote
    10y

    This is very important to know. I am newbie in this business and I am looking for my first deal. I strongly think that people have to be more educated, follow systems and have a mentor, which is very important. 

  • Rehabber · Westwood, NJ · Member since 2015 · 388 posts · 136 votes
    10y

    Hi Chad,

    Expenses

    1.) Closing to buy 4% of ARV

    2.) Closing to sell     3%

    3.)  Holding               10%

    4.) Marketing             3%

    5.) My Profit              15%

    TOTAL                      35%

    100% - 35% = 65% What's left over to buy house and repair house

    $250,000 ARV x 65% = $162,500 - $15,000 (Repairs) = $147,500 MAX OFFER

  • Missouri City, TX · Member since 2015 · 52 posts · 5 votes
    10y

    Awesome thread. Sooooooo much knowledge in here. @Gary Harris thank you for that breakdown!

  • Investor · Milwaukee, WI · Member since 2016 · 389 posts · 193 votes
    10y

    @Will Barnard

    Thanks for the insights. I plan to start a marketing and wholesaling campaign shortly in the Milwaukee area, and these are valuable insights. I've even thought passingly about calling it realdealz or something cheesy like this, because of the common complaint I've heard that wholesalers just aren't bringing actual deals to the table. Not at all my intention, and going in I believe it's important to conduct oneself in an intelligent and honest manner, overestimate rehab and underestimate ARV.

     With my aims I hope to be among the successful and trusted crowd you're talking about.

    JTM

  • General Contractor · Palm Desert, CA · Member since 2016 · 197 posts · 79 votes
    10y

    As a contractor who has been doing remodels for over 20 years, it is a lot easier for me to estimate repairs costs by just a quick walk thru. How anyone who has not been through a rehab project can possibly do it is crazy to understand. 

    During most projects, I practically live at Lowe's and Home Depot. 

    Never  listen to anyone who has not actually done one, and has not paid the bills.

  • Seattle, WA · Member since 2016 · 2 posts · 0 votes
    10y

    hello my name is Bobby Dampier, and I am in the Seattle market. I am a newbie, but I am educating myself first . I will get all the knwledge I can first and then go forward. Although, I have not started anything yet I am learning a lot from these post of what not to do and what is best to do for attraction and make money for the investor aswell as my self. As I am teaching myself and and reaching out to people who have th experience that will share the knowledge. One thing I would like to share is bigger pockets have what appears to be be a great analyzing calculator on its website. I am practicing with calculator aswell as familiarizing myself with stores In The like of, homedepot, lowes, to have a grasp of product and pricing to put real number In To the calculator to get a real and true projection in this market along with picture of before rehab in the analysis. If anyone would like to assist in my education it would be very much appreciated. As I am not doing deals at the time I am educating myself on how to do it right first and with honesty, and integrity. All honest knowledge welcome. I do understand that it's not what I know that makes me smart its understanding what I don't know and finding the people that do. I will close here and go back to watching more videos and taking notes to better myself. All honesty welcome.

    Sincerely Bobby Dampier

  • Real Estate Investor · Forney, TX · Member since 2016 · 20 posts · 6 votes
    10y

    Will..thanks for the straightforward observations/advice. I am a newbie and am in the learning stage and I definitely want to do things the right way. I understand that my profit will be made when I negotiate a price with the seller, not once I sell to a rehabber. I also understand it's all in the numbers (purchase price, true rehab costs and true ARV estimate).

    I have a pretty good handle on the general process, but find the need for more detailed education. I am considering going to Vena Jones Cox's boot camp. Would you have an opinion on this? Are you familiar with her? The reason I zeroed in on her is that she seems to be a straight-shooter and has wholesaled many deals in her career. Also, her cost is not too drastic at $2500/4 day boot camp.

    Does anyone else have an opinion? Thanks in advance.

    Does anyone else have an opinion?

  • Rehabber · Westwood, NJ · Member since 2015 · 388 posts · 136 votes
    10y

    @AJ P.  You can use DealCheck which is an app that has rehab costs listed, but you would want to get with a local contractor in your local market to get those estimated costs to use moving forward with  other deals.  For that matter, you could also use the tools here on BiggerPockets too.  Just get a local contractor to give you numbers based upon your local market.

    Gary

  • Investor · Palm Bay, FL · Member since 2014 · 49 posts · 25 votes
    10y
    Originally posted by @Alejandro Villarroel:

    This is very important to know. I am newbie in this business and I am looking for my first deal. I strongly think that people have to be more educated, follow systems and have a mentor, which is very important. 

     Honestly I never had a Formal Mentor and personally I think most of them are scam artists, I never followed a formal system... Also mostly scams...Having a few good friends in the business is instrumental. This business is not as complex as it seems. If the numbers are right the deal will work. Its good to be informed and you should absolutely read and learn. And Study your local market. Know those comps like the back of your hand. But if you wait too long you will just plain run out of steam. When I started I went to local  RIA meetings. Many of the new guys I met there are still new guys waiting  years and many deals later. Nothing will give you knowledge and confidence like doing a deal and making money.

  • Investor · Palm Bay, FL · Member since 2014 · 49 posts · 25 votes
    10y

    NEW Wholesalers..... Want insight into your customers and what we know? I know this seems harsh but its just strait honest talk. Its not meant to offend. 

    I rehab I take Title and add equity though repairs. Some I hold some I sell. If your numbers are right I will buy if not I wont. My wife is my Realtor.

    I know that every start up with no money wants to be a wholesaler because a guru told them they could and only a tiny percentage will make it. 

    I know when you just spent your last 3 grand on the latest guru boot camp scam. 

    I know when you have over estimated ARV and underestimated repairs which is most of the time.

    I  know that a filled in garage is not really square footage. 

    I know that most of the time a roof is not as good as you think

    I know you don't have any deals when you send us MLS and HUD Listings. (We have seen the MLS and HUD listings in our local area before you did and If we wanted them we would have bought them then) BTW we just wait for you to lose your earnest money then buy that HUD with a backup bid....

     I know when you don't have a deal under contract.

    I know It costs thousands to generate the leads to find a deal. Gone are the days of sending out a few hundred letters and getting a handful of deals. If that worked I would pay my daughter to do it. This is a great business but no quick fix for a broke life. If you don't have the discipline to manage your bills you wont be able to run a business so fix that first. 

     I am on about every wholesalers list in FL. I look at deals every day. Out of the legions of wholesalers I get offers from I buy from 3. And 90% of there deals are crap. And I still find most of my own deals. Its pretty tough for a guy or gal 3 counties away to know my local market. A few can do it but most cant. 

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