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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  • Middleburg, FL · Member since 2016 · 5 posts · 0 votes
    10y

    I am just getting started learning about all this.  As far as wholesaling,  does it make a difference whether it is a residence (single/multi family) or if it's simply land?  Is one or the other more easier to deal with?  I ask because there is a lot of open property for sale in my area.

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

    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.

     I just happened to see this post and wanted to point out to all wholesalers and rehabbers, this is exactly what NOT to do when evaluating rehab costs! First off, at $100 per sq. ft. I can just about build the house for that. I think she meant $10 per for repairs which is a very incorrect formula. For example, you can have two identical homes on the same street (model matches) where one needs a new roof and the other does not. If all other needed repairs being equal, the first needs $6k more in rehab so by using a price per sq ft to calculate rehab numbers, you are off by $6k and that is a lot on a $100k value home or even a $250k home (possibly the difference between having a deal or not).

    Same with the paint cheat valuation above. One rehab may need all walls, all ceilings, and all base boards painted, another just the walls. One may be in a lower end neighborhood where you can get away with spraying the entire house in one color where another needs 3 different color schemes (one for ceilings, one for walls, one for trims). Point is, by trying to use some easy formula and cheat to get your numbers (thereby being inaccurate) you are doing exactly what I warned not to do in this thread. I suggest you learn the actual numbers and know how much it costs to paint each individual property as well as all the other needed items and then come up with an accurate rehab number. By gaining this added knowledge, you will do better deals and make more money. Cheat or skip steps and it won't be long before you start wondering why none of your deals sell!

  • Ronald PerichPro Member
    Investor · Granite City, IL · Member since 2014 · 658 posts · 301 votes
    10y
    Originally posted by @Billy LaFerney:

    I am just getting started learning about all this.  As far as wholesaling,  does it make a difference whether it is a residence (single/multi family) or if it's simply land?  Is one or the other more easier to deal with?  I ask because there is a lot of open property for sale in my area.

     Wholesaling is a type of transaction and is not asset-type specific. You can wholesale land, single-family, multi-family, cars,... whatever you want to wholesale.  The key to a wholesale transaction (as being discussed here) is that you never actually own the property. Or if you do own it, it's only as a way to get the transaction done (like a double closing).

    A wholesale transaction is where you lock up a contract to purchase an asset and then you sell the contract to another buyer (for a fee) who actually buys the asset.

    For example, you offer a seller $25,000 for a SFH that is in need of some repairs. They agree and you write up an assignable contract to purchase the house in 30 days or less. 

    You then reach out to some investors you know and one of them agrees to buy the house for $30,000. Actually, what they are doing is paying you a contract assignment fee of $5,000 and purchasing the house for $25,000.

    When the seller and investor go to close the sale, the title company will give the seller a check for $25,000 and will send you a check for $5,000.

    I wouldn't think it's easy to wholesale land. Land is more challenging to sell because the pool of potential buyers is smaller. As a result, you might not find some to sell your contract to in time and therefore not be able to close.

    It seems much more common to simply buy land and then resell it. Some land investors will do this right away while others might hold the land hoping for significant appreciation.  

    Hope this helps! There are a ton of forum and blog posts on land investing here on BP.

    Mark Podolsky, Steve Haight, and Seth Williams are good resources for land.

    If you'll search BP on wholesaling, you'll get a ton of returns.

  • Dallas, TX · Member since 2016 · 74 posts · 16 votes
    10y

    This post is absolutely GOLD, for the wholesalers like myself to see REAL feedback from investors is really valuable. Awesome post buddy 

  • Chicago, IL · Member since 2016 · 16 posts · 1 vote
    10y

    From my experience researching (about 6 months or so). I can tell you what ever wholesalers tell you the cost of rehab is, go ahead and double it to get the real number of total money to be spent. ARV some wholesalers offer is a no good because they leave out cheaper properties to make it look good. Wholesalers want to make money and unfortunately some times the naive and new/energetic not enough research investors fit the bill. It's the reality of things. I advise any new investor to do extensive research about any property they are thinking about rehabbing before pulling the trigger.

  • Contractor · Lakeland, FL · Member since 2016 · 21 posts · 11 votes
    9y

    I actually read this entire thread, line for line; though not all at once. What an eye opener!

    When I learned of wholesaling I thought, "What an incredible way to get involved in real estate! You're literally forced to learn everything about property valuing, cost estimating, marketing, and negotiating."

    I envisioned an aspiring wholesaler as one with a knack for negotiating, who would spend hundreds of hours self-teaching everything a fix and flip investor would have to know, plus direct marketing, before spending countless more hours networking for every aspect of the transaction (along with private money lenders for those properties that look ideal to fix and flip/fix and hold for his or her own portfolio). Then, ultimately, commit at least a few thousand dollars in a direct marketing campaign to find those off-market, motivated sellers. THEN, once he or she has spent hours in conversation with motivated sellers, and has contracted that great deal, the wholesaler would have earned his assignment fee.

    Instead, I learn that wholesalers basically fall into the "handyman" conundrum. Anyone with a hammer in his hand call himself one (like a "wholesaler" with an assignment contract in-hand...)everyone expects they're basically undereducated and unreliable, but if you do find a good one, hold on

    I mean, seriously, what guru course did I miss out on that says to re-market a deal that is already up for sale?! If it's for sale, especially on the MLS, what service are you adding??

    By the way, a big thanks to everyone who contributed to this great read, particularly @Will Barnard, @Henry M., @Jerry Puckett, @Jimmy C. @Bryan Hancock @Mike G.

    @Bryan Hancock

  • New to Real Estate · Minneapolis, MN · Member since 2016 · 21 posts · 5 votes
    9y

    Wow!! This is incredibly enlightening; my entire perspective has changed on wholesaling. It seems very time consuming and resource draining. It makes me think I would be better off, becoming an appraiser, inspector, or real estate agent to learn the ropes.

  • Atlanta , GA · Member since 2016 · 5 posts · 0 votes
    9y
    Great post! I am a new wholesaler in the Atlanta area looking to lock down my first deals and I'm currently building my buyers list. Any suggestions on how to get started?
  • Contractor · GA · Member since 2016 · 268 posts · 54 votes
    9y

    Great post @Charles Borrelli @Will Barnard I agree with you guys 100%. My business is to present investors with real wholesale deals. I have to weed out the remarked wholesale deals. The want-to-be wholesalers who market up deals for the 2nd, 3rd, or 4th time don't understand or care about presenting a real deal. I remarket wholesale deals without any mark along with accurate rehab cost, and acquisition and exit strategy to my buyers list. @Ebahi Ejerekhile please read this thread if you have not already!!!

  • Investor · New York City, NY · Member since 2013 · 93 posts · 23 votes
    9y

    Hi Will,

    Great post, This is something that is needed as a checklist for future wholesalers. 

    Thank you. 

  • Caldwell, ID · Member since 2016 · 7 posts · 1 vote
    9y

    So the best practice would be to have a contractor estimate at least my first few deals with repairs, do you agree. I don't know of another way to gain the knowledge, any suggestions? Thanks

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    9y
    Originally posted by @Robert Berganza:

    I actually read this entire thread, line for line; though not all at once. What an eye opener!

    By the way, a big thanks to everyone who contributed to this great read, particularly @Will Barnard, @Henry M., @Jerry Puckett, @Jimmy C. @Bryan Hancock @Mike G.

    @Bryan Hancock

    Robert, 

    A big thanks to you... All of those you've mentioned have great insight to this subject and more. 

    We don't get paid to share our experiences or knowledge... Neither do we claim we know everything. 

    There are those like myself, @Will Barnard, and others who always try to stay ahead of the curve and learn from our peers... 

    Why do I help those like myself in real estate?

    When I started in the 90's... I found someone who I thought would mentor me in the right direction. 

    Back then, before the internet took off, real estate professionals, especially the 10% we know in real estate, who take 90% of the market, would have to post in the local newspaper, page upon page of advertisement. Some spewing their resume and others, their listings in trying to corner the market of buyers lingering or searching for a deal.

    I eventually befriended a Realtor and an experienced successful associate (also a Realtor) who had licenses in real estate. 

    I, a roughneck tough guy from a poor violent neighborhood, tried to capture the desire to make a difference for myself and at the time, soon to be family. 

    I attached myself to any living and breathing person with knowledge I could.

    With a limited section at Barnes & Noble's bookstore, which was less than a average height man's wingspan, had to apply my newly found lessons and find what I thought would be a great mentor.

    I trusted and respected these Realtors; following their every move for months. I would visit frequently, just to be a fly on the wall, and pick up any nugget of information to catapult me to the next level.

    While they wore their suits and ties, and I wore my jeans, shirt, and cap... I became a shadow in their day to day negotiations and operations.

    Then one day, after months of shadowing, I had the nerve to bring up the subject of buying real estate with little to no money down and wait for it.... Cash back at closing.

    These two men, who I respected, who were an outside influence from the words I read in books... Laughed at me. When I say laughed, I mean they bellowed laughters that echoed off the hallway walls. Not to mention, tears in their eyes.

    After getting past the yearning for wanting to commit violence (I was young and rough) to those two who scoffed at me... I decided to redirect that fire and dive into my own self belief. I allowed their betrayal and disrespect to fuel my desire even more so than before.

    Truth be told, even my family was skeptical and mocked my plans in real estate.

    Months later...

    I proceeded to acquire the first eight properties, which included multi-units, to close with little to no money down and wait for it... Cash back at closing.

    What's the moral of the story?

    Don't allow someone else to dictate what your ultimate goals are in life, much less real estate. What can or cannot be done, will be done; depending on your educated calculated effort provides.

    I'm not saying, reinvent the wheel. Instead, formulate a game plan, execute it, and most importantly, allow that passion and desire to flourish you into getting out of your comfort zone to grow as a real estate Investor/Realtor.

    I could go on and on...

    I hope this helps and provides you a reason to continue to pay it forward to those who are new to the business or who are just seeking guidance or answers.

    Why?

    Because we are only one person away from our blessed season.

    Just my two pesos.

    Vote if you agree or like.

    Big Henry

  • Investor · North Richland Hills, TX · Member since 2016 · 167 posts · 57 votes
    9y

    It is all about numbers, I have seen wholesalers find gems.  Always worth to double, triple check and once you find a good wholesaler, its worth it to keep working with him or her.

  • phoenix, AZ · Member since 2016 · 3 posts · 1 vote
    9y

    hey will really liked this post and i had a few questions. what are some suggestions you would give someone thats just starting or anything to read? whats the best way to get good at estimating rehab? and when you see a vacant property what can and can i not do?

  • Philadelphia, PA · Member since 2016 · 32 posts · 1 vote
    9y
    Will Barnard Taking notes..
  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    9y
    Originally posted by @Giovannie Dixon:

    Hey Will really liked this post and I had a few questions. What are some suggestions you would give someone that's just starting or anything to read? Whats the best way to get good at estimating rehab? When you see a vacant property what can and can I not do?

     Reading as much as you can and following up with any specific questions that come to mind here on BP is a great start. As far as getting good at estimating rehab costs, I have written about this many times on the forums and also did a blog post on it a few years ago, here is that BP blog post link: https://www.biggerpockets.com/blogs/4880/42042-est...

    You can also find it by going to my profile and looking on my blog posts. I can't find the forum posts I went into detail on but they are here somewhere.

    When you see a vacant property, take down the address, perhaps peak into some front windows (do not trespass into the backyard), and perform some due diligence on the property. Find out who owns the property, where the tax bill is being mailed, and make contact with the owner to see if they would be interested in selling. You can also mail direct to the home or leave a note on the door.

  • Multifamily Investor · Dallas, TX · Member since 2016 · 67 posts · 92 votes
    9y
    Originally posted by @Henry M.:
    Originally posted by @Robert Berganza:

    I actually read this entire thread, line for line; though not all at once. What an eye opener!

    By the way, a big thanks to everyone who contributed to this great read, particularly @Will Barnard, @Henry M., @Jerry Puckett, @Jimmy C. @Bryan Hancock @Mike G.

    @Bryan Hancock

    Robert, 

    A big thanks to you... All of those you've mentioned have great insight to this subject and more. 

    We don't get paid to share our experiences or knowledge... Neither do we claim we know everything. 

    There are those like myself, @Will Barnard, and others who always try to stay ahead of the curve and learn from our peers... 

    Why do I help those like myself in real estate?

    When I started in the 90's... I found someone who I thought would mentor me in the right direction. 

    Back then, before the internet took off, real estate professionals, especially the 10% we know in real estate, who take 90% of the market, would have to post in the local newspaper, page upon page of advertisement. Some spewing their resume and others, their listings in trying to corner the market of buyers lingering or searching for a deal.

    I eventually befriended a Realtor and an experienced successful associate (also a Realtor) who had licenses in real estate. 

    I, a roughneck tough guy from a poor violent neighborhood, tried to capture the desire to make a difference for myself and at the time, soon to be family. 

    I attached myself to any living and breathing person with knowledge I could.

    With a limited section at Barnes & Noble's bookstore, which was less than a average height man's wingspan, had to apply my newly found lessons and find what I thought would be a great mentor.

    I trusted and respected these Realtors; following their every move for months. I would visit frequently, just to be a fly on the wall, and pick up any nugget of information to catapult me to the next level.

    While they wore their suits and ties, and I wore my jeans, shirt, and cap... I became a shadow in their day to day negotiations and operations.

    Then one day, after months of shadowing, I had the nerve to bring up the subject of buying real estate with little to no money down and wait for it.... Cash back at closing.

    These two men, who I respected, who were an outside influence from the words I read in books... Laughed at me. When I say laughed, I mean they bellowed laughters that echoed off the hallway walls. Not to mention, tears in their eyes.

    After getting past the yearning for wanting to commit violence (I was young and rough) to those two who scoffed at me... I decided to redirect that fire and dive into my own self belief. I allowed their betrayal and disrespect to fuel my desire even more so than before.

    Truth be told, even my family was skeptical and mocked my plans in real estate.

    Months later...

    I proceeded to acquire the first eight properties, which included multi-units, to close with little to no money down and wait for it... Cash back at closing.

    What's the moral of the story?

    Don't allow someone else to dictate what your ultimate goals are in life, much less real estate. What can or cannot be done, will be done; depending on your educated calculated effort provides.

    I'm not saying, reinvent the wheel. Instead, formulate a game plan, execute it, and most importantly, allow that passion and desire to flourish you into getting out of your comfort zone to grow as a real estate Investor/Realtor.

    I could go on and on...

    I hope this helps and provides you a reason to continue to pay it forward to those who are new to the business or who are just seeking guidance or answers.

    Why?

    Because we are only one person away from our blessed season.

    Just my two pesos.

    Vote if you agree or like.

    Big Henry

     Truly amazing story Henry, I'm inspired, thank you.

  • Multifamily Investor · Dallas, TX · Member since 2016 · 67 posts · 92 votes
    9y
    Originally posted by @Anthony Woodland:
    Originally posted by Will Barnard:
    To add to that, learn your market so that you can analyze comps and come up with your own ARV's. In addition, learn how to estimate rehab costs. Those two numbers are essential to come up with max offer amounts.

    Correct me if I'm wrong, but can't you get free estimates from places like Home Depot or other contractors? If not for free, then I'm willing to pay someone for their gas, since it's only an estimate and shouldnt take up too much time.

    This is a great question! I'm a newbie, so I guess I'm wondering what is usually the compensation you would need to give a General Contracto,r to estimate the rehab costs of a house, so as a wholesaler you can have a pretty fair/accurate number when trying to figure out the MAO!

  • Atlanta, GA · Member since 2017 · 6 posts · 0 votes
    9y

    I am a new investor looking to build a successful wholesaling business. What are the steps I need to take in order to accomplish this?  How do I locate distressed homeowners?  How do I place properties under contract?  How do I evaluate rehab costs effectively? 

  • Atlanta, GA · Member since 2016 · 44 posts · 9 votes
    9y

    As a newbie investor with little experience in the game, I love to read post like this one to better understand what to avoid so that I do not get burned when I jump in. If a whole sale is clearly underestimating the rehab costa and over estimating the ARV is it best to just walk and find another deal?

  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y

    @AJ P. Nothing fast or easy about wholesaling....It's a craft and take a lot of time and energy to locate, assess(accurately), assign and ultimately close. This, as you know is one of the biggest misconceptions in the REI game. I'm constantly learning new things daily and I have a few deals under my belt. I usually wholesale the deals I pass up on. Great post @Will Barnard

  • Houston, TX · Member since 2015 · 14 posts · 0 votes
    9y

    Appreciate the gems you dropped amongst us.

  • Winter Park, FL · Member since 2017 · 35 posts · 4 votes
    9y

    This is some really good info! Keep it coming man! I'm a new agent but looking to learn this Wholesale business as well.

  • Real Estate Agent · Brooklyn, NY · Member since 2014 · 250 posts · 60 votes
    9y

    @Will Barnard

    Agreed and well said!! Those looking to get into wholesaling need to understand that its not as easy as the GURUs make it out to be. You have to know how to identify a good deal and know where to find them. Ive had so called wholesalers email me nothing but daisy chain deals of which they have little to no control over and expect to get a decent cut. They'll never make any money operating this way

  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y

    @Will Barnard thanks for sharing.

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