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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  • Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    @Jeffery Rymer I think the biggest issue a lot of investor have with wholesalers, stems from the same reason people become wholesalers. Lack of money to start. This means a lot of the wholesalers have done ZERO deals. They have never flipped, they have never bought and sold, they don't know the ins and outs of REI. The truth is a wholesaler needs to be a good negotiator, needs to be good at getting accurate rehab costs, needs to be good at getting solid and correct ARVs, and needs to be honest with all parties. I would think a wholesaler should actually be someone who hasn't a lot of experience.

    Now with that said, if a new wholesaler stumbles upon a house and is able to get an awesome deal going, or even a good deal, a savvy investor won't write it off. However that investor will vet his own rehab numbers and ARV.

    I'm sure a lot of investors have seen the wholesale deals come across their table showing, buy for $100k put $25k in and sell for $175k, PROFIT $50k!!! When the investor reviews the ARV and sees that no house in that area will sell over $150-160k, and the rehab budget missed things like the failing driveway, and destroyed deck that need replacing and when you crunch your numbers the rehab looks more like $40k. Now the $50k profit is really a break even deal...

    I have my name on a bunch of wholesaler lists. I love to see deals come in and personally I enjoy the research so I give each and every one that hits my criteria a look over. If I like it on paper I go look in person. I'm sure a deal that I want will come, but I am far from these bigger investors who don't have the time to spend on the numerous leads they get. For those guys, they probably don't want to waste the time, as time is money.

  • Wholesaler · Fairfield, CA · Member since 2017 · 472 posts · 145 votes
    8y

    @Brian Pulaski @Sam Grooms

    I'm a newbie wholesaler. It doesn't seem difficult at all; just REALLY annoying. ARV should be simple by looking at a comp on red fin using properties sold within past 3 months making sure it is same rooms and neighborhood. Depending on what the seller tells me I go to homewyse.com and check material costs and run the numbers as if the seller is being accurate with what they say the condition of the house is. I also check with some big box stores and compare that to the homewyse estimates. I then double the material costs to get labor+material cost estimate. I then call subcontractor and ask about labor costs and for certain items I can get answers for the labor cost. I then compare and contrast the doubling cost of material strategy with subcontractors estimate. I then see if I want to make a move on the house or not and call the seller and let them know if I want to set up a meeting or if it isnt going to work out. When I set up the meeting I then check the roof by looking at top and through the attic. Check driveway, gutter, soffit, floors, walls, doors, windows, kitchen and appliances and whether I have to add outlets if some are hardwired and need replacement, bathroom, closets, transitions, outlets, infestations, structure, etc. Then add in additional costs. The issue as a beginner is not being able to settle on a deal on the spot unless they accept an extremely low offer because otherwise I have to go check supplies and labor costs for the additional damages to the property not properly reported to me by the seller. My main buyer who is a big guy gave me a spread sheet as well to calculate by square foot the rehab costs but it seems far on the conservative side but I will check that as well.

    Poking holes in my plan will be very well appreciated. I just left my first 5 notes on properties today and I'm excited! 

  • Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    @Cody Evans if anyone wants an on the spot offer, explain to them that you need to crunch your numbers, or if they are persistent offer that low offer. Never take an owners comments on condition, they will never paint an honest picture, honestly they probably couldn't even see the honest picture without someone pointing it out.

    Being new it is best to be very conservative until you get more experience. It's better to be too low on an offer and miss, verse to high on an offer to not find a buyer and potentially ruin the deal. Hopefully the seller is fully aware of what your game plan is.

  • Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    8y

    @Cody Evans, that's a solid plan. Judging by your post, you're probably not like most newbie wholesalers. If you were in Phoenix, I'd want you to send me your properties. 

    Where I see the biggest issues with other wholesalers is their disconnect between their ARV and rehab budget. They'll use a house that has the same SF, same beds, same bath, same neighborhood, but it's a 3 car garage instead of a two and it has a pool. Now, to use that property, they either need to reduce their ARV or increase the rehab budget, to account for those differences. But they don't. And this happens over and over again with them. Most newbie flippers don't take this into account and buy it thinking its a great deal.

    Another problem I see is when they just use the highest comp they find as their ARV. I only find this out when I go and look at the comps myself (this is for the wholesalers who don't provide their comps). It's pretty easy to spot when one house is exactly their ARV, and every other house in the neighborhood is $30K less. Again, most newbie flippers likely aren't catching something like this.

  • Residential Real Estate Broker · Calgary, Alberta · Member since 2016 · 62 posts · 14 votes
    8y

    I agree with @Cory Baker this is the never ending category. I am a relatively new wholesaler working the Atlanta Ga., area and have read a lot of the comments in here. I agree that most wholesalers don't give the right numbers and aren't doing the due diligence up front that they should be doing. Is this them trying to make a fast buck or is it like what I ran into. I took one of those traveling RE courses and was given a lot of hogwash at how to do this and what to expect. These so called "Gurus" pray on the fact that newbies don't know what they don't know. With the info that is in here on BP you can get a lot of good info for free instead of paying a fortune and doing things wrong. 

     It has taken me a little less than a year to figure out what to do and use the right numbers to evaluate a deal. Getting the deals and running the numbers isn't that hard, it can be very time consuming to do right. The hardest part that I have found is to find "Buyers/Investors" to work with and help grow there portfolio. This is the part that very few of the "Gurus" tell you and is a very important peace of the puzzle.

    I hope that some wholesalers read this and try and do the right thing, I also hope "Byers/Investors" read this and let the wholesalers know they are doing it wrong , spend a little time and show them how to do it right and let them know exactly what you wont them to find for you.

    I would also like all of us to tell the Gurus to put up and then get payed for their info instead of "Give me your money and I will tell you a bunch of useless info" . This would make them accountable and weed out the crap.

    Sorry for the length and thanks for letting me vent my 2 cents worth.

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    8y
    Originally posted by @Jeffery Rymer:
    Originally posted by @Will Barnard:

    @Bryan - Good advice to ignore all but the proven ones.

    The property I posted about above was offered by a company called Arrow Capital Group here in CA. If anybody else has had similar experiences with them, please offer your words of wisdom here.

    I have to speak up here and politely object to ignoring all but the proven ones. As a newbie, who is looking to get into real estate investing but with out the cash to get some serious deals going, wholesaling seems like a good entry level experience builder. First, being ignored is not going to give you a way to prove yourself. I am not getting into wholesaling with some delusion of grandeur that I am going to make $20k on every deal. But rather if I can pull $3k-$8k and build my reputation, my bank roll, and my sources for acquiring BRRR property then I am on the right track. Shouldn't the deal be looked at and used to make a judgement? If I am new, but have a good deal, say a contract that nets me $8k and with ballpark numbers to show you getting it for 65% ARV then you would turn me away because I wasn't referred by someone else?

    A one sheet could outline the deal, and from that your experience should tell you if the deal is worth looking at further?

     Jeffrey, I appreciate your input. You are coming from the perspective of the new wholesaler so that makes sense. Form the perspective of the proven buyer, we only have so much time in a day and time wasters (which unfortunately is most newbie wholesalers)     are the reason for my comment but let me edit it with the following premise: Ignore all but the proven wholesalers or the new one who sent you the first deal. Crunch the numbers on that deal and if it isn’t a time waster deal, then great, if it is, then obviously that individual does not get a second look from me.

  • Real Estate Agent / Realtor · Atlanta, GA · Member since 2014 · 40 posts · 18 votes
    8y
    Originally posted by @Account Closed:

    I agree with @Cory Baker this is the never ending category. I am a relatively new wholesaler working the Atlanta Ga., area and have read a lot of the comments in here. I agree that most wholesalers don't give the right numbers and aren't doing the due diligence up front that they should be doing. Is this them trying to make a fast buck or is it like what I ran into. I took one of those traveling RE courses and was given a lot of hogwash at how to do this and what to expect. These so called "Gurus" pray on the fact that newbies don't know what they don't know. With the info that is in here on BP you can get a lot of good info for free instead of paying a fortune and doing things wrong. 

     It has taken me a little less than a year to figure out what to do and use the right numbers to evaluate a deal. Getting the deals and running the numbers isn't that hard, it can be very time consuming to do right. The hardest part that I have found is to find "Buyers/Investors" to work with and help grow there portfolio. This is the part that very few of the "Gurus" tell you and is a very important peace of the puzzle.

    I hope that some wholesalers read this and try and do the right thing, I also hope "Byers/Investors" read this and let the wholesalers know they are doing it wrong , spend a little time and show them how to do it right and let them know exactly what you wont them to find for you.

    I would also like all of us to tell the Gurus to put up and then get payed for their info instead of "Give me your money and I will tell you a bunch of useless info" . This would make them accountable and weed out the crap.

    Sorry for the length and thanks for letting me vent my 2 cents worth.

    I hope you can say you have at least one good contact in Atlanta, Scott!

  • Residential Real Estate Broker · Calgary, Alberta · Member since 2016 · 62 posts · 14 votes
    8y

    And yes for the modest @G.A. Miller who has been a big part in my learning the ropes of wholesaling in Atlanta, he has been a great mentor to me.

    Thanks

  • Wholesaler · Fairfield, CA · Member since 2017 · 472 posts · 145 votes
    8y

    Im thinking a better way instead of estimating rehab costs is to assemble a list of what needs to be fixed in the house so the buyer can see my reasoning instead of just "it will be x amount for rehab." 

    For now until I get really good repair costs I'm just only accepting ridiculously good deals and subtracting my fee.

  • Investor · Saint Paul, MN · Member since 2016 · 13 posts · 6 votes
    8y
    I have had the same experience with one particular Wholesaler in a wealthy suburb of Minneapolis. The deals that come across my email does not even make sense on paper, never mind the Rehab cost. We are at the top right now, so please everyone due your Due Diligence.
  • Investor · San Diego, CA · Member since 2016 · 4 posts · 0 votes
    8y

    A lot of wholesalers love to prey on newbie investors who don't know what they are doing and think that a $40k spread will work. 

    I don't meet anyone at a property until I have the address. I do a google map view, run comps, and make sure any advertised ARV is accurate. Many times they fluff it up.

  • Wholesaler · Hampton Roads, VA · Member since 2017 · 75 posts · 25 votes
    8y

    I spent some time reading through this - thanks to all for multiple great points this newbie picked up! I can especially appreciate that a wholesaler can destroy their credibility if don't portray realistic numbers - what a waste of everyone's valuable time.

  • Real Estate Agent · Richardson, TX · Member since 2016 · 5 posts · 2 votes
    8y
    This is 98% of wholesalers in DFW.
  • Bridgeport, CT · Member since 2016 · 12 posts · 8 votes
    8y
    This was very helpful! Definitely fired up to start making deals!
  • Plano, TX · Member since 2017 · 8 posts · 1 vote
    8y

    @Scott Neal, I need to know the other 2 percent!  My email is filled with exaggerated ARVs and low repair costs, and then send over comps that are half a year old or blocks away. 

  • Real Estate Broker · Westminster, MD · Member since 2017 · 159 posts · 101 votes
    8y

    The wholesalers with good reputations earned them. People think that they can get rich quick, after all they bought the seminar and the books. Most guys have no idea how to begin to estimate rehab cost. I have seen two guys come up with reno numbers that went from $12K to $100K on the same property. Again if people have a reputation it is because they have put in the time, effort and honesty to bring good deals to market. 

  • New York City, NY · Member since 2018 · 14 posts · 4 votes
    8y

    see! That's why I haven't even looked to start marketing myself as a wholesaler. Yeah logically I know certain damages, but what about the ones I can't see??? Then I'll fail... How do you go about that?

  • League City, TX · Member since 2018 · 25 posts · 4 votes
    8y
    Thank you for this post. It is definitely enlightening. To your last point, honesty is the best policy.
  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    8y

    Regardless of market saturation and the limit of true great deals, you will always have a plethora of wholesalers.

  • Real Estate Entrepreneur / Investor · Chicago, IL · Member since 2016 · 688 posts · 367 votes
    8y

    The truth about wholesaling.....is its extremely hard work. I have several threads on here talking about my experience wholesaling. I personally believe its just a tool in the toolbox of options within moving around in real estate. Its a BUSINESS! and should be treated as such. It requires a TON of work. Dont let these gurus and other people BS you about working less than 20 hours a week. Unless you have people working for you or helping you. I work more like 90 hours a week doing things in real estate. But I also dont just wholesale either.....for any newbie out there, I advise you to actually learn the business of real estate. 

    When wholesalers say they have a "deal" they cant explain hows its a deal. They dont know if it could be a good flip or a good rental. They dont know what the ROI is on this "deal" let alone know what a cash on cash return is. How will you graduate to becoming a landlord if you dont know things such as cash on cash return, NOI, Cap rates? How will you graduate to flipping if you dont know how to calculate ROI? Then there is the no money down.....LMAO really? so how will you get buyers and properties? Your goal is to solve the problem of the seller and whoever your buyer is. Its weird because other wholesalers send each other properties around gathering up a long daisy chain of others hoping to sell a property because its a "deal". I personally wouldnt advise any new person jumping into real estate to do wholesaling first. That was my mistake and I wish I would started off with the buy and hold strategy. Being a landlord is a bit easier than wholesaling and flipping, but overall all three has its learning curves and all three require a lot of work. In real estate, knowledge is power and not many people actually take the time to learn these things. Real estate is all about marketing, sales and customer service. All 3 are important to any business in general.

  • Niles, IL · Member since 2017 · 3 posts · 1 vote
    8y

    I am a newbie and am interested in wholesaling. I have several questions:

    Does it make sense to find out what a buyer wants and in what area and then fill the need? 

    Do investors focus on one area or does it not matter? 

    Do investors segment themselves into categories such as 2 flats only or single family only, etc . . . and then a specific city or neighborhood?  

    Or is it simply about the numbers?

    I want to start in this business on the right foot.  I want to prepare as much as possible and bring cost effective and profitable deals to those investors who give me a chance. What Elbert Dockery posted makes sense perfect sense . . . essentially walk in the shoes of the people to whom you wish to sell a property.  Thanks in advance for any replies!

  • Rental Property Investor · Knoxville, TN · Member since 2017 · 160 posts · 107 votes
    8y
    Good notes pointed out! I am currently starting out wholesaling so appreciate the advice.
  • Charleston, WV · Member since 2018 · 2 posts · 0 votes
    8y

    Thanks so much @Will Barnard and everyone who commented here. As a newbie this is exactly what I needed to hear.  Very insightful

  • Charleston, WV · Member since 2018 · 2 posts · 0 votes
    8y
    Originally posted by @Christian Dillard:

    I want to take this time to personally thank everyone in this forum for they're feedback be it positive or negative on this subject. As a young man who is looking to break into this bold new world of wholesaling, I find it enlightening that I am learning what to do and not to do when I get my business up and running by reading the feedback of real investors.

     Same here.  Well said. 

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    8y
    Originally posted by @CARL DECANINI:

    I am a newbie and am interested in wholesaling. I have several questions:

    Does it make sense to find out what a buyer wants and in what area and then fill the need? 

    Do investors focus on one area or does it not matter? 

    Do investors segment themselves into categories such as 2 flats only or single family only, etc . . . and then a specific city or neighborhood?  

    Or is it simply about the numbers?

    I want to start in this business on the right foot.  I want to prepare as much as possible and bring cost effective and profitable deals to those investors who give me a chance. What Elbert Dockery posted makes sense perfect sense . . . essentially walk in the shoes of the people to whom you wish to sell a property.  Thanks in advance for any replies!

     It absolutely makes sense to find out the specific criteria of your buyer then go find that product. In my opinion, that is the very best way to start out. 

    Some investors focus on one area and others focus on several areas.

    I do. As far as flipping or developments, I focus on SFR only and when someone sends me a duplex I let them know I only do SFR. The reason behind that for me is my business focus and my systems I have put in place. On top of that, I know the market inside and out regarding SFR and not as much with small multi families up to 4 units.

    At the end of the day, the numbers speak louder than anything so if someone was to find some grand slam deal outside my area, I would certainly entertain it.

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