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.

669Reply
10,710 views

Most Popular Reply

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

911 Replies

Jump to latestLatest
  • Flipper/Rehabber · Dallas, TX · Member since 2015 · 91 posts · 31 votes
    8y
    Wow this post is really beating up the wholesaler and I want to defend us wholesalers. I have to be honey. I got my start learning how to pull comps for my agent friend. So I sent some mail to absent owners to get my first deals. I knew NOTHING about rehab estimate. But I did understand equity that sellers had in their homes between what they owed, what they wanted and the ARV. So most times I'd put TBD as the rehab estimate on my property blasts. And I hv learned so much about estimating rehab from the investors that show up and lol at my deals. But I've wholesales dozens of house and hv only done my first flip last year. So I still don't know everything about accurately estimating rehab. And honestly five investors that come to my showings will different rehab estimates depending on the finish out they want to do. I find the dealers. Buyers do their own due diligence.
  • Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    8y

    @Shella Sanders I agree with what you're saying- a buyer should do their own due diligence...

    But imagine a wholesaling business where your buyers trust you? How much easier would that make it for you to get deals sold? 

    These are some things I've noticed have improved my business when I became a more literate wholesaler:

    1. When I can accurately estimate ARV: My buyers who have watched me do it accurately time and time again trust me. They can buy a wholesale rental property from me and forego an appraisal. Some who have seen their cash-out-refi's come through at or above my ARV number don't even ask for comps any more. How easy does this make my job?

    2. When I can accurately estimate and scope out rehab for them: My buyers don't send in a bunch of different contractors. Hell, sometimes they don't even send in any of their own representatives aside from my property manager, who I have look at the property before I even present it to a buyer. They know what I tell them is going to be the rehab cost, and their costs often come out below my estimates.

    3. When I can estimate market rents correctly, create a project plan for them, and offer investing strategy: They come back time and time again. They entrust me with their money because I treat it with greater care than I treat my own. When I hand pick a property and bring it to a buyer they don't pass on it, because I took the time to know what they want from their investments. I don't even have to email blast my whole list. 

    Imagine a wholesaling business where everything is sold before it's even bought. This is something you have to deliberately design. And although it is truly your buyer's obligation to make the purchase decisions that are best for them... you will throw rocket fuel on your business and set yourself apart from all other wholesalers when you do what they wont- make it your obligation to be an expert in your area so that your buyers can not only come to you for product, but for your knowledge of real estate investing.

    ALWAYS BE BETTER!

  • Real Estate Agent · San Diego, CA · Member since 2015 · 13 posts · 7 votes
    8y
    Originally posted by @Account Closed:

    @Shella Sanders I agree with what you're saying- a buyer should do their own due diligence...

    But imagine a wholesaling business where your buyers trust you? How much easier would that make it for you to get deals sold? 

    These are some things I've noticed have improved my business when I became a more literate wholesaler:

    1. When I can accurately estimate ARV: My buyers who have watched me do it accurately time and time again trust me. They can buy a wholesale rental property from me and forego an appraisal. Some who have seen their cash-out-refi's come through at or above my ARV number don't even ask for comps any more. How easy does this make my job?

    2. When I can accurately estimate and scope out rehab for them: My buyers don't send in a bunch of different contractors. Hell, sometimes they don't even send in any of their own representatives aside from my property manager, who I have look at the property before I even present it to a buyer. They know what I tell them is going to be the rehab cost, and their costs often come out below my estimates.

    3. When I can estimate market rents correctly, create a project plan for them, and offer investing strategy: They come back time and time again. They entrust me with their money because I treat it with greater care than I treat my own. When I hand pick a property and bring it to a buyer they don't pass on it, because I took the time to know what they want from their investments. I don't even have to email blast my whole list. 

    Imagine a wholesaling business where everything is sold before it's even bought. This is something you have to deliberately design. And although it is truly your buyer's obligation to make the purchase decisions that are best for them... you will throw rocket fuel on your business and set yourself apart from all other wholesalers when you do what they wont- make it your obligation to be an expert in your area so that your buyers can not only come to you for product, but for your knowledge of real estate investing.

    ALWAYS BE BETTER!

    Now how do you do this? How does a new wholesaler implement this from the start?

  • Wholesaler and Real Estate Broker · Indianapolis, IN · Member since 2009 · 438 posts · 293 votes
    8y

    Elliott would you like to come to work for me too?

  • Realtor · Orange County, CA · Member since 2015 · 74 posts · 13 votes
    8y

    Hi Will, 

    7 years later and this post is still very insight for all.

    Thank you for taking the time to post this!

    Paul 

  • Rental Property Investor · Ocala, FL · Member since 2016 · 226 posts · 140 votes
    8y

    Elliott is very sharp, and I love to deal with people like him.  He is a professional.

    Yes, we all need to do our own due diligence, but it is so nice when a wholesaler that is so knowledgeable contacts me about a property.  I know that they probably really have something of interest.  I look into their lead immediately.  

    I respect professionals and like to do business with them.  

  • Investor · Surprise, AZ · Member since 2018 · 156 posts · 110 votes
    8y

    Glad I took the time to read through this thread. Although wholesaling is not something I am looking to do, it's definitely something I need knowledge of being new to this REI arena!

  • Tulsa, OK · Member since 2018 · 11 posts · 5 votes
    8y

    @James Barnhart I’m glad to hear there are still some investors out there that enjoy doing business with a good wholesaler. Lol I’ve just seen a lot of bashing so far, with my short time of going through the forum threads. I do realize there are a lot of bad ones though, as there are with any position. I’ve heard horror stories about some property managers already. Lol

    I’m just starting out, but on the leads I have gone through, I do my due diligence. I’ve even been accused of overestimating repairs on a property I brought up in a Facebook group, which I highly doubt I did. When I have something under contract, l plan to have an inspection performed just to confirm my numbers and include a report, as well as pictures and an uncut walkthrough video; as I’m going to be presenting my buyers with “wholesale packets” and offer them to have their inspector/contractor walk through before they make a decision. 

    My plan is to be as thorough as possible.

  • New to Real Estate · Bucks County, PA · Member since 2018 · 15 posts · 5 votes
    8y

    Hi All,

    It sounds like I came into the wholesaling business at a bad time! I am new to wholesaling and to Bigger Pockets.

    Thank you, everyone, for the tips in what to look for from wholesalers. Although I am honest and good by default, I'm taking notes!

    Thank you!

  • Plainfield, IL · Member since 2015 · 111 posts · 17 votes
    8y

    It's owning unexpectedly Kurt Cobain's childhood home.... I think it was @Brandon Turner

  • Realtor · Detroit, MI · Member since 2018 · 7 posts · 1 vote
    8y
    @Will Barnard thank you so much for sharing that! I took tons of notes so I make sure I’m an awesome wholesaler
  • Wholesaler · Madison, WI · Member since 2018 · 17 posts · 1 vote
    8y
    @Will Barnard I agree, I’m new to wholesaling and attempted to partner with another individual. I caught him up on a couple of lies but decided if the numbers were good I could at least help the seller close. Well after running comps on the property that’s were we bumped heads. We had about a 20k difference in the ARV so we decided to compare data. I look up the properties he included, and even though there were closer homes to the property that had been sold within a reasonable time, he decided that he would take the highest numbers from houses sold that were further away just so he could make more. I told him that his numbers weren‘t accurate and that he needed to reavulate some things. All-in-all it was a great experience as far as learning goes, but it’s also a crop of stool that people will go out of their way to screw people over like that.
  • Rental Property Investor · Indianapolis, IN · Member since 2017 · 84 posts · 35 votes
    8y

    This looks like a great thread I'll be reading. We do a lot of wholesaling in the Indianapolis area, and the three points OP made are great ones - I think you also need a great understanding of your buyer base and what they're truly looking for. At the end of the day, you're just providing a service. But I don't think we've ever quoted rehab numbers, unless specifically asked. I have construction background in my family, so I have learned to get a better idea for scope of rehab, but you can never truly know how much work a home needs until you get into it. Until then, you're just spit balling. 

  • NV · Member since 2017 · 70 posts · 5 votes
    8y

    @Will BarnardHey will, let me ask you a question: Is mostly wholesale a cash buy? or have u encountered a 2-3 weeks financing? and during that financing, have you encountered them extending that 2-3 weeks or they typically say: nope, if you fall out on 3 week period as stated on the contract, we will take your earnest money and sell it to someone else?  Do you see this situation happening?

  • Houston, TX · Member since 2017 · 4 posts · 17 votes
    8y

    Most of the so called wholesalers are not true wholesalers. They are daisy chains. Run your own numbers before you decide to make an offer. Most wholesalers prey on the newbies. 

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

    @Will BarnardHey will, let me ask you a question: Is mostly wholesale a cash buy? or have u encountered a 2-3 weeks financing? and during that financing, have you encountered them extending that 2-3 weeks or they typically say: nope, if you fall out on 3 week period as stated on the contract, we will take your earnest money and sell it to someone else?  Do you see this situation happening?

     Mostly? I would so more than mostly are all cash. If I was the wholesaler, I would only be contracting with all cash buyers. Most wholesale deals are based on cash offers to the seller and therefore, the buyer must be cash too. That said, I have seen many deals where the "cash" was a private money loan or even hard money loan, however, many of them fail when they are not real cash, that is just the simple bottom line.

  • McKinney, TX · Member since 2018 · 13 posts · 3 votes
    8y
    @Will Barnard Excellent write-up! As a newbie who is opening up a wholesaling business, this is the kind of threads I like to see in order to learn from them as much as possible! Good thing you did your due diligence and didn't just go with it!
  • Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    8y
    Originally posted by @Gary Singh:

    Most of the so called wholesalers are not true wholesalers. They are daisy chains. Run your own numbers before you decide to make an offer. Most wholesalers prey on the newbies. 

    The wholesaler should know the location, see the house inside to figure out ARV, estimate rehab cost and answer all and any questions about condition of the house they've got under contract. If they'd be really selling that contract - theyd knew whats the condition of the kitchen of bath or how's the neiborhood looks like.

    However,all the people, who bought bunch of houses from a bank, being out of state, is trying to sell this sh1t and for retail price!

    I wouldn't waste my time on these "wholesalers" but they are funny. If you are buying a house in Cleveland in certain areas for $5K it might be that it worth less than $1 because you have to clean up.

    For example, I've seen a double lot with 3bed/1 bath in very good location (good schools, low property taxes,secluded but close to everything) and the price was twice cheaper than the land it's getting sold. Of course, I was wondering how come?!? I do have buyers for such a thing but it was definitely some catch 22....right?

    I showed to one buyer, it's total gut but ARV might be $150K and the price was $15K.

    Then I started analyzing....and there is septic tank. In REOs it might cost you up to $60K depends on the size, numbers of plumbing fixtures etc. Well, still not so bad, right?

    Wrong! Actually, house is sitting very close to the ground water level and nobody knows where the septic is located. It means it might get destroyed over time and you're buying ecological disaster for the low price of $15K for 0.65 acres.

    House is under contract now - I'm watching how it's going to turn around.

    Cleveland depends on location big time......so does most of the cities after Great Recession.

    If you're contacting listing agent to purchase a house, bring your own agent to help you with due diligence, especially if you're flying to the city. Call up few agents and ask them how much it would cost to get you CMA on the house you're planning to buy and if the agent would walk the property with you.

    Don't call just an agent - find someone who sells REOs - it's very different market from residential ready to move in houses.

    If I'd met a decent wholesaler - I'd buy a house or two myself or for my clients....however, I have yet to meet one. 

    I have better deals on MLS vs what they offer

  • Member since 2018 · 7 posts · 2 votes
    8y
    @Will Barnard As a new wholesaler I don't want to fall under this umbrella. Would you suggest I find buyers and contact RE meeting their specific criteria or what first step would you recommend?
  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    8y
    Originally posted by @Francisco Corral:
    @Will Barnard As a new wholesaler I don't want to fall under this umbrella. Would you suggest I find buyers and contact RE meeting their specific criteria or what first step would you recommend?

     Knowing your buyer’s criteria is an important step in the right direction for sure. I certainly would not skip that step as so many do. Knowing your market and your numbers are also key elements to your potential success.

  • Member since 2018 · 1 post · 0 votes
    8y

    Thank you! Thank you! Thank you! I am a potential wholesaler looking to get into real estate. Post like these tells me exactly what not to do. When I finally dig in and start doing deals, I hope to keep a good reputation. Thank you for your candidness.

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    8y

    There was a comment above stating this thread was really beating up wholesalers. It is not the first time it was mentioned in this thread either. As I have stated repeatedly, nothing can be further from the truth. This thread is to tell the truth about the strategy and what not to do, what to learn, what teams to get, and how to run this business in a professional manner. If you take that as a beat up of wholesalers, then you need to re-evaluate your inaccurate take on this thread.

  • Real Estate Agent · Los Angeles, CA · Member since 2017 · 68 posts · 54 votes
    8y

    @Will Barnard. So True. While Wholesaling can be the fastest way to earn an income in REI, there are Wholesalers who give it a bad name. In the last few days I was back-and-forth on a deal, where we even increased our offer to get the property. When it was revealed to us the Wholesaler was asking for a $32k AF on a $212k pp, I was disgusted. 15% AF Fee? That's crazy.

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

    @Will Barnard. So True. While Wholesaling can be the fastest way to earn an income in REI, there are Wholesalers who give it a bad name. In the last few days I was back-and-forth on a deal, where we even increased our offer to get the property. When it was revealed to us the Wholesaler was asking for a $32k AF on a $212k pp, I was disgusted. 15% AF Fee? That's crazy.

     I agree that such a high fee for an assignment is crazy, however, I do also agree that capitalism (without getting political here) is a good thing and business owners are welcome (and should) get what the market will bear, but your example appears to be well above what is reasonable.

    That said, I see it happening day in, day out and is part of the reason/problem as to why sellers are asking for so much these days as wholesalers and even rookie rehabbers are offering too much for deals creating an artificial spike in certain markets like LA.

    I have always said and believe that around 10% of the gross spread in a deal is a fair ask price for wholesalers. So if you have a $212 purchase with a $40k rehab and an exit value of $325,000, then the gross spread is $73k and as such, a fee of $7k-$10k would be fair in a case like that. I am seeing offerings on a daily basis where my expected profit would be $125k (after purchase of $750k and construction/rehab of $350k) and the wholesaler would have it locked up for $700k expecting $50k profit for flipping a contract whereas the real risk and effort is on my end and my profit is just over double that?! I just say no thanks and move on.

  • Real Estate Agent · Los Angeles, CA · Member since 2017 · 68 posts · 54 votes
    8y
    Originally posted by @Will Barnard:
    Originally posted by @Nina Grayson:

    @Will Barnard.  I am seeing offerings on a daily basis where my expected profit would be $125k (after purchase of $750k and construction/rehab of $350k) and the wholesaler would have it locked up for $700k expecting $50k profit for flipping a contract whereas the real risk and effort is on my end and my profit is just over double that?! I just say no thanks and move on.

     Exactamundo!  We offered $7350 AF, which was more than 10%.  We walked away.  

Join the conversationCreate a free account to reply, vote on answers and follow this thread.