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.

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  • Investor · Ashburn, VA · Member since 2019 · 11 posts · 2 votes
    7y

    I thought I would post a question on BP at some point but every question I've had (and there's been many) has already been answered on BP! I'm actually building a business process line for wholesaling. I'm currently getting to know my county of interest and developing an intial buyers list. Big data yes please! I Held lean six sigma certification.... YAWN YES over kill for REI but also an awesome edge. As I'm learning my hood I'm building a lean process line that's fits where I'm at and the time I have. The truth about wholesaling the numbers are the easy part. My focus is on being transparent and working an agile process with great people in the deal chain. A bad process will beat a good person everytime, but I'll get your numbers right even if I take the haircut.

  • Flipper/Rehabber · Houston, TX · Member since 2019 · 1 post · 0 votes
    7y

    Thank you for this valuable information @Will Barnard . I am new to RE wholesaling and, I’m on my journey to becoming one of the greatest wholesalers in history no matter the challenge. I’m boldly asking for help, guidance and or suggestions that can potentially get me there. Any advice is greatly appreciated.

  • Specialist · Dallas, TX · Member since 2019 · 19 posts · 10 votes
    7y

    @Raymond B. Very true, I’m new to wholesaling. However, I have been in and around real estate for the past 5 years, and have dealt with many investors. That’s the thing that separates us good wholesalers from the fly by night ones. You have to know what your buyer wants.

  • Member since 2019 · 7 posts · 0 votes
    7y

    @Will Barnard When you mentioned that the deal was at 80 or 93 %, what does that mean?

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    7y
    Originally posted by @Trevion Langford:

    @Will Barnard When you mentioned that the deal was at 80 or 93 %, what does that mean?

     That means that the purchase price, plus the rehab costs, divided by the sold price or estimated sold price = the %.

    So if you buy a property at $200k and have a $50k rehab and expect to sell it at $320k, then the math would look like this: 200,000+50,000=$250,000/$320,000 = 76.923%. Look up the 70% rule which in today's market is very hard to find but if you are at or around the 75% margin, you typically (not always) have a deal to flip.

  • Member since 2019 · 10 posts · 2 votes
    7y

     good point. thanks

  • Member since 2019 · 19 posts · 5 votes
    7y

    So newbie wholesale question. 

    I am structuring my methods around allot of the bp posts.  I want to be accurate, fast honest and I have a cheat sheet I have for RE. The RE sheet will be included in my whole sale packet to buyer among with my comps and tax info. The sheet will give the investor/ buyer an idea of how I figured the RE. 

    but for sold comps.  In some areas in my market, houses haven't sold in less than 1 year. It's hard top make accurate sold comps.

    so I do the best I can with the closest like houses in the zip/sub division. Combined with red fin and realtor. C

    would you as a buyer have suggestions for me to increase the accuracy of my off my sold comps in those areas?  

    (I know your gonna run the numbers yourself but I want to build my brand on accuracy and dependability) 

  • Rental Property Investor · San Diego · Member since 2019 · 6 posts · 7 votes
    7y

    As a buyer, the biggest area I care about most is in the accuracy of the rehab estimate because often times I'm considering properties out of the state. As you stated, I can run comparables myself from home, but I can't necessarily determine rehab estimates remotely. If you can get good a estimating rehab costs you'll help me more and you'll also benefit from negotiating better deals with owners buy proving why your offer is fair and reasonable.

  • Kennesaw Ga · Member since 2019 · 10 posts · 2 votes
    7y

    @Will Barnard

    I appreciate this post, I am new to investing in real estate so it is good to sorta know what to look out for. I was just curious what the percentages you put up were referring to(%93,5) and how you got them? Thanks 

  • Rental Property Investor · Tyler, TX · Member since 2019 · 72 posts · 39 votes
    7y

    For buying from wholesalers, how much % off retail should I be expecting? When I do this with vacant land it's 50% but my gut tells me 20%-40% for properties. Thoughts?

  • New Orleans, LA · Member since 2017 · 13 posts · 2 votes
    7y

    I'm new to wholesaling and may potentially be getting my first wholesale deal. Once I have the property under contract, should I allow an investor/potential buyer to walkthrough a properly before or after they sign the assignment contract?

  • Investor · New Orleans, LA · Member since 2012 · 968 posts · 747 votes
    7y

    Hey @Beibei Lin. They will need to do a walkthrough before they agree to buy it...

  • Real Estate Agent · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes
    7y

    @Will Barnard - I am only cherry picking off of your initial post and some of the comments. I wholesale- and I am proud of it, but dear lord I cannot agree with you more on the stigma that wholesaling has garnished due to the high number of people who, quite honestly, do not know what the hell they are talking about. 

    Let me take a stab at some of the pain points from wholesalers:

    1) Posting on Facebook investor groups " Where are my (insert zip code) buyers at"

    2) Over inflating ARV's by pulling comps WELL over hard city borders. In Philly, I see comps being pulled a half mile away to establish value. Over here, that can be the difference between homes selling for 500k or 50k. This is not an exaggeration. Anyone who has "Philly" under their keyword searches, feel free to back me up on that statement. All ARV's should be done the exact way that FHA appraisers would evaluate a house because the largest end user is often someone who applies for this type of loan.

    3) Rehab budgets. Dear god. Rehab Budgets. How many agents or wholesalers alike have swung a hammer, pulled permits, fixed a foundation,  or done anything to get those big meaty fingers that the real contractors have earned (we all know what I am talking about). There are general rules for certain neighborhoods and rough "rule of thumb" rehab ranges, but to advertise rehab budgets as a wholesaler is an asinine practice. We are more often than not the ones swinging the hammer.

    4) Barrier of entry. Let's all remember that there is no barrier of entry to wholesale. Anyone who has seen a youtube REI guru that says "put no money down and stand to make 50k" gets into the profession. Not everyone follows up with the effort or diligence to actually know what will be successful.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    7y

    I feel your pain @Jimmy O'Connor hence the posting of this thread many years ago and it is still going. I believe this thread has the record for the most posts and the most votes for any one single post on BP so that is a testament to not only the thread's popularity, but to the value it brings to so many. I certainly hope this thread has reduced the number of would be wholesalers making the same regurgitated mistakes and poor business practices, one can only hope anyways.

  • Rental Property Investor · Staten Island, NY · Member since 2019 · 5 posts · 1 vote
    7y

    @Will Barnard as someone who’s new to RE and trying to start in wholesale, i aprreciate this list. From what I’ve learned so far cash buyers are truly the business partner of a wholesaler, so your 4 listed outlines are exactly what I needed to hear, THANKS!

  • Rental Property Investor · Port St Lucie, FL · Member since 2019 · 150 posts · 79 votes
    7y

    @Will Barnard wholesalers often inflate ARV, low ball repairs, provide inaccurate details like square footage, number or bedrooms, etc....There is no license requirements to be a wholesaler therefore no repercussions if they provide inaccurate info. DO YOUR DUE DILIGENCE before you buy a from a wholesaler. I do believe they can provide a valuable service but seems like lately everyone is or wants to be a wholesaler.

  • Member since 2019 · 113 posts · 25 votes
    7y
    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.

    Well, this is why many wholesalers love double closing. 

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    7y
    Originally posted by @Maurice George:
    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.

    Well, this is why many wholesalers love double closing. 

    That may be so, but it does not make it right. A wholesale fee should be reasonable and if they locked it up at such a low price to have such a large spread, then they likely stole equity from the seller, did not disclose properly, and or did not morally and ethically perform the deal.

  • Broken Arrow, OK · Member since 2016 · 25 posts · 1 vote
    7y

    I need honest opinion..what should my cut be providing leads to wholesaler. See my business model below.

    I found a wholesaler to team up with. I'm good at online marketing. I created a website, did SEO and now just recently am paying BIG bucks for Google Ad spend. The website is starting to produce leads. Out of about 12 leads 4 where hot and 2 are about to get closed on for a profit of $15k total on both leads. My cut is 20% of his assignment fee. So I get $3k and he gets $12k. After my adspend bill my profit is actually $1,500. Doing this website has proven to be a challenge because of all the competition, but I got it ranking very close to the top organically. I feel like I provide a great marketing product and its worth more than 20%. Do you agree or disagree??

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    7y

    It doesn't matter what you think it is worth or what I think it is worth, what matters is what does that particular wholesaler believe it to be worth? So with that in mind, simply quote him a higher fee and see how he takes it, or better yet, explain to him after all your costs to gain the closed leads, you are not making enough so how much is he willing to increase your lead fee. Let him/her quote the number first and negotiate from there.

  • Real Estate Agent · Washington, DC · Member since 2019 · 1 post · 0 votes
    7y

    I have completed over a dozen flips over a dozen years ago and am just getting back into it in the DC Market. In that market, before all of the regulations on lending, appraisers, and realtors--it was impossible to not be overbid. I presented offers with escalation clauses almost every time. The same houses which I flipped are now back on the market at 100% appreciation. There are very few deals which are 70%-repairs in this current market. Wholesalers are really more for the buyer who is looking for sweat equity. I think that is mostly due to wanting to make a killing on each deal. They have a tendency to pick the highest sale in the area as the ARV.

    As a side note, the one thing I have always completed in all of my renovation were the systems (HVAC) upgraded the plumbing and electric, and made certain that roof and grading are inspected and functioning. I do not want the reputation of putting lipstick on a pig. I work with a lot of buyers and while many are in awe of the "waterfall" counter or the shiny new appliances, some are weary of the possibility of poor workmanship and would rather customize themselves. 

  • New to Real Estate · Bonney Lake, WA · Member since 2019 · 26 posts · 6 votes
    7y

    I love this because i'm learning from others newbie mistakes. I'm excited about wholesaling for a lot of reason but this post inspires me how I can be different from other wholesalers starting out. Thank you!

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    7y
    Originally posted by @Nicole Draper:

    I love this because i'm learning from others newbie mistakes. I'm excited about wholesaling for a lot of reason but this post inspires me how I can be different from other wholesalers starting out. Thank you!

     Fantastic, that was the entire point of this thread, to educate others on what not to do and what to do. Since this post was first started, many things have changed and one of the major factors is that certain ways people would wholesale is now illegal in most states, i.e. locking up a contract, publicly advertising said property, and then assigning the contract. That constitutes brokering without a license in most states so you must be sure to do it the right and legal way if you choose this path.

    Quite frankly, most people think wholesaling is the easiest way to get into real estate and the gurus prey on this. The fact is, in this market, it is actually one of the most difficult things to do. I believe it is much easier to find your own deal, find the money and rehab it yourself. To find a deal with enough spread for the rehabbed to make a profit AND then still have more spread for a wholesale fee is no easy task. On top of that, you have to avoid all the legal pitfalls as well.

    I have wholesaled in the past and quite honestly, I don’t think I could have done it prior to having my rehab flip experience under my belt first. Food for thought. . . .

  • New to Real Estate · Bonney Lake, WA · Member since 2019 · 26 posts · 6 votes
    7y

    Thanks Will, I appreciate it

  • Real Estate Agent · Kansas City, MO · Member since 2019 · 1 post · 1 vote
    7y

    @Will Barnard

    I completely agree. I am a realtor and I work with several investors. I also work with off market properties and some wholesalers ( not often). The wholesalers numbers for ARV are never right. The comps are not accurate ( not using mls to generate true cma's ). 90% of the time they are greedy and take the profit out of the deal for the rehab guy. The other problem is that they are taking advantage of a lot of new flippers who truly don't know how to work the numbers as described above. A lot of wholesalers are getting in trouble. They claim to be selling a contract ( not real estate ) so they can do it without any licenses. No knowledge of laws or expertise in the industry. It's just a get rich quick thing. I love working with my clients and I work very hard to make sure they are educated. Hollie

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