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

    361 votes for the original post with 32 pages of replies over 9 years and still going, this thread is tops on BP Nation. Glad it has helped so many here.

  • Baltimore, MD · Member since 2019 · 85 posts · 37 votes
    6y

    We need to start Educating and vetting our wholesalers.

    A lot of wholesalers are not taught how to accurately analyze the ARV/Repairs of a deal.

    If you find that you are continuously getting inaccurate numbers from one of your wholesalers,

    you should drop some wisdom on them about the proper way to analyze the ARV/Repairs and

    everything else you deem wrong. At the end of the day we are all a team, think of how much

    money you could make if you vet your wholesaler on how to accurately analyze deals rather

    than shutting down every wholesaler that gives you inaccurate numbers.

    Think of how much time you can save by simply educating your wholesalers, so they know

    what a deal actually is, how to estimate repairs ect!

    So many wholesalers are ignorant to the proper way to determine repairs ect, lets just

    inform them and change the game!

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y
    Originally posted by @Armani Emon:

    We need to start Educating and vetting our wholesalers.

    A lot of wholesalers are not taught how to accurately analyze the ARV/Repairs of a deal.

    If you find that you are continuously getting inaccurate numbers from one of your wholesalers,

    you should drop some wisdom on them about the proper way to analyze the ARV/Repairs and

    everything else you deem wrong. At the end of the day we are all a team, think of how much

    money you could make if you vet your wholesaler on how to accurately analyze deals rather

    than shutting down every wholesaler that gives you inaccurate numbers.

    Think of how much time you can save by simply educating your wholesalers, so they know

    what a deal actually is, how to estimate repairs ect!

    So many wholesalers are ignorant to the proper way to determine repairs ect, lets just

    inform them and change the game!

    I agree and was the entire intent of this thread which has helped many better understand what they need to do and how to do it. If we all help educate others, more positive business can be accomplished.

  • Member since 2019 · 38 posts · 11 votes
    6y

    @Will Barnard So what path would you suggest, for someone interested in starting out in real estate, with not enough capital to work with. And whats the best way to learn about accurately pricing rehab costs? 

  • Member since 2019 · 38 posts · 11 votes
    6y

    @Joseph Back Whats a CMA?

  • Investor · New Orleans, LA · Member since 2012 · 968 posts · 747 votes
    6y
  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y
    Originally posted by @Tyrell D Bradshaw:

    @Will Barnard So what path would you suggest, for someone interested in starting out in real estate, with not enough capital to work with. And whats the best way to learn about accurately pricing rehab costs? 

    That is difficult to say as everybody's likes, abilities, and markets are different. You need to choose a strategy that fits your goals, likes, and abilities, then learn all you can about that strategy from start to finish.

    As far as capital, if you don't have enough to start, you need to find capital from others or wait until you have saved enough, perhaps from a second job, side gig, or whatever.

    Whats a CMA? - CMA stands for comparative market analysis which is basically what an agent does putting together comps for a subject property showing market conditions and other data.

  • Member since 2019 · 38 posts · 11 votes
    6y

    @Will Barnard Thank you for your advice! I’ve been working for free for a wholesaler in my area doing some cold calling, putting out signs, etc. I’ve learned alot in the few months I’ve been doing it. I want to wholesale but aI also just want to use private money and rehab properties to rent. I’m trying to find a common ground between the two.

  • Member since 2019 · 38 posts · 11 votes
    6y

    @Braden Smith Thanks! I will look into these.

  • Wholesaler · Philadelphia, PA · Member since 2016 · 124 posts · 81 votes
    6y

    @Will Barnard

    Thanks for sharing! And, I’d bump your 4th bullet up to #1.

    Without honesty, the perception of the wholesaling industry will definitely be poor. And those who fly straight in the business will be unfairly affected.

  • Member since 2018 · 20 posts · 1 vote
    6y

    @looking to be a wholesaler and this advice is great to know, thanks againWill Barnard

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y
    Originally posted by @Franky Aikens:

    @Will Barnard

    Thanks for sharing! And, I’d bump your 4th bullet up to #1.

    Without honesty, the perception of the wholesaling industry will definitely be poor. And those who fly straight in the business will be unfairly affected.

    The 4 bullet points in my first post of this thread we’re not placed in any specific order of importance as I would argue that each of the 4 are equally important but you are correct, if more or all would head the advice of #4, the wholesaling industry would not have such a dark cloud over it. 

  • Wholesaler · Raleigh, NC · Member since 2013 · 21 posts · 1 vote
    6y

    Any wholesalers in New York with advice? 

  • Wholesaler · Coeur d'Alene, ID · Member since 2019 · 31 posts · 12 votes
    6y

    @Will Barnard great post, and it helps me to see things like this as I try to get into wholesaling myself. One thought that occurs to me is they might have been new like me, and not known how to estimate and assess the property properly. In situations like this, do you as the flipper help to educate the wholesaler? Or simply move on, and hope they learn down the road?

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y
    Originally posted by @Jason Hammond:

    @Will Barnard great post, and it helps me to see things like this as I try to get into wholesaling myself. One thought that occurs to me is they might have been new like me, and not known how to estimate and assess the property properly. In situations like this, do you as the flipper help to educate the wholesaler? Or simply move on, and hope they learn down the road?

    Great question. It depends. If the new wholesaler sends me a property with specs (or even seasoned ones) and the numbers are off or does not fit my criteria and needs, I will often provide them feedback of my numbers and criteria in hopes that next time they hit the nail a bit closer on the head. They can use that information or ignore it, its up to them but if they want to do business with me, they will need to either bring a real deal fitting my criteria or at least get there numbers right on the next one. Anything short of that will be a waste of my time and find their emails in the trash.

  • Rental Property Investor · Newport News, VA · Member since 2016 · 18 posts · 2 votes
    6y

    @Will Barnard hi will I just came across your post and I really liked your suggestions at the bottom where you identified what it takes to be a successful wholesaler. With that being said I'm a first time wholesaler and I'm in communication with a owner who is selling their land a 1 acre parcel for 70k, the land is in a residential area. What are some things I should look for when analyzing this potential deal? I appreciate your feedback.

  • Member since 2019 · 3 posts · 0 votes
    6y
    Originally posted by @Nicky Valeiron:

    Any wholesalers in New York with advice? 

     Facts; I'm from NY too and trying to wholesale in my area. I was thinking about buying up rental properties with my own capital(obviously getting a loan); but it seems to me that I should stack up more money before buying into a property and actually try wholesaling to get extra supplemental income. That or actually doing flips which I would need a hardmoney lender especially since the NY market is so damn expensive.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y
    Originally posted by @Tiffany Marsh:

    @Will Barnard hi will I just came across your post and I really liked your suggestions at the bottom where you identified what it takes to be a successful wholesaler. With that being said I'm a first time wholesaler and I'm in communication with a owner who is selling their land a 1 acre parcel for 70k, the land is in a residential area. What are some things I should look for when analyzing this potential deal? I appreciate your feedback.

    Assuming this is an "infill lot" meaning homes on each side in a developed community, then you should already have utilities at street to connect to. If not, utility connection costs and fees can be extreme so it is imperative to include them in your numbers. Without more details, hard to say what else there is to look out for other than the basics.

  • Title Representative · Irvine, CA · Member since 2017 · 874 posts · 519 votes
    6y

    @Will Barnard — this is why I think I would be successful at wholesaling, because I am very honest and I take the time to get to know what I’m working on. I had a wholesale kid send me a deal that referred me to links to the county assessor and county planning dept for the wrong county. The email also said you could build your dream house on the land they were pitching, but yet if anyone looks at the zoning, the land parcel does not meet the minimum requirement of acreage to be able to build a home. Anyone who looks at the aerial and assessor’s map should notice that the property is landlocked. The wholesaler should notice that in advance and pull title to see if there are any access easements that benefit the subject property. Anyway, a lot of these wholesale kids need more guidance so that they can pitch deals accurately.

  • Member since 2019 · 1 post · 1 vote
    6y

    My Lord, wholesaling has to be the most competitive business on planet earth right now. I literally called every single house in a .5 mile radius and every single one of the homeowners who answered seemed frustrated with people calling to buy their home. 

  • Wholesaler · Warner Robins, GA · Member since 2019 · 5 posts · 1 vote
    6y

    @Will Barnard I’m a wholesaler and I can’t help but agree with what your saying. I try and make my numbers as accurate as possible and by doing so I’ll spend my own money to send out inspectors to give me an idea of what repairs will be. It makes it hard on the ones who stay up nights at a time researching information about a property spend money to try and get accurate numbers and you can’t get buyers because of wholesalers who have done their due diligence and just trying to make a quick buck. I don’t know about anyone else but it takes me a lot longer to do a deal when dealing with these properties because I try and find out everything about the properties and their locations. I even try and look into crime rate and schools.

    I’m a newbie l, and I understand this is a who get it’s it first type deal but I mean I still have bench marks I have to hit before I shop to a buyer. My name and reputation means more to me than a couple of bucks. I’m contract service specialist full time at Robins AFB and Air National Guard member part time so attention to detail is everything to me.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y

    @Kelsey Jackson sounds like you are on the right track. 

    Not sure if I would agree that having to send out inspectors and the like is cost effective as I typically advise investors and wholesalers to learn how to properly evaluate rehab numbers on their ow. Once they can do that, they can simply offer accurate numbers to their potential buyers rather than look like incompetents as so many do pitching false numbers. Keep up the good fight!

  • Real Estate Agent · Davenport, FL · Member since 2018 · 14 posts · 2 votes
    6y

    @Will Barnard

    “The truth” about wholesaling is it’s not the wholesalers job to make the deal work for you. Wholesalers work with dozens of investors who all have different criteria. I do agree that it’s in the best interest of a wholesaler to learn rehab costs and better market to investors, however the main job of a wholesaler is to find motivated seller who agree to sell at a discount. Whether it’s a great deal is up to the investor.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    6y
    Originally posted by @Dante Escobar:

    @Will Barnard

    “The truth” about wholesaling is it’s not the wholesalers job to make the deal work for you. Wholesalers work with dozens of investors who all have different criteria. I do agree that it’s in the best interest of a wholesaler to learn rehab costs and better market to investors, however the main job of a wholesaler is to find motivated seller who agree to sell at a discount. Whether it’s a great deal is up to the investor.

     Well we will have to agree to disagree on this statement of yours. If a wholesaler's job (or part of it) is not to make a deal a good one (which has everything to do with the financials of the deal), then sorry, they have added little to no value and most savvy and experienced buyers are not going to pay someone who added little to no value. Finding a motivated home seller is one thing, negotiating a great deal or even a good one is where the value comes into play.

  • Flipper/Rehabber · Olympia, WA · Member since 2019 · 7 posts · 1 vote
    6y

    I want to make a personable reply to everyone that is or have experienced this kind of crap. It is marketing on my behalf but also to show not everyone is liars. I am a new wholesaler working towards becoming a rehabber. I want to build a buyers list on an honest scale. I value any relationship I will gain. I agree with you, Will, about how a wholesaler should be. I have values I hold to a high standard. Honesty and integrity, loyalty, and honor. It seems many people have lost these traits and I will never allow my morals be broken. If I can't make an honest offer I won't even try to do anything. I want to sell myself here but I want to let everyone know more than anything that we aren't all like the ones Will came in contact with. I even enjoy criticism as it can be a great teacher. I hope to hear from others and maybe make a few professional friends on here. 

    Chris Reynolds

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