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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  • Real Estate Agent · Los Angeles, CA · Member since 2017 · 67 posts · 54 votes
    6y

    @Henry M. Excellent! It astounds me when I see posts or emails for deals that show a spread of let's say $25k and nothing to substantiate it like SF, Rehab $/SF, Rehab % of ARV, etc. I keep telling folks this who are jumping into the "COVID-19 is going to bring great opportunity" camp, that it will but you still need the first and foremost requirement for a potential deal: Motivated Seller!!! No matter what, if the seller is not motivated, it is a tougher deal to negotiate to the price that's going to work for my Investors. Henry, my calculator includes everything you have listed above. Thank you for bringing some clarity to this aspect of the industry.

  • Specialist · San Antonio, TX · Member since 2012 · 462 posts · 294 votes
    6y
    Originally posted by @Nina Grayson:

    @Henry M. Excellent! It astounds me when I see posts or emails for deals that show a spread of let's say $25k and nothing to substantiate it like SF, Rehab $/SF, Rehab % of ARV, etc. I keep telling folks this who are jumping into the "COVID-19 is going to bring great opportunity" camp, that it will but you still need the first and foremost requirement for a potential deal: Motivated Seller!!! No matter what, if the seller is not motivated, it is a tougher deal to negotiate to the price that's going to work for my Investors. Henry, my calculator includes everything you have listed above. Thank you for bringing some clarity to this aspect of the industry.

     Awe... Nina, Thank you so much for reading and acknowledging the point. 

    I thought I would write this so I can reference it vs. having to explain it for the 1000th time.

    Btw, what calculator do you use, out of curiosity?

    Again, I appreciate the support and compliment. 

    "Big" Henry

  • Real Estate Agent · Los Angeles, CA · Member since 2017 · 67 posts · 54 votes
    6y

    @Henry M. I use Excel. It calculates the Acquisition, Holding, and Sale to arrive at MAO. And it shows the ROI, CoC. If the investor is leveraging, my calc will always be different because the flipper may be using a different lender each time and may be looking at LTC vs a 90/100. But the rehab is always going to be different because every flippers costs are unique to the vendors, materials, and labor they utilize. So, it's easier for me to include what their average Rehab Rate $ /SF is so I can get close to where they need to be. When I do the initial view of the property with the Seller, I look closely at the high ticket items and will adjust my estimate. And I'm not greedy. If the only way a deal can work is that I go to my minimum fee, so be it. But at the end of the day, I prefer Cash Investors, especially since the industry has grown so much that the competition for available inventory is extreme, so spreads are lower. And in this Covid-19 redefined economy, Cash is Queen.

  • Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    6y

    I've purchased exactly one property in 20 years from an assignor, and only then because he was in over his head and needed it closed quickly. But I've never seen an assignor's valuation or estimated rehab costs be even remotely associated with reality. I've never purchased another property from a "wholesaler" since and when they contact me about a property, I don't waste my time analyzing the deal because I know their numbers will be fantasy and their contract will be a disaster in how it was drafted.  

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

    @Will Barnard. This just popped up in my feed.

    The sad thing is, my experience today of “most” wholesalers is exactly the same as what you wrote about 10 years ago.

    Well, I can lead a horse to water but I can't make him drink. If anyone ever wanted to become a wholesaler, they certainly have more than enough valid info in this thread to guide them and the info 10 years ago stands today more than ever. Thanks for reading.

  • Investor · Bay Area, CA · Member since 2019 · 44 posts · 17 votes
    6y

    @Nina Grayson  Your post about making your own calculator on excel, including average rehab costs (and then adjusting based on the buyer's needs), and being willing to take your minimum fee really resonated with me. As a wholesaler you should have a fiduciary duty to your investors (cash buyers), but it is also more than that. Both parties are in symbiotic relationship. As the deal finder, you have to be willing to give up the deal for a cost that makes sense to the experienced cash buyer. I'll take a high-volume low-margin wholesaling business over a low-volume high-margin wholesaling business any day of the week. Then, not only are your sourcing fair deals, you are able to reach as many people as possible. This network is invaluable for taking your real estate game to the next level. Just like @Henry M. said on that long (but extremely valuable) post: relationships, relationships, relationships!

  • Member since 2020 · 2 posts · 0 votes
    6y

    @Will Barnard great advice I’m just getting started and could use some new veteran friends to help me get a better grip on wholesale investments

  • Investor · Bay Area, CA · Member since 2019 · 44 posts · 17 votes
    6y

    @James Taylor I would recommend sending handwritten letters out to lists in your area with multiple levels of motivation (I pull lists from PropStream). You can buy Forever Stamps for these letters on eBay for cheapest (about $0.42 per stamp). As for the letters themselves, try to get colors other than white to stand out in the mailbox and make sure you repeat every 3 weeks for up to 7 touches. I have heard it's best practice to match the color of the envelope to the color of the cardstock. 

    Write simple messages on these that don't scream, "I want to take all of the equity in your house." This is all about putting in the work that other people don't want to. Regurgitating the same sort of buzz words that everyone else uses ("close fast," "all cash," "as-is") probably won't give you the best response rate starting out. Remember that you are a problem solver for the person who needs to sell. If you have a mentality that puts that other person first, you will naturally make more money anyways.

    It's all about consistency, and making sure you have a strong "why" because you will get slapped in the face many times. 

  • Member since 2020 · 7 posts · 2 votes
    6y

    Hello, everyone. Hope all is well. 

    I found this post to be very interesting. Especially Big Henry's breakdown. Very informative, in depth, and very true.

    I am trying to get into wholesaling myself. A problem that I have is trying to find a reputable wholesaler/and or investor willing to be a mentor to avoid these very real concerns. To build a positive win/win relationship between all parties (even the motivated seller(possible repeat customer)). Relationships and reputations are forever.

    it seems though that everyone either wants money(thousands) upfront. Something I don't have, quite frankly, would invest in property if I had that kind of money.

    Trying to find someone to actually help(walk thru the steps) is like trying to find a motivated seller. A needle in a haystack, but I know there is someone out there.

    T.I.M.E.=Time Is Money and Energy....on all parties.

    S.Y.S.T.E.M.=Save Yourself Time Energy and Money.

    This is what I am trying to create for myself and those that I work with. I wish people were more patient and open to helping others...Each one, teach one. 

    I wish all of you well and thank you for  your input and time.

    have a great day

  • Real Estate Agent · Berkeley, CA · Member since 2009 · 20 posts · 24 votes
    6y

    OK. If I can get an MLS offer accepted (%75ARV including repairs) then my cash buyer should be willing and able to perform on the EMD and move forward, correct?

  • Real Estate Agent · Los Angeles, CA · Member since 2017 · 67 posts · 54 votes
    5y

    It's coming to light for Wholesalers and Investors alike: the 70% rule is fading fast.  Well, definitely in So CA.  And in GA?  Well, there are way too many Wholesalers who don't know how to bring a good deal or attempt to sell you on a deal that doesn't meet your criteria.

    In CA, my Top 3 Flippers only work with Agent contracted deals because they simply don't think Wholesalers know how to bring a good deal, where they look at all aspects, and analyze the deal. When I look at deals, I'm looking at it from my Investors' criteria. If it doesn't match my top investors, I put it on the MLS (which is now required for off market deals that are shared publicly, like email blasts). One of my investors bottom line is 15% profit, and his max acquisition price is $750k. He knows 80-85% is more likely in So CA.

    In GA, I have Wholesalers sending me deals that have no profit in them at all!  It's nuts.  They come out with these very low Rehab Costs ($25k for a 2400 sf home - what?!?), and the ARVs use comps from a year ago with some of them having more b/b and sf that the subject.  Nutso!  

    I've learned that there are only a small handful of good Wholesalers who are willing to know my criteria (including if I'm using leverage), how to analyze deals based on my criteria, and appropriately comp ARV. They know they may only make $5k-$10k, but they also know that's what the market will bear.

    Alas, I don't bother with Wholesalers much anymore for our own flips in GA.  I just go direct to Seller.  For CA, I will Wholesale to my Buyers purely to get the contract for them.  I keep my fee reasonable and give them a credit on the flip sale.  

    Bottom line, true market research that looks at trends in units and prices sold for cash and retail is the first step to finding the right deals for Buyers.  Sadly, Wholesalers don't seem to do much of that these days......

  • Investor · Detroit, MI · Member since 2015 · 32 posts · 12 votes
    5y

    Hi Will, I share your thoughts and concerns about getting started as a wholesaler.  I have been educating myself about walk throughs.  Just two days ago I did a walk through that concerned me.  The house needed so much work, I want to only market it to the Buy & Holds that take on large amounts of work.  I could not accurately arrive at a number regarding the work needed, but it would definitely impact the purpose ANYONE had for the property.  You are so right, take the time to be accurate regarding costs and other factors that impact acquiring a property.  In the end, the only buyers a wholesaler has are buyers who know and trust your ability to spot a good deal for them.  

    Thanks for sharing this,

    Charlene

  • Wholesaler · IN · Member since 2020 · 3 posts · 0 votes
    5y
    do you only purchase in Cali?
  • Real Estate Agent · Salt Lake City, UT · Member since 2017 · 22 posts · 13 votes
    5y

    Great post. As with any opportunity that can yield great returns - you need to learn and study! Study the market, repair costs, ect. Mistakes happen understandably, but its an industry portrayed as "get rich quick" and many fail to educate themselves along the way. Hopefully this wholesaler is open to your constructive advice as they move forward.  

  • Realtor · NH · Member since 2019 · 12 posts · 3 votes
    5y

    I think people who want to start doing wholesaling say they wholesale because they don't exactly know the what or the how to in real estate. Wholesaling sounds good, but it is a very hard thing to do especially if you are going to be successful at it. People that are proclaimed wholesalers I don't think they know how are where to start. The best piece of advice to me when I first started in real estate was to work backwards. Build connections with buyers/investors/flippers, and find out exactly what they need (get detailed), where they are looking, and that should be your starting point. Build on from there once you have some general idea of what your list of buyers are looking for. If you can bring value to a flipper/investor you will be on their list of qualified wholesalers that will be taken very seriously. 

    For future wholesalers, go to REIA Zooms/meetings, find investors here on bigger pockets and make connections. Go online to Meetups. It is easier than ever to make true connections with people. Find out what the investors are looking for and make that your target to go find. It will give you as a wholesaler a more defined target.

  • Atlanta, GA · Member since 2016 · 17 posts · 9 votes
    5y

    Will, this shows there are always people out there that are looking to take advantage of others in this industry. I am glad you took the time to take a closer look at the property to confirm that the values he was providing were way off. Thank you for adding keys to success in real estate wholesaling that I will surely use and refer back to.

  • Contractor · Member since 2018 · 1 post · 0 votes
    5y

    @Will Barnard

    I am actually thinking of becoming a wholesaler but after reading this I don't know if I have a chance...

    I'm a retired carpenter (union) of 38 years and I DO have the knowledge to give accurate estimate but with companies messing it up like that maybe I should just look for someone to fund a flip instead

  • Will BarnardPro Member
    Moderator
    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    5y
    Originally posted by @James Ridings:

    @Will Barnard

    I am actually thinking of becoming a wholesaler but after reading this I don't know if I have a chance...

    I'm a retired carpenter (union) of 38 years and I DO have the knowledge to give accurate estimate but with companies messing it up like that maybe I should just look for someone to fund a flip instead

     James, don't be discouraged by what you have read here, look at it as your opportunity to be better than the average "wholesaler". That said, if you have the drive and determination to succeed in RE investing, than build your team and find funding, private, hard, conventional, seller, syndicate, etc. and flip one. Having experience in contracting/building, you should have a leg up to start.

  • Flipper/Rehabber · Friendly Hills, CA · Member since 2015 · 43 posts · 20 votes
    5y

    I just saw a similar deal from a wholesaler, it was a condo in Newhall, the numbers almost match your previous experience...They were also comp'ing out 3 beds to this 2 bed model to inflate the ARV. Clearly the photos showed far more than 10k in repairs. I made a lowball offer and didn't hear back. Lots of wholesalers today, even the companies who used to be good sources for deals 1-2 years back are not getting the low priced deals they used to so anything they wholesale out is high priced, very low returns- 30-40k profit on a 500-600k PP. (talking LA market). Not worth it to me personally unless its clean and show.

  • New to Real Estate · Sarasota, FL · Member since 2020 · 13 posts · 14 votes
    5y

    I'm looking to get into wholesaling and this does not sit well with me. It's never a good idea to try and markup your price so much and "pull one over" on someone else. That is just simply not good business. Glad you did your due-diligence and took a hard pass on the deal. 

  • Realtor · Papillion, NE · Member since 2013 · 134 posts · 59 votes
    5y
    Originally posted by @Malhar B.:

    Honestly, I think the issue is that so many of the so-called "gurus" preach wholesaling as a great way to get involved in REI, but they don't talk about marketing, etc.

    A good wholesaler is good because of what Charles said above, but to take it further, they're good at marketing and finding the deals. ALL the time, I have wholesalers in the area sending me deals they got off the MLS--negotiated it down from list about $10K and then marked it up $15K-20K. Why would I want an MLS deal that I have access to and then pay $10K above list price??

    There is no logic in the thinking and although I do believe the MLS is a decent lead source, it is also the most competitive and easiest to access. I've purchased 2 properties from wholesalers out of the hundreds I've seen, which says a lot about wholesalers, in general. The sad part is the good wholesalers sometimes get a bad rap because the bad/lazy ones don't know what they're doing.

     I, too have been leery of wholesalers and prefer just a solid REA, but how do you know if a wholesaler is reputable?  I realize this is a simple question for a complex answer, but I thought I would throw it out there if anyone wants to educate me.  :) 

  • Wholesaler · Boulder, CO · Member since 2019 · 12 posts · 2 votes
    5y

    Great post, it sounds like you ran into a scammer that was preying on people who don't do their due diligence. It could be that they are just inept, but if you know for a fact that someone is scamming, give their name to other investors in you're area so that there are less people ruinging the reputation of wholesalers

  • Real Estate Agent · Birmingham, AL (birmingham) · Member since 2021 · 1 post · 0 votes
    5y

    @Will Barnard would anyone be okay with looking up my site at Antbuyshouses and giving me some feedback on how it’s looking?

    I appreciate y’all!!

  • Rental Property Investor · Charlotte, NC · Member since 2015 · 134 posts · 78 votes
    5y

    @Julie Sisnroy I think there's all sorts of ways to spot a 'legit' wholesaler, and the easiest way is just to have a phone call with them. You can generally 'just tell' if someone actually knows their stuff or is just bluffing.
    In addition, I fact-check their ARV's and rehab costs, and if they seem accurate, there's a good chance you're dealing with someone experience and knowledgeable.

  • Rental Property Investor · Charlotte, NC · Member since 2015 · 134 posts · 78 votes
    5y

    @Anthony Pintaro I was going to give you some feedback but it just comes up with an connected investor link, and not your website lol

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