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.

See this reply in the discussion

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  • Realtor · White Oak, TX · Member since 2012 · 62 posts · 24 votes
    14y

    Hello BP
    I came across the idea of wholesaling and started looking into it and yes it was represented as fast easy and lucrative. Then I found BP. Lol. I want to get into re but am not sure if wholesaling is the right approach, I currently make good money at my 8-5 job drive 1.5 hrs each way. That doesnt leave me with a lot of time. I dont have re experience, but Im dedicated fairly intelligent and am willing to learn and work hard. Could wholesaling be done part time by someone while learning? Is there other ways to brake into real estate investment?
    srry about grammar I'm using my phone.

    Thanks.

  • Wholesaler · Chicago, IL · Member since 2011 · 219 posts · 38 votes
    14y
    Originally posted by Patrick Bartlett:
    Hello BP
    I came across the idea of wholesaling and started looking into it and yes it was represented as fast easy and lucrative. Then I found BP. Lol. I want to get into re but am not sure if wholesaling is the right approach, I currently make good money at my 8-5 job drive 1.5 hrs each way. That doesnt leave me with a lot of time. I dont have re experience, but Im dedicated fairly intelligent and am willing to learn and work hard. Could wholesaling be done part time by someone while learning? Is there other ways to brake into real estate investment?
    srry about grammar I'm using my phone.

    Thanks.

    Patrick Bartlett, wholesaling can absolutely be done part time no matter what your schedule looks like. You just have to make it a priority and find every little bit of time that you can and dedicate it to building your business.

    For example, since you're already driving 3 hours per day, listen to wholesaling podcasts on your commute. Sean Terry has a great one (I believe its the #1 real estate podcasts in iTunes) and there are other great ones too. You have to make that drive anyways so why not throw on some podcasts and learn a little while you do it?

    You can also use your driving time to make any calls that you need to (call back buyers and sellers that ahve contacted you throughout the day.)

  • Will BarnardPro Member
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    OP
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    14y

    Patrick Bartlett - The other way to break into RE when you have a 9-5 job and not a lot of time on your hands is the note business. It is passive (once you buy) but of course requires some cash to get into it.

    I love buying notes as the income is passive, I buy at discounts to get very nice yields, and I can hold them, flip them, and even restructure them.

    Of course, this is off topic from the this thread, so check out some note buying threads if that sounds intresting to you.

  • Realtor · White Oak, TX · Member since 2012 · 62 posts · 24 votes
    14y

    Thank you for your replies.

    Kevin I have been doing that with YouTube, but it is difficult while driving. Plus I don't know how factual they are, they sound a bit like hype. I will look into podcasts and Sean Terry. Thanks.

    Will I will be looking into notes. Thanks for suggesting another avenue.

  • Investor · Covington, LA · Member since 2012 · 517 posts · 317 votes
    14y
    Originally posted by Aj P.:
    This was a great post and discussion. It's seems as though everything I have read about wholesaling portrays it as the fastest and easiest way to get started in RE investing. It doesn't seem plausible for a newbie to be able to locate a deal and accurately estimate repairs with little to no experience. Does anyone have any resources they use to accurately estimate repairs?

    I don't think "fastest" and "easiest" is accurate when explaining wholesaling. However, it is the best way for someone with very little money to get involved with real estate.

    Like any industry, there is always going to be "newbies" and people who don't know what the hell they are doing, not just in wholesaling.

    The statement "the truth about wholesaling" by the original poster is grossly generalizing to say the least. I am sure there are other wholesalers who are very experienced and know what they are doing, so I think it is not fair to make that statement about all wholesalers because of one (or a few) inexperienced wholesalers contacted you.

    Everyone learns through experience. Maybe some people aren't ready yet to go out and try to do deals, and they should become more educated before trying. But at the same time, I keep hearing LOTS of people say, the only way you going to learn is first hand and that you need to get out there and make deals instead of spending time trying to learn, so it's a catch 22. It's impossible to be an expert and not make mistakes without actually having done any deals.

    Also, I think it would be foolish to write off all wholesalers because of the experiences you have had with one or a few of them. I would give each wholesaler one chance, if it looked like he had no idea what he was doing then I would just avoid his "deals" in the future, not ALL wholesalers.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    14y
    Will Sifert - The title to my thread was created to garner attention to it and to point out "how to" . It was not intended to lump all wholesalers into a bag. I wholesale, so i am certainly not saying that I am not experenced or do not know what i am doing.

    Point of this thread was to show how so many do it wrong so that by exposing "the truth", other BP members will not follow that same poor choice road.

    Also, this thread is not about binvestor buyers dealing or not dealing with wholesalers, but how an investor can get into wholesaling and do it right. While there have been many negative comments regarding previous experiences with poor wholesalers, it is only to point out the lesson regarding the mistakes they make so others can avoid them.

  • Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    Not sure this was mentioned yet, but it seems beginners are reading about strategies like this and deciding one one they think they can pull off, that's a bad way to get in the business IMO, too many gurus! Before deciding on wholesale deals, is there enough inventory ofproperties to make a living on in the area? The market will always dictate what aspect is the best and that's why I suggest learning RE basics and being able to identify various types of deals. And doing this has a limited amount of possible buyers as well if you are only selling to rehabbers and landlords, getting a chain of buyers really slims down the profits in a hurry.

  • Investor · Covington, LA · Member since 2012 · 517 posts · 317 votes
    14y
    Originally posted by Will Barnard:
    As promissed, I would keep an eye out for this specific property I have used in this example. As it turns out, looks like the property will be back on the market soon as the buyer (the rip off artist, wannabie wholesaler) could not find a sucker dumb enough to buy this piece of crap for such a high price and must be backing out of the deal since the MLS shows it as back on the market subject to the completed cancellation of escrow.

    This home should be purchased by an investor for no more than $205k and really should be purchased for $200k or less.

    Is it fair to scream "I told you so Mr. Wholesaler!"? :mrgreen:

    Honestly after reading this thread, the company's reply to you and your comments above I would be too scared to ever send you a deal. If my numbers were off and we disagreed on value I wouldn't want to be accused of being a rip off artist. I thought their email response to you was logical and professional. A scammer would have just ignored you and moved on to the next person.

    I hardly see how someone should be called a rip off artist because they under estimated the repair costs (or more accurately disagreed with you on what needed to be repaired - they though the counter top/ cabinets were fine but you thought they needed to be replaced that is just one example of how a your repair total and theirs could be so much different.)

    It's very possible the person is new and still learning or perhaps new to that area, failed to devalue the property because of its proximity to the interstate, or any number of other factors. I don't see how he is ripping anyone off. First of all there would have to be intent to deceive and I didn't see any of that in his reply to you. It sounded more like lack of experience than anything. Secondly, is a real estate investor going to take anyone's (wholesaler, owner, agent etc.) word when it comes to value and repair costs? I would think all investors would use their own judgement or hire a contractor to give them bids etc. So who exactly would be "ripped off" anyway.

    Just seems real harsh to call this person a rip off artist and aren't we all "wannabies" when we start something new?

    Personally, I would spend a few minutes to investigate all deals sent to me. If the person's number are out of line on several deals I would just stop looking at them. On the flip side, the wholesalers who are very experienced and can get you the spread you are looking for (great deals) likely don't need you. They very likely have a couple investors they are already working with so they aren't likely to go hunting for more buyers. Typically (<- in most cases) I would think the wholesaler contacting you is going to be someone relatively new and inexperienced, since he is looking to build a buyers list (as he doesn't have regular buyers yet). You can either ignore all of them or give them a chance. Maybe you could even help guide them in the right direction, who knows maybe they will learn quick and be able to produce some good deals, which then you would be the benefactor as they don't have many serious buyers they are working with yet.

  • Investor · Covington, LA · Member since 2012 · 517 posts · 317 votes
    14y
    Originally posted by Will Barnard:
    Will Sifert - The title to my thread was created to garner attention to it and to point out "how to" . It was not intended to lump all wholesalers into a bag. I wholesale, so i am certainly not saying that I am not experenced or do not know what i am doing.

    Point of this thread was to show how so many do it wrong so that by exposing "the truth", other BP members will not follow that same poor choice road.

    Also, this thread is not about binvestor buyers dealing or not dealing with wholesalers, but how an investor can get into wholesaling and do it right. While there have been many negative comments regarding previous experiences with poor wholesalers, it is only to point out the lesson regarding the mistakes they make so others can avoid them.

    ------------------------------

    As a newbie, wanting to do some wholesaling... After I read the first couple of pages I got the impression that you were saying "all wholesalers are like the ones you mentioned in this thread, you only want to deal with experienced wholesalers, and if someone doesn't send you a decent deal then they are a rip off artist. Again this is just my interpretation from reading the posts, and giving you feedback from what I read. I understand now that was not your intention. As far as helping wholesalers, all of this could be consolidated down to: know the market, know the value, know the repair costs as accurately as possible before contacting potential buyers?

  • Involved In Real Estate · Atlanta, GA · Member since 2012 · 19 posts · 13 votes
    14y

    I do think that this is a very bad deal, however alot of wholesalers do not have the intent to misrepresent their numbers when offering deals to other investors. Knowledge is the basis of this type of investing strategy and unfortunately some "wholesalers" have not been exposed to the right education. Gurus are on tv all day everyday telling well meaning people that they don't have to know anything or do anything to be involved in this business and they will still get rich.

    We have all made mistakes in this business and will make more. We were all newbies at one time. And we all had dreams of being a successful real estate investor. The ones that have not made it to that point yet need coaching and assistance. Im not saying you should hold anybody's hand but at the same time be of some assistance.

    When you meet these so called "wholesalers" and their deals are not up to par. Give them your investment criteria and the formula you use to evaluate your deals. That might take 5 minutes of your time. You may not get any deals from them but what you did was give a fellow investor a small blueprint on how to be successful. Soon they will be able to build off of that and be able to provide a valuable service.

    Don't get me wrong I agree with Will on the ingredients of being a true wholesaler. This subject just hits home for me because wholesaling is my main investment strategy. I made alot of mistakes. And it was never my intention to deceive anyone. Fortunately for me I met some great people who took me under their wing and some what showed me the ropes. I still had to educate myself but they made the road of success visible to me so I could follow the path. I just wish more of us "seasoned" investors would do that.

    Thank God we have BP :)

  • Wholesaler · Chicago, IL · Member since 2011 · 219 posts · 38 votes
    14y
    Originally posted by Tamara Sankey:

    Thank God we have BP :)

    Amen to that! haha

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    14y
    It is clear your "interpretations were incorrect. I hope I have cleared that up for you at this point. Again, I think you are taking the situation I pointed out to personally and not grasping my point which is to educate others here on BP on what not to do. We can disagree on what I thought should be rehabbed over the wholesaler. Fine. We can even disagree on exit value. Fine. But there is a huge discrepancy on that specific property on both accounts, both of which grossly incorrect, regardless of personal opinions on certain items. I also have personal knowledge that this wholesaler has this track record and is why I made an example of them here in this thread.

    Fear not, I look at wholesale deals all the time and when they are crap, I just delete them. In other instances, I help educate the wholesaler as to what I want. In many cases, I never hear from them again because they do not possess the abilities to get real deals. This is what I wanted to stress to BP members. IF you want to become a wholesaler, you must understand the means necessary to do it right or you will FAIL. By showing examples of failures and what not to do, I feel that BP members here can have a good grasp and a better idea of how to start and proceed in such a strategy.

  • Toronto, Ontario · Member since 2012 · 8 posts · 2 votes
    14y

    Hello Will:

    You make a valid point that is true not only for wholesalers, but for people who are offering a service. (Accurate information for your client, honesty about the details you have, and keep in mind that your reputation once ruined takes longer to regain. A good reputation will go much further than the extra nickle and dimes accumulated with mi-repenstation.
    Thanks for sharing your experience on this forum.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    14y

    If you want to be a good wholesaler, I would recommend starting by rehabbing a couple houses!

    Everything thinks that wholesaling is the logical first step in becoming a rehabber, but it's actually the other way around. A great wholesaler needs all the skills of a great rehabber, plus more! If you've never successfully rehabbed a house, there's a very good chance that you won't make a very good wholesaler (not saying it's not possible, just not likely).

    I know all the potential wholesalers out there are saying, "But I need to start by wholesaling because I don't have the money to rehab." But, that's like saying, "I need to get a job making $100K/year because I don't have the money to go to college and grad school." It just doesn't work that way in real life...

    For what it's worth, I've been rehabbing for several years now, and I'm almost to the point where I feel like I could make a good full-time wholesaler. To think I could have done it before I got good at rehabbing is laughable...

  • Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes
    14y

    One quick note is don't write off the newbie that offers a not so good deal, Many are not the greedy I'll find an idiot to sell this to and make a few bucks type. I had a newbie offer something that I almost sent him packing on but I was basically goofing off that day and said show it to me. While we were there the owner showed up and asked who I was and I said a friend and fellow investor of Jim's.

    He said what do you think, and I said I was just going to recommend to Jim that he pass on this property because he must have liked you a lot and just lost it, he forgot he was in the investment business and this deal is going to cost him time and lost money.

    I went through the home and finally said the only way this home will make Jim any money is if he can get it insured for enough and burn it down. It can be saved but it will be costly and the most he should pay is X if that much, still have a few other things to check out. I looked at Jim and said while he is here to might as well give him your notice to cancel the deal. (At least he borrowed a decent contract and an out). An hour later he had a new deal and I had an assignment.

    He hadn't gotten his education in values and costs yet and believed he had something to sell for a few thousand dollars. So I sent him back to school and I was always a first call when he got a new deal.

  • Real Estate Agent · Falls Church · Member since 2012 · 2k+ posts · 1k+ votes
    14y

    Lots of good info on here, thanks everyone

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    14y
    Originally posted by J Scott:
    If you want to be a good wholesaler, I would recommend starting by rehabbing a couple houses!
    Could not agree more! I have stated this many times before. For me, it was my ability to rehab that made possible some wholesale deals. Had I not had the contacts to get deals and the knowledge of estimating rehab costs and exit values (which comes with experience in rehabbing), I would not have had the opportunity to wholesale successfully.
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    14y
    Originally posted by J Scott:

    For what it's worth, I've been rehabbing for several years now, and I'm almost to the point where I feel like I could make a good full-time wholesaler. To think I could have done it before I got good at rehabbing is laughable...

    I've read through and commented on this a ton of times, but J Scott makes one of the best points here. IME, the best wholesale sources for me as a buyer are those guys who have been in this business for over a decade and some way longer! They have built houses from the ground up and spent a lot of time rehabbing houses. They know locations and trends and they understand the dynamics of fundamental investing. I have a very good friend who makes an incredible living off of wholesaling houses to our company and he has been at it fro over 15 years now.

    Great post -

  • Brandon TurnerPro Member
    Investor · Maui, HI · Member since 2009 · 13k+ posts · 3k+ votes
    14y

    Agreed. I finally feel like I could jump into wholesaling more because I know the type of wholesaler that I wish I had on my team (Cause I have none!)

    Wholesaling is a great way to learn the business, but if you have no experience, you are just wasting everyone's time. If you don't have the funds needed to start rehabing, then latch on to a local investor who is and let them become your mentor. Offer free assistance on nights/weekends/whenever. Learn the business that way, and you'll also gain your first cash buyer for your deals (your mentor)!

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    14y

    Thanks for your comments Chris Clothier

    While I agree with this, to be clear, I do want to point out that while this is true, this does NOT mean that someone new can not learn the business of flippers and start wholesaling once they grasp the knowledge, locate sources for good deals, and locate the buyers for those deals. I certainly do not intend for this thread to discourage those looking to wholesale, only to educate you on the proper way it needs to be done.
  • Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
    14y

    It is definitely possible for someone who is brand new to come across a great wholesale deal or 2 and successfully wholesale them to an investor...that does not make them a good wholesaler. I equate this to the rehabber who stumbles into a first great deal and makes money, but can never replicate the success because they do not have the necessary skills or education.

    I think it is important to differentiate a good deal from a good wholesaler.

  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    14y
    Originally posted by James Vermillion:
    I think it is important to differentiate a good deal from a good wholesaler.
    Well said, I agree! There rae two parts to this particular equation. 1. The Wholesaler and 2. The deal

    In order to be a successful wholesaler, you must be able to consistently find good deals and sell them.

  • Flipper/Rehabber · Seminole, FL · Member since 2010 · 859 posts · 316 votes
    14y

    Yeah the sophomore slump can discourage some.

    One thing I need to work on is consistency. Once I have a few deals to sell I slow down on the buy side. It sucks when I get my sales, and have to hustle the buy side to drum up the next deal.

  • Wholesaler · Bronx, NY · Member since 2012 · 5 posts · 3 votes
    14y

    First and foremost that you for creating this sticky as it is very helpful and informative.

    As a newbie at real estate wholesaling here in New York City most investors dont want to do deals with someone that is not experienced and will not offer any pointers. I have found most of my local investors by responding to ads on craigslist and asking questions on preferences that they have.

    I have not done my first deal as of yet as for two main reasons:

    1.I was always hung up on the contractual part of the wholesaling process and consulted with my lawyer. I was informed that even though I am attempting to assign my contract to another buyer IF I cannot find a buyer for any reason I/my LLC can be sued for "Specific Performance". To those that are experienced wholesalers what are your remedies to avoid this situation? (I thought of clauses in the contract that would state myself/seller can cancel the contract at any time/any reason via written notice. Would that work? What if they are adamant on drawing up a contract? An addendum is only valid if both parties agree and sign it or else the origional contract stands )

    2. The comps. I attempted to get comps from zillow and remax for properties in my local area but the numbers didnt add up. I have seen most investors wont go higher than 70% ARV or they will consider it a bad deal however some are flexible. Are there more accurate ways to perform a comp on a particular property.

    Also any nice words of advise would be appreaciated as well.

  • Wholesaler · Chicago, IL · Member since 2011 · 219 posts · 38 votes
    14y
    Originally posted by Isaiah Gaines:
    First and foremost that you for creating this sticky as it is very helpful and informative.

    As a newbie at real estate wholesaling here in New York City most investors dont want to do deals with someone that is not experienced and will not offer any pointers. I have found most of my local investors by responding to ads on craigslist and asking questions on preferences that they have.

    I have not done my first deal as of yet as for two main reasons:

    1.I was always hung up on the contractual part of the wholesaling process and consulted with my lawyer. I was informed that even though I am attempting to assign my contract to another buyer IF I cannot find a buyer for any reason I/my LLC can be sued for "Specific Performance". To those that are experienced wholesalers what are your remedies to avoid this situation? (I thought of clauses in the contract that would state myself/seller can cancel the contract at any time/any reason via written notice. Would that work? What if they are adamant on drawing up a contract? An addendum is only valid if both parties agree and sign it or else the origional contract stands )

    2. The comps. I attempted to get comps from zillow and remax for properties in my local area but the numbers didnt add up. I have seen most investors wont go higher than 70% ARV or they will consider it a bad deal however some are flexible. Are there more accurate ways to perform a comp on a particular property.

    Also any nice words of advise would be appreaciated as well.

    First of all, I'm not an attorney so don't listen to me (disclaimer.)

    1. The seller can't sue you for specific performance if you have the right clauses in your contract (contract contingent on buyer securing funds from 3rd party buyer, contract contingent on partners approval, contract contingent on passing inspection, etc.) These will protect you and allow you to back out of the contract if you really need to. That being said, don't ever sign a contract unless you know you can find a buyer for it. Backing out of contracts regularly is just bad business and will give you a bad rep.

    2. Work with a realtor that will pull comps for you. In exchange, you can refer to him/her all your unused leads that you get. They should be able to pull good comps and give you an accurate ARV of the subject property.

    Hope this helps!

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