The Truth about Wholesaling!

891 Replies

Michael, if you are selling to a rehabber like myself, I am looking for an all in figure of 75% of exit value and if the rehab is light and exit is easy, can go as high as 80% which means you have to lock it up for less than that to allow for your profit.

Yes, many investors are selling their deals to hedge funds but you must know what they are looking for and in most cases, they are not heavy rehabs or old homes. We are even seeing hedge funds paying over ask price on a completed rehab flip, so yes, they will pay retail if the property meets their criteria.

This is definitely a great post Will. It's also very encouraging because it confirms what I already thought, most wholesalers are garbage. Go to every Reia meeting and 50% of the attendees are wholesalers, maybe more. You go in thinking, "man there's a lot of competition in this business" But the 80/20 rule applies to all things and in this case it's like 90/10 because only 5% of the population make real money. That's why I love what I do because I know I can find deals! It excites me to hear people talk about how most wholesalers don't know a deal. To be a great wholesaler you have to be a great marketer, great communicator/negotiator and over estimate repairs and under estimate resell value (if you can't get it dead on) great post brother. God bless

Deshone, there is no question that wholesaling has become the popular choice for beginners and that most of them trying it have no clue what they are song or what a real deal even looks like. This is one of many reasons why I and others try so hard here to point out the obvious mistakes and to guide those onto the proper path rather than taking this road to nowhere.
Glad you found the thread informative.

There aint no free lunch!

The problem I see is that in a business where lenders and sellers want and need buyers to have some skin in the game, people are being encouraged to enter into on the job self training, with little or no skin in the game, putting themselves in the middle of two partys... One who likely worked very hard to own the property in the first place and is now in a position to have to sell at distressed price and the other who WILL put skin in the game and likely add significant value to the home and market.

A part of me figures if the newbie wholesaler can create a win-win-win situation all the more power to him. The larger part of me cant help but compare this to my business. Two of my biggest frustrations over the years has been finding and keeping good help, and following hacks around fixing their mistakes and having to work to restore homeowners faith in my profession..

If Ive seen it once Ive seen it a hundred times... A young guy gets just the basics down in remodeling or in a specialty trade, sees dollar signs and decides he is ready to launch his own business. Some charge low rates to get work and it ends up costing the customer more in the long run. Some charge going rates and deliver sub-standard work. Either way, they end up hurting the rep of all in the trades and are doing their customers a disservice.

Im a high end remodeler. Ive put in my time in most all the trades. I consider myself blessed with God given talents and a quick learner and it took me YEARS to develop a thorough understanding of processes and materials needed to accurately estimate a rehab and then pull it off on budget and on schedule without cutting corners. And a newbie wholesaler is going to learn the markets in his area, learn how to find deals, craft deals, build relationships with investers, AND estimate rehab AFTER learning what rehab is appropriate for the given property? And he's gonna do all this without hurting the reputation of investing and wholesaling? Really?

Seems to me the best way to get started in investing would be to apprentice under an investor/ rehabber. Get to know the ins and outs so to reduce the mistakes that WILL happen. The "fake it, till you make it" approach is irresponsible.

Well... If it took a nickel to get around the block... I wouldnt make it to the corner! So what do *I* know!!

This thread has been fantastic!

I agree that the BEST way to get started is to apprentice under a seasoned rehabber. However, what about the person that needs to earn money now? The low-cost/low risk benefits of wholesaling are very attractive to a newbie like myself.

I'm unemployed and we'll be using the last of our savings to get into REI.....seems logical to me to learn wholesaling to make the cash.

Am I wrong?

@Rob Brewer I would not use your last dime to get started in REI. Get a job to start bringing home income and stabilize your home life before putting all your eggs in the REI basket without having any previous experience.

Read as much as you can here on BP about wholesaling in your spare time so that once you have the time and money to start you will be ready. You might also consider joining your local REIA and seek out a mentor to trade your time for their knowledge.

Just my 2 cents.

I'm unemployed and we'll be using the last of our savings to get into REI.....seems logical to me to learn wholesaling to make the cash.

Am I wrong?

Not necessarily wrong and not necessarily right. I dont believe that is a good idea. Get a job and have income coming in to pay your bills and expenses. Save as much as you can in the interim and then use those savings to start in RE. Once you have enough income generated from RE, you can then think about quitting the job.

Wholesaling is one of many RE strategies. Is it the only one to pursue when starting out with little or no money? Absolutely not.

One thing thats good and bad about wholesaling is the excitement that you build from the moment you hear about it. Whether it's through an infomercial or a book or online you say to yourself can I really make this kind of money in real estate? That happened to me in March 2010 from that day I thought I would be making money in a matter of months but it didn't work out like that I had to study for almost 2 years before I was ready to take action. Now some people are not like that and can get out there and take action immediately but the point is when you're ready to take action you can create profits.

You're going to have to learn what works in your market, you're going to have to learn what is a deal and what is not a deal but you don't have to learn everything, the key is to take action. The key is to learn to recognize a motivated seller. This is where we make our money. Get out there and start making offers, take your money and put it into marketing. Now I'm not one on telling you to take your savings and invest it into real estate when you really don't know quite what you are doing yet but if you feel confident in the process of finding a deal you don't need to know everything. I didn't know everything and I made money on my first deal. The point is you have to take calculated action. Action that you know will work once you tweak the process to fit your market. A wise man told me you learn by doing. (Thanks Will lol)

If you feel you're ready to step out in faith then get out of the boat. But you want to take calculated action so I would study, study, study marketing. Then find out what buyers are looking for in your area. Find the buyers, drive around town looking for active rehab projects, ask the contractor who the builder or the investor is, go to the building department in your county, find the guys there looking for permits, go to the closest investment club meeting, the point is to locate a handful of serious players in your town and find out what they consider a deal. Its much harder to just start looking around for a deal because you don't quite know what a deal is yet. you could be looking in an area that people are staying away from because properties take too long to sell there. once youve done this, focus on marketing, marketing marketing. If you can get a steady stream of leads to sort through then by the law of averages you'll find some deals as you refine yourself. You'll make mistakes but there are ways to protect yourself. Whatever you decide you have chosen the right vehicle. God bless you on your journey.

Great reply Deshone. I just started learning about REI 3 months ago and I am just not confident enough in so many different areas. I'm focusing my time learning about different marketing strategies. I figure once I get leads to come in then I can work on talking to sellers.

@Rob Brewer It all sounds so simple when you hear about wholesaling, quick easy and fun. Yea..... As you said " The low-cost/low risk benefits of wholesaling are very attractive to a newbie like myself".

Just that is not the truth. Ever watch a surgeon do surgery???? He makes it look easy, but you or I could not do it without training. Same thing with wholesaling.

If you done much reading on this site you will see that there are a lot of HOT post on this subject. Many people on the site are very negativity on wholesalers and bird-dogs. Why, because it is were a lot of newbies try and start. The problem is do you know what a good deal is??? I get emails and calls all the time from wholesalers, I don't even look at most. Why because they are not good deals!!!! Most successful wholesalers have been at it a while, learned there market and buyers and they spend a lot of time and money marketing.

Finding deals on properties and selling them to other investors is a viable way to make money in REI. I however would not recommend it to someone in your position. You need money now, how will you market to find the deals? MLS, Craigslist, adds in the newspaper. We already have them covered. So the odds of you finding a great deal there is slim. Can you afford to invest in mailing lists and supplies, bandit signs and or other types of advertising? Who will you sell a property to if you get one under contract? Do you have a buyers list and know what they are looking for? What their idea of "a good deal" is?

I am not trying to discourage you Rob, just hopefully give you a few things to think about. REI is a great business, you can make lots of money. You will find some overnight success stories, but most who have turned this into a full time career either started slow and had other sources of income while they learned and grew. Or they had enough capital to last that long ( I don't know any like this but hey I am sure someone somewhere has). There is no experience like doing it, and I encourage you to do so, but don't put yourself in a bind. The big dream of hitting it big over night is like the lottery... odds are way up there.

Kerry

Honesty
Integrity
Strong Work Ethic
High Character

This should be at the core of every Wholesaler. Unfortunately, too many of them are driven by a quick profit, therefore are not willing to put in an honest dilligent search for a deal thats profitable for all parties involved.

I've yet to do my first deal because I'm doing due dilligence times 10 before I put my name and reputation on the line. I dont understand how a Wholesaler wouldnt want repeat business with the same buyers and an impeccable reputation when it comes to their deals.

I know when I submit a deal to someone, thats what it will be, a profit for everyone. Not just myself. This is a win-win business for everyone if you do it the right way.

Good points Anthony, very true. I just received a "wholesale deal" via email last week and the STATED numbers were an all in of 92.6%!!!! Really! Someone would actually want to put that out there with their name attached. After resale costs, that is a net loss thus asking to pay over retail for it. Obscured to say the least! Think before you act.

Wow I am just amazed of many vet wholesalers just being honest and saying that this isn't an easy road. It is going to be tough. I don't mind at all. Right now I am taking a break since my fingers are hurting while I was writing letters to section 8 landlords whom maybe "motivated". You know of those "horror stories". But I agree with the studying and researching the markets. I can't wait to join the local REIA here in Baltimore and get the hands on I need.

@Rob Brewer I would venture to guess that 90% of those who try wholesaling never make any money. On the other hand you have an almost 50% chance of making money if you simply put all your money on black in Vegas.

Think about it. Spending your last cash to become a wholesaler is not smart.

Will, I could not agree more. I am not sure who the "GURU" is that is promoting wholesaling all over the nation without having anyone in the area that knows value, but he or she should be sentenced to get a lifetime supply of emails and calls from the nightmares they have created.
I can hardly take any wholesaler serious anymore. I get more calls and emails from investors 1000 miles away trying to "wholesale" me something in my back yard for more than I can get for it selling it retail.
I do plenty of wholesaling myself, in fact I do it in areas outside of my own market, but I at least have the numbers correct and have a partner in the area to keep me in check.
In a nutshell, I feel your pain! LOL!

Thanks for your comments Rob. My post was more than a rant, but a "what not to do" education for our members wanting to wholesale. Just as with anything, there are good ways and bad ways to do things. If you have a choice, why not do it right!

Will, it seems like the seller was trying to take you for one. Glad you didn't fall for it. In my book wholesale deals are those that when all numbers are worked, my end buyer still has at least a 30% ROI.

Originally posted by Will Barnard:
Seems like there has been a recent trend in new posts on the board asking for help with wholesaling. I and others have directed them to this thread, hope others continue to do the same.

Thing is the "sticky thread" is in your face and you cant miss it and many still post about "what is wholesaling"? I'll own up to the fact of posting my contract to see if it is a "good one"

Anyway during my misadventures of wholesaling. An owner responded back to me by handwriting saying he isnt selling. I'll make sure to keep a copy of this letter. :)

Wow. I am so glad I read this. I am starting to explore the world of REI and I too was thinking that I could start wholesaling to make some more money to then start my own flipping and rehabbing. After reading so many of the posts on this thread, I feel like it probably would not work out in my favor. Even though I think that I am honest and will do the necessary leg work to educate myself and learn as much about the market as possible, it seems that I would be starting off with a negative reputation right out of the gate.

I'm so relieved that I can come here and get the advice and information that I need to move forward. Thanks everyone!

Melissa, let me point out that "RE Investors" as a whole have been given negative reps from the media and the like, that does not mean none of us should invest because of it, better yet, do it right and change the negative stuff to positive.

Wholesaling is not easy and in this competitive market, you really have to find a niche and work hard to get deals that are good enough to sell at a price above your contract price to a rehab investor.

Don't let the warnings and negative issues stop you, just keep in mind what to do and what not to.
This thread is not to discourage wholesaling, rather, how to do it right.