Is Wholesaling Over Saturated? (Michigan/Detroit)

[Tom W.]

I'm considering starting a serious wholesaling campaign shortly, but I'm starting to get the feeling that the wholesaling market is a bit over saturated. I'm in Southeast Michigan (Detroit area) and am on multiple wholesalers lists and it feels like most of the properties wholesalers send me are for lack of a better word, trash, almost priced at retail. This leads me to believe that the market may be over saturated with wholesalers. Any thoughts?

[Travis Biziorek]

Oh, Tom. Where do I begin?!

I'm a cash buyer in Detroit. I've purchased 4 properties in the last 3 months. 

I HATE wholesalers. Like legit detest them.

Most of the hate is for the reasons you say. They bring terrible, ****** deals that are priced at, or even worse, than retail stuff. Of my 4 deals I've done, 3 of them have come from the MLS. The one that was off-market came from a very reputable broker/investor that's here locally. It's what every wholesale deal should aspire to be.

But yes, 99% of "wholesalers" are people that want to get into real estate but have no money. They believe that they can make big bucks wholesaling houses to investors, so they go out and find anything they can get their hands on. It's attractive because there's basically zero barrier to entry. 99% of these guys fail because it's just not that easy.

I walked through a house with a guy trying to wholesale a property for $55,000. I knew it was overpriced, but I was still learning the market and decided to check it out anyway. He was young and this was his first deal. I was catching stuff that needed fixing in the house that he wasn't even aware of. Amazing.

As we're walking it I looked at him and said, "There is zero chance I'd buy this house, even for a price that I think is fair". So he wanted to know what I'd buy it for even if I was willing to do the rehab work it required. I told him, "Maybe $20-$25k". He nodded in silence.

So I asked, "You know I'm not buying this house, so tell me... what are you under contract for?" He says, "$25,000".

So this guy is sitting here trying to sell a $25,000 house for a $30,000 profit. This isn't uncommon with these new guys... trying to make big bucks on one or two deals. They have it backwards.

What he should have been doing was negotiating with the owner to get the house under contract for $15k and flip it to me for $20k. He makes $5k and makes it fast. He's on to the next deal. How many of those could he do in a month? Instead, he sat on this house for months, wasting his time. He never ended up selling it and the owner is going to "fix it up herself" (probably just let it continue to degrade).

So yes, the wholesaler market is over saturated. It will always be that way because there's no barrier to entry. Find a house and an owner that wants to sell, and agree to buy it from them. Then try and flip it. It's easy. But it actually isn't.

There will always be a market for GOOD wholesalers. If you want to find deals like the one I did the other week, all you need to do is find serious buyers and you'll sell them the next day. The hard part is going to be finding attractive deals. I'm happy to pay a reasonable wholesale fee for that effort.

[Jerryll Noorden]

Originally posted by @Tom W.:

I'm considering starting a serious wholesaling campaign shortly, but I'm starting to get the feeling that the wholesaling market is a bit over saturated. I'm in Southeast Michigan (Detroit area) and am on multiple wholesalers lists and it feels like most of the properties wholesalers send me are for lack of a better word, trash, almost priced at retail. This leads me to believe that the market may be over saturated with wholesalers. Any thoughts?

Dear Tom.

It utterly does not matter a hoot if the market is full of wholesalers. It should have ZERO effect on you,  as long as you do not follow the masses.

Yes 99% of the wholesalers suck monkey butts. They have no idea how to do.. well anything. This mostly because they are new, too eager to make some money finally... so they force deals. They are too eager to get a paycheck and they will sign anything at any number as long as they sign a contract. 

See the REAL problem is simply this. NO ONE knows how to get hot quality off market leads. NO ONE! Find the best way to get leads (choughSEO!)

... get these super amazing discounted properties yourself like a friggin BOSS!

Forget useless D4D, DMM, blah blah blah, and invest in solid SEO.

This is what I get, even with a TON of wholesalers around!

If you only knew our profit margins flipping houses because we get them art a ridiculous price:

Why not do as we all tell our motivated sellers??

skip the middle man,skip the wholesalers, and go straight to the source?

Better yet, let the source find you!

;)

You know... I always say SEO is FREE and you can do it yourself...

But imagine this.. if you are willing to pay 10K for an assignment fee to get a great deal, why not pay someone that knows what they doing to do your SEO for you with that money, and instead of getting just 1 house with that 10K fee, you get a lifetime of leads?!

It just makes sense.. no?

We get crazy deals like this one below more than once in a while!

[Scott Johnson]

@Travis Biziorek, upvoted that because you’re spot on. If we can make $5K and close extremely quickly, that’s better than sitting on a property for 60 days and it not moving because it’s overpriced.

I had a great mentor that taught me to take care of both our buyers and sellers. Occasionally I’ll get my numbers wrong, but the question is then “how can I make this a good deal for my buyer and myself.” We all mess up. It’s the person who learns from it and applies that knowledge that moves on to smash it.

[Tom W.]

@Travis Biziorek and @Scott Johnson, thanks for the input. My concern was not finding buyers for deals, but finding deals at reasonable prices, as it seems like homeowners are getting bombarded with marketing materials from the abundance of wholesalers. Travis, the example of the guy trying to wholesale the property for 55k he has under contract for 25k is just ridiculous, and gives me a little hope. Its a little hard to believe that someone would be that greedy and stupid at the same time. I've done 1000's of bpo's and multiple rehabs, so I'm pretty confident in my ability to give properties a fair valuation. Generally speaking, I wish everyone the best, but I hope the competition is as dumb as you guys say they are.

[Jay Hinrichs]

@Travis Biziorek  there is a reason states are cracking down on unlicensed brokerage activity  your example is perfect .

wholesaler clueless greedy to boot.. seller gets hopes up nothing happens.. its just a stain on the industry frankly

in the state to the west of you and just over that little lake called Michigan they just made it mandatory to get a real estate license if your going to do more than one wholesale a year.. so will see if they enforce it.  

these are usually folks biggest investments and they are in the hands of rank beginners with nothing more than internet or guru training ..  

I wont personally deal with any wholesaler waste of time..  they are constantly wanting me to put them on their list.. I prefer to make relationships with top brokers who deal in distressed real estate.. far better deals and much more professional.  Last thing I need is amateur hour.  

I think one of the reasons some of these folks swing for the fences is they dont have the deal flow.. it cost a ton to direct mail etc and you simply don't get that many deals.. so they try to hit these home runs but go broke in the meantime.

[Nate Marshall]

Wholesalers create daisy chains and unfavorable purchase price points to legit buyers. There are a few that are good but most if not all leave too little available to make deals work. Buyers need to be all in at 65% of ARV to get funded by most lenders. Wholesalers create a disadvantage.

Not to mention the deal affecting a friend of the aunt of a Colorado State Senator in her late 80's who had her home stolen from her by a crooked wholesaler. 

[Jerryll Noorden]

Originally posted by @Nate Marshall:

Wholesalers create daisy chains and unfavorable purchase price points to legit buyers. There are a few that are good but most if not all leave too little available to make deals work. Buyers need to be all in at 65% of ARV to get funded by most lenders. Wholesalers create a disadvantage.

Not to mention the deal affecting a friend of the aunt of a Colorado State Senator in her late 80's who had her home stolen from her by a crooked wholesaler. 

OK stop. 

If you want to be critical lets be absolutely honest here.

All these "buyers" that need to be all in at 65% ( what?!!?)  ... is not the wholesaler's problem. No one is forcing a buyer to buy. All these "buyers" boast on their websites "We buy all cash with our OWN money, no banks no financial institutions" bull crap, and now they are bishing and whining that they need to be at 65% to cover their lies! Well get your own friggin cash OR get your own stinking leads so you don't need to blame wholesalers that they don't leave enough meat on the bone. Stop lying on y'all's websites.

I find it pretty stupid really, that all these pissed off investors yell and whine about wholesalers about not doing it right. GO do it yourself then!

Don't get me wrong.. I hate it too when a "wholesaler" doesn't know what they are doing. But you all need to stop defining "wholesaling" as: "someone dishonest, shady, lying, no know what they are doing".

Wholesaling is a niche. Not a type of person!

Get it straight!

Ok my lil darlings..

Please, STOP your whining and find your own leads so you don't have to keep crying about wholesalers. Its getting seriously boring!

Love you though, good night.

[Nate Marshall]

@Jerryll Noorden

I am a lender and CEO of a Private Equity Fund that investors borrow from so I see hundreds of "deals" a month. Wholesalers are not helping themselves when they're charging what they do for assigning contracts or daisy chaining properties they aren't direct.

If they're over 65% of ARV they're not getting funded. There is no need for an elderly lady to be conned into selling her home for 200k when a wholesaler is assigning it to another wholesaler for 300K who is assigning it to the flipper for 350K. She should have been paid 325-350K for it. In Colorado that will be what gets wholesalers a licensing requirement because a state senator is involved.

Wholesalers need to be reigned in and should be licensed. It will eventually happen and long overdue. 

[Jerryll Noorden]

Originally posted by @Nate Marshall:

@Jerryll Noorden

I am a lender and CEO of a Private Equity Fund that investors borrow from so I see hundreds of "deals" a month. Wholesalers are not helping themselves when they're charging what they do for assigning contracts or daisy chaining properties they aren't direct.

If they're over 65% of ARV they're not getting funded. There is no need for an elderly lady to be conned into selling her home for 200k when a wholesaler is assigning it to another wholesaler for 300K who is assigning it to the flipper for 350K. She should have been paid 325-350K for it. In Colorado that will be what gets wholesalers a licensing requirement because a state senator is involved.

Wholesalers need to be reigned in and should be licensed. It will eventually happen and long overdue. 

I am just not going to start debating whether or not they should be licensed or not. I simply and honestly do not care. 

And why do you assume that only flippers exist.

A wholesale deal is "wrong" if a flipper buys it.. but is completely acceptable if a buy and hold investor buys it.

Not all buyers are made equal. A flipper needs to get it far lower than a buy and hold investor would.

So now you have a wholesaler that markets the contract to all on his list. To the flippers there is no meat left on the bone, but for an other buyer in his list, a buy and hold investor that deal makes sense... but the flipper does not even realize or see it and there he goes off whining about wholesalers.

Ever think of that? Nope! You have not! Otherwise you wouldn't have said what you said before. And there you go with  associating wholesalers being con artists and make them even sound worse by victimizing an older lady.

So now you have a wholesaler that assigns it for 66% ARV. You throw your hands up in the air, and you bish about him that he does it all wrong... and they probably are conning lil old ladies because you have no clue how things work...

Well.. 66% ARV with 0 rehab needed is a good B&H deal all friggin day!

I think you owe wholesalers an apology after this no?

;)

**No old ladies where hurt (or conned) in the making of this post.

[Nate Marshall]

I owe wholesalers nothing! They are digging their own inescapable hole. You obviously do not understand deal structure, lending and capitalization guidelines nor why we only lend or invest on deals under 65%. We lookout for flippers and buy and hold investors. Our business is rinse and repeat. They are our clients not the wholesalers. Many good people lose deals because the wholesaler has made an unreasonable profit for doing very little but buying a piece of poster board at Dollar Tree and a Sharpie and nailing it to a tree violating city code.

[Jamiel Strickland]

@Travis Biziorek,

Thank you for that story I want to share that with others when I host groups, that's ridiculous. Are you fine with me sharing this story? 

I think this can be a learning lesson and help others out. 

[Travis Biziorek]

Originally posted by @Jamiel Strickland:

@Travis Biziorek,

Thank you for that story I want to share that with others when I host groups, that's ridiculous. Are you fine with me sharing this story? 

I think this can be a learning lesson and help others out. 

Absolutely, man. Let me know when your next one is and I'll try and make it. Saw your one last weekend on FB but didn't know about it beforehand.

[Jamiel Strickland]

@Travis Biziorek,

Yea I will! You bring a lot of value so want to make sure I do my part in helping others learn from other investors. 

[Travis Biziorek]

Originally posted by @Jamiel Strickland:

@Travis Biziorek,

Yea I will! You bring a lot of value so want to make sure I do my part in helping others learn from other investors. 

I'm blushing over here, Jamiel. lol

But seriously, hit me up. We gotta hang soon. Been busy since last time we met up.

[Jamiel Strickland]

@Travis Biziorek Hahaha!! Your awesome, I will but this time I pay. 

[Barry Pekin]

@Tom W.,

What was the question? I thought it was Is Wholesaling Saturated, not Are Wholesalers scum?

Ok, so there are a lot of “wholesalers” pretty much everywhere. (Please note my use of quotations. “Wholesaler” is not the same as Wholesaler.)

“Wholesalers” start wholesaling because of the ease and low cost of entry. They think there is some easy, cheap money to be made. They don’t do their homework, and as a result, often have bad deals. They fade away because they can’t make deals, but there are a lot of others lined up to “wholesale” right behind them.

Wholesalers also start wholesaling because of the ease and low cost of entry. But, these wholesalers understand more about business, and take the time to learn. They work very hard to find good deals AND to help the sellers, which is a huge part of the business. They don’t daisy chain deals (sometimes they joint venture).

I think “wholesalers” saturate the market and make it harder for wholesalers to work. But, I think the staying power of wholesalers makes them successful in the long run. They don’t quit in the face of the lack of quick and easy money. They embrace the long haul and build their business and their reputation, and they become successful.

Does this mean wholesalers should be licensed? Who knows? Maybe. But I think wholesalers would get their license if they needed to, where “wholesalers” would complain it’s the end of wholesaling.

[Eric M.]

@Tom W. Its not that its saturated...though it might be.

The problem is its just damn hard to do. Finding property at a deep enough discount for 2 parties to get a decent bite is hard.

[Michael Chernyetsky]

@Travis Biziorek

That’s a strong word, hate. It’s black and white, you have your black hat on. There are wholesalers who provide great deals, you have to find the true ones... just like in any business.