Trying to understand &quot;wholesaling&quot;

Bill Gulley

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

13y

Rob, I agree with you, this is practically a total guru scheme.

If you're going to define wholesale deals as selling to a landlord or someone who intends to sell closer to the FVM (after rehab of as is) at a price allowing them to profit, well, I've done that many times.

Sold a few to people who intended to live in the house and make repairs for sweat equity, that may fit the definition as well.

I assume that those who buy programs finanlly figure it out, that being in the wholesale business means buying distressed properties and selling them to a limited market of buyers.....other investors.

I suppose in Detroit you might have an inventory to work with but what puts a newbie in the business ahead of seasoned investors in locating what they want seems to be a stretch to me.

My last flip was found while out getting some food to go, a guy was talking about selling his house. I told him I could get rid of it and we put it under contract. He knew upfront that I was not interested in living in his house that I'd flip it and that was fine. A few days later I it sold to another investor who rehabed it an retailed it. The deal is on here somewhere. But, that is unusual, the initial meeting of a seller, the circumstances, the price asked from a motivated seller and the property condition being good....but it happens, I just can't see a viable business plan built around such a deal.

The mechanics can be just about any transaction, double close, straight purchase, flip an option or installment contract.

I don't think any of mine originated from the MLS, they were from other business activities, distressed sellers who came to me, banks and contractors/investors who were stuck basically.

Rob K.

OP

Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes

13y

Originally posted by Jon Klaus:

Great questions, Rob. Have you seen this thread, The Truth About Whoelesaling

Thanks Jon. I hadn't seen that. Lots of good reading in there. I'd like to hear any success stories from people who have done actual wholesale deals. Please include timeframe, numbers, and whether you were honest and upfront with the seller. I'm curious if they think you are the end buyer or if they know up front that you're not.

David Beard

Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes

13y

Just to be clear, wholesaling with no funds is kind of a misnomer, I think. Most of these guys are spending a fair amount on marketing and other expenses each month.

My recent example: I bought a property from a newbie wholesaler on an assignment deal. She locked it up with the seller for $10 EMD, then shopped it through her buyers list, web site, Craigs List, REI group. I saw it on Craigs List. Was a terrific deal for me, and she made $3,000 on a $22K total sales price. I do know that she told the seller that I was her "money partner", and she asked me to essentially play along with that during the closing, so that the seller didn't get cold feet. She was taught this process by a well known wholesale guru in the area. She'd actually gotten a rehab quote and pulled comps as well, none of which I was interested in.

Sharon Vornholt recently wrote in the BP blog about the other no-money technique using a double close, which she apparently does all the time, using C's money to buy A's property. She has a RE attorney that is well-versed in these. If you have this technique available to you, why wouldn't you use it if you already have your buyer in place, and you're just re-selling as-is?

Jerry PuckettPro Member

Wholesaler · Fort Worth, TX · Member since 2010 · 1k+ posts · 1k+ votes

13y

Originally posted by Rob K:

I usually avoid any thread that falls under the “wholesaling” category because it always seems like a bunch of nonsensical posts from wannabe “investors”

And I usually avoid answering a post that begins this way....I just don't understand all the angst, and sometimes down right hostility towards wholesaling...from all of you Real investors.

But just for you Rob....

Apparently you have done a deal where you purchase a potential rehab property and thought to yourself...."hmmm, I think I'll put it up for sale and see if I can turn a quick profit without actually putting the money and effort into a rehab" I believe that's a common practice among you Real businessmen, to maximize profit and minimize expense. Wholesaling, the way that seems to upset you so, takes that one step further. If you can turn a profit on the contract, without the expense of closing and re marketing, why wouldn't you?

Seems you have been able to negotiate some good deals and put them under contract, so what difference does it make to you whether you close or sell the contract to someone who will? That's all this no money wholesaling is: being able to locate motivated sellers, negotiating a good deal, selling that deal to someone who wants to rehab (or whatever) at a price that is attractive to them.

Originally posted by Bill G.:

I suppose in Detroit you might have an inventory to work with but what puts a newbie in the business ahead of seasoned investors in locating what they want seems to be a stretch to me.

It's called marketing Bill. That's what sets a wholesaler apart from the largest majority of you Real guys. Wholesalers know how to market to distressed sellers...they go out and find the deals. Others wait for deals to come to them, and that includes folks who watch the MLS (How's that workin' for you guys lately?) A wholesalers risk is in the money and time spent on marketing and talking to hundreds of people..it's not quite no money.

What sets an experienced wholesaler apart from a beginner is all this business about a buyers list. I have 3 investors on my list who will buy 98% of what I put under contract. I need more buyers like I need a hole in the head. And yet many who wouldn't even talk to me when I first started out came sniffing around when the MLS dried up. I have no need to lie to a seller.

Originally posted by Rob K:

My friend told me that if he did buy the building, he would “cut this bottom feeder out of the deal” and go directly to the owner. I agreed that I would do the same thing and get it for a cheaper price.

Lastly, to the OP and anyone else who may be looking on....the above behavior, going around someone to grab a deal? If that doesn't make you a bottom feeder, I don't know what does. Shame on you.....go find your own deal if you're able.

12 Reply

Bill Gulley

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

13y

Jerry, I know you were preaching to the choir (lol) and not me. I posted in another thread to begin with the buyers and see what they are wanting, then find the property that fits. Having been through the full realm of moving all kinds of properties, even marketing a few (lol) I have found that to be the best way to pick up quick flips. Knowing your market, knowing who is interested in that type of property and knowing how to facilitate the deal will work almost always, eventually. So, I agree Jerry, your buyers are key and as you come across a property you all ready know, practically, that it is sold before you sign a contract.

But, understand too, highly motivated sellers and propertis that can't go on the MLS are a limited market and having a few real buyers is a limited market, not much marketing to do with 3 or 4 phone calls, but it could require some salesmanship.... :)

Beaverton, OR · Member since 2012 · 41 posts · 23 votes

13y

Rob-

I find your avatar ironic. Do you have a problem with the idea of bird dogging, too? Do you not see the value that a wholesaler can add? Think of it in terms of leverage- you're leveraging someone else's time and effort for a reassignment fee. Wholesalers bust their butts to find deals for investors who don't want to hassle with handwriting yellow letters for hours on end, pounding the pavement knocking on doors, weeding through hundreds of calls, and sitting at kitchen tables negotiating with prospects. Just my .02

8 Reply

Rob K.

OP

Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes

13y

Still no examples of time frames or actual numbers. Still no answer to the question of whether the seller knows they are involved in a wholesale deal or if they have been duped into thinking they have a sold house to a qualified purchaser.

I'm not anti-wholesaling. I just haven't heard any examples of actual deals that went through.

As a seller, I would never in a million years sell to a wholesaler who may or may not have an end buyer when I could list the property with a real estate broker and get exposure to thousands of qualified buyers.

For you wholesalers, are you telling the seller that you are a wholesaler and may not close if you don't find a qualified buyer, or are you telling the seller that you are buying the property and then if you don't find an actual buyer, you back out of the deal?

If the seller is aware that it is a wholesale deal and might not close, then I have no problem at all with wholesaling. I get the impression that wholesalers are going around and making the seller think that they have a solid deal and then are backing out if they can't find an actual buyer.

Bill Gulley

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

13y

Good point Joshua, your time and money adds value to another investor as you mentioned, if they don't mind paying you for your services, but understand too that such efforts or money does not add value to the property itself and your buyer will need to compensate for that over the term held. Those services only become a benefit to that buyer, like Realtor fees. While you may add value to another buyer, you're not enhancing the market value of the improvements.

It won't rent for more because a strawman did the deal, it won't sell for more after rehab because a strawman did the deal and it won't appraise higher because it was flipped. You do however add an economic value to your buyer saving time and money from not having to do what you did for them.

As to marketing efforts, bringing a property into an open market environment is required to establish a market value by definition, but there is no allowance or very little of doing so. The profits pay for the efforts and expertise to get the deal done. :)

Rob, sorry:

I usually did deals between 6 to 10 %, about like a commission, a few went for more and a few less. Time frame, those with direct buy outs were probably "sold" within 10 days, closing within 30. Those opened to the market average was probably 30 to 60 days out. MLS a few took 90+days.

Deals where I put one under contract knowing I'd flip it, they were usually done within a couple weeks, closed usually withing 45 days from my contract date to buy. Good luck...

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Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

13y

Everyone we are getting really close to this becoming a flaming war and being non-productive and involving character attacks. Let's keep to the topic and discuss in a productive way.

For me personally the issue in what some wholesalers do is dishonest, unethical, and sometimes even illegal all in the name of making money. I can point to any industry and also show where people do not use proper practice and procedures. The comment from the wholesaler about "just say you are my business partner and go along with it" to me at least is a dishonest and misleading statement.

Sure if a wholesaler explains what they are actually doing they would not have a chance at as many deals. I am sure there are quality wholesalers who run a tight operation. Many start up wholesalers have little to no money so they are sometimes desperate to make a buck anyway they can.

New real estate agents have this problem as well sometimes.

The issue I have is the seller getting trapped sometimes into a non-productive deal with nothing to show for it in the end. Wholesaler wants to put down 10.00?? That is an absolute joke to me. I would have the seller have the right to continued marketing. If the buyer has no skin in then the seller shouldn't either.

I would appreciate if wholesalers could share some real deals and numbers they have done and disclosures they made to the seller to do the deal.

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Beaverton, OR · Member since 2012 · 41 posts · 23 votes

13y

Rob-

Regarding numbers, I can't speak from first hand experience quite yet. I'm currently in the position of "no hat, no cattle." But it seems simple to me... as a wholesaler, if I'm being greedy and trying to squeeze too much profit out of my deals, I won't survive in this business. If the numbers don't make sense to the investor, then I will simply be ignored. Personally, my business strategy will be to take a $4,000-10,000 assignment fee, depending on the size of the deal and how much profit is in it for the investor. And that, I feel, is pretty modest here in a market where the average 3-bedroom home is $250,000.

Regarding time frames and having the ability to actually close on properties I put under contract: The way I see it, it's my JOB to have cash buyers who can close within 30 days. I take full responsibility for that. If I get a property under contract, and I can't deliver, then I've failed at my job. Either I haven't done enough to assemble my buyers list, or the deal wasn't as good as I thought it was, and I shouldn't have put it under contract in the first place. If this is happening to you on a regular basis, then you're irresponsible and/or incompetent, and you won't be in the business for long.

And as for letting the seller know they're in on a wholesale deal-- I suppose that's up to the individual wholesaler. I bet if you asked 10 wholesalers what they say to their sellers, you'd get 10 different answers. I'll probably say something to the effect of "my partners and I are looking for properties in your area." After all, am I not partners with my buyers? And again, if none of my partners are interested in picking up my deal, then I've failed at my job.

Jerry PuckettPro Member

Wholesaler · Fort Worth, TX · Member since 2010 · 1k+ posts · 1k+ votes

13y

Originally posted by Rob K:

Still no examples of time frames or actual numbers. Still no answer to the question of whether the seller knows they are involved in a wholesale deal or if they have been duped into thinking they have a sold house to a qualified purchaser.

My post above was lengthy enough...but again, just for you Rob....

Here's a perfect example. A seller responds to my probate marketing. Both of his parents passed recently and he had spent a long torturous time caring for them both in their home which he has just inherited. The home had been free and clear, but he had to borrow against it to pay for medical bills. The instrument he used (I cannot recall exactly now what it was) exacted very high payments that he simply couldn't make any more.

On top of that, his yearly insurance was due to renew at the end of the month, and he certainly did not have the money to pay that. Not only did he need his house sold, he needed it closed before the end of the month. That is very typical of the types of motivated sellers I deal with: they can't afford to keep the house, can't wait around for it to sell traditionally.

The house was not a prize...70's built 3/2/2 that had never been updated (think green carpet and paneling). There were minor foundation issues, and lot's of cosmetics. I estimated repairs at 15k. What was worse was this was an area of town where home prices had been in free fall (Lancaster for those in the know about DFW)The ARV was 65k. Doing the math, 70% less repairs, is around 30k. He owed 31k. The saving grace was that even in this depressed area, it would rent for $1200/month all day long.

So we have the kitchen table talk, and I lay out all of his options. Believe me Rob, if a seller is best served by a retail listing, I tell them so. I network with listing agents too, and the referral is one of my exit strategies. But this guy is in a pickle, with time constraints, and owing too much for the perfect wholesale deal. So I tell him "You owe too much for me to get this property at a price that's good for me. But I do know quite a few investors around town....let me shop it out to them for a few days and see what I can do. Let's set the contract price at what you owe.

I went home, made 2 phone calls and had the property sold for 38k...had the deposit by the end of business. I adjusted the contract price to 34k to give the guy some cash to move with, the closing happened about 17 days later.

Is it always that easy? Absolutely not. And in fact, it only appears easy because you don't see the time and effort that went into the marketing, the learning, negotiating...networking with buyers, learning their areas. All the day to day stuff that happens in between theses deals to enable and facilitate them.

I tell sellers that I work with a network of investors, which is true, and that if we are able to come to an agreement that one of us will close...also true. I use my state's standard contract, and while I don't incorporate any "weasel" clauses, the contract does provide for an inspection contingency. I have used it once to back out on a deal where I made a very newbie mistake in the comps. The seller lost 3 days (that's how long it took me to realize what my buyers were saying and to listen to them) I explained that I had over valued the house and tried to renegotiate. I learned from that mistake and have not repeated it.

11 Reply

Jake Kucheck

Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes

13y

I look at wholesalers as, in theory, exploiting a market inefficiency. They are able to find sellers, who for whatever reason, are willing to sell their properties for less than their true value. As such, they are able to provide a valuable product for an investor that is able to do what they are unable to do (close the deal with their own cash). Thus, they took a problem for everyone and turned it into a win-win-win situation. You know, in theory.

The problem is that wholesalers don't know that they are supposed to be doing that. The gurus teach them how easy it can be, and so of course they try to manipulate the numbers into being attractive instead of finding attractive numbers to begin with. Sad, but true.

Will some people be effective at doing this? Sure. Is it a respectable and profitable business model? Maybe. Is it investing? Not any more than selling used cars or snake oil is.

I think wholesaling has its place, and when done properly, it can be a great market inefficiency to exploit. The trick is finding a wholesaler whom has done it properly. And there, I'll definitely agree with Rob K. Post your numbers wholesalers... we're all eager to see it in practice.

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Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

13y

Great post Jerry!

That is very factual and detail oriented post to help other possibly looking at wholesaling on this site to see that it is NOT an easy gravy train and that actual work and time goes into making a fee.

No matter if you do wholesale, retail, selling notes, etc. Whatever you do there is a bunch of time spent making connections and obtaining resources to be able to do business.

There is no free lunch out there just passion for your niche, smart work, and dedication to complete tasks on a consistent basis no matter what.

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Beaverton, OR · Member since 2012 · 41 posts · 23 votes

13y

Jake-

What kind of market inefficiency are you referring to? The seller not being able to instantaneously connect with a FMV buyer? If so, then by that logic, aren't real estate agents also exploiting a market inefficiency?

Rick H.

Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes

13y

@Jake Kycheck - I don't disagree with your comment about wholesaling being an example of the inefficiency of the market, however, that's really not a bad thing. Would a more efficient market require ALL real estate sales to be brokered? How about eliminating brokerages? And what about trustee sales? Auctions? Other forced sales?

I think a good example of a situation where wholesaling makes sense is when a seller has two many issues or the asset that they wish to sell has multiple problems or the required timeline to liquidate is too short. Or the seller has had real or perceived negative experiences with real estate agents and prefers to work with/through someone who understands that "as-is" means as it is now with no room for grinding.

My probate liquidity business flourished into what it has become because, in part, I recognized that part of the market doesn't want to, or know how to, deal with the mainstream of agents. Despite having a CA brokers license for 20+ years, I've never used it to list and sell a property, either my own or clients. No have I been a wholesaler, but I've used the services of wholesaler friends to liquidate my estate properties, when appropriate. I'm glad there's a role for wholesalers and a profit spread to match the value added.

Jake Kucheck

Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes

13y

I never meant to indicate exploiting market inefficiencies was a bad thing. In fact, I take pride in my ability to exploit market inefficiencies. I don't, however, think that the execution of most wholesalers does a very good job of exploiting a market inefficiency. In most cases, it makes the process far less efficient. That's the distinction I was making.

Jerry PuckettPro Member

Wholesaler · Fort Worth, TX · Member since 2010 · 1k+ posts · 1k+ votes

13y

Originally posted by Jake Kucheck:

Is it investing? Not any more than selling used cars or snake oil is.

Agreed. Wholesaling is a JOB. Just like being an Agent or Rehbber....also JOBS, not Investing. All require a steady stream of deals. Deals stop, job over.

That said, Jake , I don't know why your comparison has to be so...derogatory? Why can't we all just get along?

Jake Kucheck

Residential Real Estate Agent · Costa Mesa, CA · Member since 2008 · 1k+ posts · 380 votes

13y

If the useless wholesalers of the world (specifically not you, Jerry) would stop calling themselves RE Investors, and in so doing, negatively influencing the public's opinion of the term, then we'd have a lot better shot.

Rob K.

OP

Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes

13y

Originally posted by Joshua Sumrell:

Rob-

Regarding numbers, I can't speak from first hand experience quite yet. I'm currently in the position of "no hat, no cattle." But it seems simple to me... as a wholesaler, if I'm being greedy and trying to squeeze too much profit out of my deals, I won't survive in this business. If the numbers don't make sense to the investor, then I will simply be ignored. Personally, my business strategy will be to take a $4,000-10,000 assignment fee, depending on the size of the deal and how much profit is in it for the investor. And that, I feel, is pretty modest here in a market where the average 3-bedroom home is $250,000.

Regarding time frames and having the ability to actually close on properties I put under contract: The way I see it, it's my JOB to have cash buyers who can close within 30 days. I take full responsibility for that. If I get a property under contract, and I can't deliver, then I've failed at my job. Either I haven't done enough to assemble my buyers list, or the deal wasn't as good as I thought it was, and I shouldn't have put it under contract in the first place. If this is happening to you on a regular basis, then you're irresponsible and/or incompetent, and you won't be in the business for long.

And as for letting the seller know they're in on a wholesale deal-- I suppose that's up to the individual wholesaler. I bet if you asked 10 wholesalers what they say to their sellers, you'd get 10 different answers. I'll probably say something to the effect of "my partners and I are looking for properties in your area." After all, am I not partners with my buyers? And again, if none of my partners are interested in picking up my deal, then I've failed at my job.

Isn't it dishonest to tell the seller that you are buying his house with money that you don't have and partners you have not yet met? If you're looking for $4,000-$10,000 on a $250,000 house, why not become a real estate agent? A commission on a $250,000 house is more than that. It's a legitimate business where you are helping a seller get the most money and you earn an honest living without lying to people.

Jerry Puckett Thanks for the example. You sound like an honest wholesaler that is doing a good business. I have no problem with that. The question I had about this whole thread is about people jumping into wholesaling with no money or prospects and telling people that they are buying their property and not following through.

Again, if you are upfront with the seller, I have no problem with wholesaling. The issue that I have is if a seller thinks they have a deal with someone and it turns out that that person totally misled the seller and isn't a buyer at all.

Beaverton, OR · Member since 2012 · 41 posts · 23 votes

13y

Rob-

I never said anything about lying. If the seller wants to ask in-depth questions about exactly where the money is coming from, I'll answer their questions honestly. But I'm under no moral or ethical obligation to give an up-front explanation of how I run my business. And I suppose that's where we will have to agree to disagree.

Michael S.

Rental Property Investor · Dayton, OH · Member since 2011 · 54 posts · 12 votes

13y

I started wholesaling at the end of last year. I've wholesaled 6-7 probate properties, a few from bandit sign calls, and 7-8 HUD's/Bank owned properties. All of the probates/bandit sign deals were with nothing down and profits ranged from $1200-$6,000. Here's an example for ya:

Probate property in great area, 3/2/2, I call the seller who lives in California. He was inheriting the property which was free and clear and didn't want to make a big deal out of it. He does pretty well in California and just wanted it gone. I told him I work with a group investors who are interested in purchasing it. He set up a time for me to look at it through a neighbor with a key. I looked at it and wrote him an offer -- all cash, close in 21 days. I ran comps and knew that I could sell it to one of the investors I already networked with (and knew what they wanted, that they were active buyers, and that they were very interested in this area). Bottom line is I've had enough discussions with them to know what price they needed it at. Anyway I assigned the house for a 5k fee.

I am a Realtor and in this case I essentially brought the buyer and the seller to the table, and made just over 6% total on the deal. Could I have listed it? Yes. Would he have gotten more money that way? Yes. Was it the right solution for this seller? No.

Every seller that I visit -- I leave them with two numbers. First is what their house would sell for if they list it with me, and how long it will take (in my opinion). Second, is what I can get them in cash if they want to close in 2 weeks. Seller's love options and you'd be surprised how many want to talk to buyer's (or people who deal with them), as opposed to just Realtors. The truth is that many Realtors want to list the house so that other agents can bring the buyer. They don't know any buyers themselves. Of course, this can still be an effective way to sell your house (using the MLS).

Wholesalers can very effectively be honest with sellers and explain their position in the deal without blowing their chances of making any money. The fact is an assignment fee is often times very close to the 6% that a Realtor charges, but I believe it is a solution for a different type of seller than perhaps you are aware of.

Good luck in the new year!

4 Reply

Gary Parker

Real Estate Professional · Salt Lake City, UT · Member since 2010 · 609 posts · 163 votes

13y

What a great thread which I stumbled upon because of the new key word alert feature. I got a very dilapidated property UC Friday I probably will not be rehabbing myself. I didnt tell the seller that though. I told the seller they can get $15 to $20K more if they list the property but they will be looking for a cash buyer (condition), they will have about 8% in fees and that it will take 30 to who knows how many days to sell as a listing. I also told them I need 3 weeks to determine if I can even purchase for the agreed upon price because of the condition. My contract stated that the contract is assignable (my contract spells out what this means) and that me or someone else is buying the property to rehab and make a profit. I know at least two contractors that like this exact type of property and will be calling them soon. It is a bit skinny for me because I dont do much of the work on the properties but they love to do the work.

I am with Jerry Puckett on this one. I always let people know they can list the property and make more money. There are plenty of people that don't want to list and want to be done with it.

Account Closed

Real Estate Investor · West Orange, NJ · Member since 2012 · 130 posts · 19 votes

13y

You guys are pretty funny especially those of you who make such derogatory comments about wholesalers, but here's some more info, if I meet with a seller, I tell them I'm buying your house. I'm going to est repairs and based my numbers off of what I believe to be an accurate ARV. After we make a deal, I contract in my llc's name and begin my due diligence. After we have a contract I have equitable interest in the property. I have the right to sell my interests just like I have the right to buy that house. I just plan to sell my interests and know this upfront.

The only time we won't close is if its not a deal after further evaluation and we know this within a week. If you worked with serious wholesalers you would understand the value because most guys ways of finding deals bring them a lot of headaches and competition. A deal being delivered to you is not valuable? The person who brought it and can bring more is not valuable? That's crazy and you'd never be on my buyers list with thinking like that.

And Rob if you still don't see the value of doing business with a serious wholesaler, you can ask the rehabber that's getting ready to make over $100,000 from a deal I brought him. He didn't have to negotiate with a seller, didn't have to negotiate with me, didnt have to drive for dollars, present his highest and best offer, etc. all he did was pick up his phone. If he thought like you he'd be $100,000 poorer.