All Forum Posts by: Sean Cole

Most wholesalers price their deals without an allowance to pay real estate commissions to your agent.  We offer to add their commission on top (rarely happens), pay a portion of the margin we're making, and/or not market to the buyer in an effort to get the resale listing.  I share this so that your agent is prepared to not get paid.  The downside for us is that agents are people too and they're motivated to find you a deal that they can get paid more for.

Most wholesalers that I know don't negotiate on price and you'll sign their contract vs. a state Board contract.  I don't know a single one that will show you their contract on the property if they're double closing, as you'll see their margin.  The only people we ever lose on a deal when it comes time to signing on new customers that get mad about how much we're making.

Best piece of advice I can give you is to call the wholesaler and ask him/her how they work with customers.  They're the only ones that can truly answer.

There a few things in this life that are guaranteed:

1.  Death

2.  Taxes

3.  BiggerPockets posters hating on Wholesalers

I used to care what other folks in real estate thought about wholesalers and wholesaling.  I also used to believe in Santa Claus.  Neither impact my life in any way now that I don't.

When I cared, I'd tried to convince people that wholesalers weren't evil by definition.  Now I treat those people like a treat people that won't buy in certain areas because they're "dark" or "integrated" or whatever other code word they use to hide their racism - I don't do business with them and don't try to.

Haters gonna hate.  There ARE bad wholesalers out there - one is threatening to sue me today because he backed out of a deal to buy a house from me and is demanding his nonrefundable deposit back.  There ARE bad real estate investors out there (however you want to define it), too.  Too many people speak in broad generalities and whatever valid points they are making get lost because so few things in life are certain (save the 3 things at the top of this post).

Be careful going to a "one stop shop" when you're investing out of state.  It's not smart to put all your eggs in 1 basket - who's going to monitor them?  If someone sells you the house, provides financing, provides the contractors (and maybe even "manages" the project for you) how are you being protected?

When out of state folks come to me, I strongly suggest they have other local folks involved to monitor the rehab and double check the information that you're getting from everyone.

Disclosure: I own a wholesale company that provides financing, contractor referrals and real estate agent services in addition to houses.  I mention this because I think it important that people know that you're looking out for their interests vs. just looking out for your own.

@Joe Villeneuve you're right.  6% return isn't aiming very high is it!  

@Slocomb Reed, you earlier asked about getting a few deals under your belt before going to a HML/PL. I can't speak for any other lenders, but I'll say that lack of experience isn't a huge issue for me when you have the available capital to cover your portion of the loan (payments, rehab funds not included in the loan, etc.). We do a pretty good job here of walking people through the process AND finding them deals that match their ability. I wouldn't feel good about putting you in your first deal that needed a ton of work. I'd be looking for something that was much more cosmetic that you could get done quickly.

You're right. I missed where you said gross. I believe you mean $120k instead of $144k (1,000 x 12 months x 10 houses). I think that it's important to note that this scenario probably leaves about $100-$150/month in net cash flow -- or $12,000 to $18,000 for the year. Not terrible, but 12-18% ROI for all that management might be a tough pill to swallow. To refi 100% of their money out, they'd have to be value add plays vs. market purchases so they'd also need to consider their time to manage 10 rehabs in a year after starting at 0. I have lots of people come to me that want to scale from 0 to 10 and it's never been a pretty outcome.

I might suggest rehabbing a house or 2 this year to get contractors and processes worked out and then buying a few value add rentals.  Alternatively, there are people like me that have the ability to put their money to work lending to other rehabbers and the lender makes 15% interest on their money without having to manage any projects.

If you can find properties in Cincinnati for $100,000 that cash flow $1,000 each after making a mortgage payment on $90k, send them all my way and I'll pay double that for them.  In Cincinnati, your rent on a $100,000 property is mostly going to be right around $1,000/month...  Not sure that I've ever heard of a market that exists where that math actually lives in the wild.

Several banks now hold all offers for 7, 10 or more days. The seller here is probably VA - am I right?

Too many investors think that banks only ever over-price properties.  Of course they under-price them, too!  I recently offered $56k for a house listed for $24,900 and lost it to someone else with a higher bid.  All of my customers knew about the house too and they were all bidding in the same range I was.

If $61,000 is the most you'd be willing to pay for the house, offer $61k.  If you could pay more than $61k and found out it sold for something you'd have been willing to pay, you'd be pissed.

RE:  escalation clauses, very few banks will accept escalation clauses in offers thought it's always free to ask the listing agent if they'll take one.

He posts on BP...

This isn't meant to be a defense of wholesalers or wholesaling - some folks have no issue with wholesalers and others think we're all scum.  It's ok if you're in the second group - just don't bring any negativity this way!

Because so many folks on BiggerPockets are new(er) investors, this post is merely intended to help them work with wholesalers if they choose to go that route.

1.  Be honest about who the decision makers are.  If you can't make the decision on your own, we're ok with that - we don't think any less of you.  We do want, however, to be efficient and show the house to all interested parties at the same time.  It's not the same thing to show you the house and then have you tell your money partner about it.  Let us be the buffer between you and allow us a chance to overcome any of their objections.

2.  Be realistic about how your criteria might limit you.  If you only want 3 bed/2bath ranch houses will a full basement in a 1/2 mile radius from your house, we might have a challenge finding you deals.  It's ok if that's all that you want to do, but you'll need to be open to going outside your comfort zone if you want to do more than 2 or 3 flips a year.

3.  Pester your wholesaler when you're in the market.  I don't mean to sound like I'm bragging here, but we have just shy of 1400 people on our email list.  If we don't know you're looking for a house right now, we may forget to call you when we have something that meets your needs.  Call me, text me, email me every day or every other day when you're looking for something!

4.  Don't try to negotiate price, especially if you haven't even been to the house yet.  There's nothing that we find funnier than that.  It's a great way to get you moved to the very bottom of our list of people to call.  

5.  If you decide not to buy a particular house, share what you did and didn't like about the deal.  It's the best way for your wholesaler to not waste your time calling you about deals that won't work for you.  We're successful if we find deals that work for you and your model, and that's what we want to do!

6.  Communicate with your wholesaler if a challenge comes up prior to closing.  And do it as soon as the issue arises.  We can add a few extra brains to figuring out a solution, but waiting to call us adds time pressure that's not helpful.  Because we talk to so many investors, we've probably heard about someone else that had your same challenge and can find out how they solved it.

7.  If you disagree about ARV, provide some comps - not just your gut feeling. Our company generally provides 5-8 comps to justify ARV for each deal we market. These are houses sold on the MLS within the last 6 months if possible, and up to 18 months if necessary. Your wholesaler (hopefully) isn't Photoshopping the comps they provide, so if they're truly comparable, don't get caught up in the 1 or 2 houses that also sold much cheaper. We both know your house will be much nicer than those cheap ones when your'e finished with the rehab!

There are some other tips that I can add, but I'd like to keep this short and touch on the ones that we see missed most often. We can get better at what we do, too. We know that, and we constantly seek out feedback from our customers. We run a professional business. Wholesaling isn't a hobby for us or a way to "move up" to flipping. Since I started wholesaling houses in 2012, the median resale price of houses my customers have bought from me is over 105% of my published ARV. We've sold over 50 houses so far this year.