Using Wholesalers To Acquire Investment Property

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Last week I wrote a blog about what to expect when bidding on REO properties. For many new investors, bidding on REOs seems like the quickest and easiest way to buy an investment property. However, with competition from other investors on the rise, it has become increasingly difficult to buy an REO at the right price. As an alternative, some investors consider buying at the courthouse steps, but quickly find this method of acquisition too daunting (i.e. bringing all cash to the auction, buying a property without inspecting it, potential title issues, etc).

For an investor who simply doesn’t have the time to bid on 20 different REO’s or the means to buy at the courthouse steps, finding a good wholesaler can be a great alternative. In real estate, a wholesaler is typically somebody who is doing the legwork to find good deals to sell to other investors at a wholesale price. There are a number of different strategies that wholesalers may use to earn a fee for finding a deal. Most wholesalers will actually line up an end investor to buy the property without the wholesaler ever taking title or owning the property at all. In exchange, the wholesaler is usually able to build in a fee of $2,000 to $10,000 dollars depending upon the deal and the price point of the property. As an investor, I have no problem paying a small fee to subcontract the work of finding a good property for me – as long as the numbers still make sense.

One acquisition strategy that I have not spent a lot of time pursuing is short sales. I see other investors advertising for distressed sellers all of the time and I simply haven’t had the desire to compete for these leads. However, I will occasionally buy a short sale that a wholesaler has found and negotiated. Advertising and qualifying short sale leads can be costly and time-consuming.  I am perfectly willing to allow somebody else to earn a small fee in exchange for doing this legwork.

In the end, buying an investment property still boils down to whether or not the numbers make sense. You can just as easily overpay for an REO property as you can from a wholesaler.  Be careful not to assume that paying a small fee to a wholesaler automatically means you didn’t get a good deal. There are plenty of good potential investments properties on the market right now; some that can be purchased through an REO agent and some that come through a wholesaler. Whatever your strategy, don’t miss out on a great opportunity to buy real estate!

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

6 Comments

  1. I would advise investors to be extremely careful when looking at deals from wholesalers and do their own due diligence.

    I look at financing a number of wholesale deals, and seldom do the numbers on the deal work. The typical wholesale deal is a REO property that is purchased at the asking price, marked up $5,000 to $20,000 and presented to me as a low LTV deal. Typically there are a number of similar properties that can be purchased in the same neighborhood for far less than what the wholesaler is trying to sell the property for.

    When I start looking at the deal, I find that the wholesaler has grossly understated the cost to renovate the property to retail condition and overstated the market value of the property. Usually the wholesaler will present a scope of work/budget to get the house to rental quality (if that) and than the wholesaler will cherry pick the highest retail comps within a mile of the property.

    In my market area (Atlanta), you can easily go from a highly desirable intown neighborhood to a sketchy area within a mile with significantly lower market values. So it is imperative that the investor have intimate knowledge of the market they are investing in.

    Wade Munday
    PeachStone Captial

  2. Great information. I think the key to a successful career is to be open-minded and adapt to the situation. As the REO process becomes more competitive, teaming up with other wholesalers may be another avenue for potential deals.

    Of course, I agree with the commenter that you have to do your own due diligence in determining ARV and repair costs. The numbers will determine whether it is a deal for you or not.

  3. You are absolutely right Wade.

    In my experience most wholesalers are not true wholesalers. They read a few posts on biggerpockets or attended a weekend seminar and went out and signed up the first deal they come across. Kudos to them for taking action, but I think they realize it’s not actually a deal and they either try to inflate their ARV or grossly under erestimate the repairs to try to turn it in to a deal. I actually know a few local guys that do this on pretty much every deal I see from them. You definitely want to do your own due dilligence, the true deals will be obvious as they come across.

    Great article Ken, a good local wholesaler is worth their weight in gold, they can save you thousands per month in marketing expenses and free up a lot of time you would spend looking for deals.

    All the Best,
    Merrick

  4. As a local wholesaler in Atlanta, I ditto Wade and Merrick. I suggest to other wholesalers to do some rehabbing. Helps tremendously to get those numbers right along with having MLS access to get solid comps (as opposed to Zillow).

    Nice write up, Ken!

    Frank

  5. Right with you guys, most wholesalers are to be avoided. I still call them when I see one in my area i have not talked with and I have this typical speech I give them as I inform them that I want a REAL wholesale deal, not some smoke and mirrors blue sky deal that they usually try to sell, but a real wholesale deal. It is comical how many of them I never hear from again once they know I am wise to their game. The sad part is that I have many clients around the country who have gotten stuck with these type deals and cant get the value that was promised.

    The moral to the story is this, do your due diligence as Wade suggests. But also, to find the best deals, do your own marketing and advertising to attract your own lot of motivated sellers.

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