Right now, I am looking for 3-4 strong wholesalers in my market. We have more funds, several quality contractors, and we want to start flipping one property every other month, while simultaneously buying 3-5 more rentals in the next 12 months.
So I have been searching high and low for wholesalers generating real, actual deals. The last couple weeks, I have had three encounters with three different wholesalers. One that is really promising — and two that, if not incompetent, were woefully under-prepared, with ZERO actual understanding of the deals and the values of the subject properties they were selling.
Here is how one of them went…
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It was the end of a long day.
I honestly was ready to get home, see my wife and kiddos and enjoy some time at home. I am a seriously fired up Royals fan, and unless you have been in a HOLE somewhere (sorry, I couldn’t help myself), you know that the Royals are headed to play in the ALCS on Friday in Baltimore.
However, the Royals have also recently played some of the longest games — maybe ever — and after all of these amazing games (that have kept the entire city up until the late hours of the evening), the Royals have a few nights off, and thankfully the fans do, too.
After speaking with the wholesaler about a great deal they had, I told my tree guy (an awesome guy who pays cash), who was interested in obtaining a property, about the house, and we scheduled a time to go see it. I was pretty familiar with the area, as I previously owned three other houses over that way.
The price on the subject house was right. Or, should I say, it SHOULD have been right.
First, communication was a bit off-putting from the beginning. I tried connecting with them 3-4 times over two days, after running across a Craigslist ad that said something to the effect of, “MUST SELL HOUSE. TAKING OFFERS.” (This was actually an ad for a different property from the same wholesaler.)
You would think someone that desperate to sell would be a lot more, say, Johnny-on-the-spot? Yeah, I thought so, too. So after multiple texts, I finally got them on the phone, wanting to get the run down on everything. #details #imtootypeAforthis
I’m told the house needs a “roof” and “some work” on the inside. Should be just a few thousand to finish it up. Ok…cool. That seems good enough.
Houses in the area sell for $20-25k in tenant rentable shape, maybe $30-35k if they are really nice. The wholesaler was asking $9k. I was happy to make $1-2k — and my buddy would get a good house. All in at $15-16k; that seemed reasonable enough for him that I felt good about it. $11k purchase, $2,500 for a new roof, and $2,500 to finish what sounded like some painting, maybe carpet, and boom. We have tree guy’s first house.
It took the wholesaler more than a week to set a time to see the house. Awesome.
I asked for the pictures of the property.
The wholesaler asked me to take pictures and to send them over while I was there.
Um. Is my official title: Nathan Brooks, (free) photographer? No. No…it doesn’t.
We finally got a time scheduled after I sent a text that said, “We can do 5:00 or 5:30 p.m. on Monday.” And I literally (kid you not) got a text back that said, “Ok, if 5:00 or 5:30 on Saturday is good for your guy, I can check to see if that is ok.”
Hmm. I Didn’t that say I could do MONDAY(??)
So, rant aside…I drove in the awesome 5 p.m. traffic around half the world and a million aggressive drivers to look at this house. I pulled down the street, and there is my buddy, the tree guy, and there…
Oh no. Seriously? You are kidding me, right???
THIS is the “needs a little work and a roof ” house???
ARE YOU KIDDING ME?!
THERE IS A TWO-FOOT-IN-DIAMETER HOLE IN THE ROOF, PEOPLE!!!
The outside of the house looked terrible. Horrible. Windows broken. Stairs on the front literally falling off the house. The decking on the stoop was a few weeks from someone walking onto it and falling through.
And we stood there for 15-20 minutes waiting for said “seller” to come let us in. Meanwhile, people up and down the street starting coming out onto their porches and were very interested in what we were doing. We stood there, being stared at: my friend, his wife and their young daughter. Hello, awkward eyeballs. This is awesome. #doyousensemysarcasm
One of the people outside started walking into the street towards me. I walked towards him and asked how he was, and he pointed towards the house, said whatever pleasantries back to me, and I asked if he was the owner. He said he was…and was waiting for our phone call to let him know we were on our way. Hmm. That would have been good to know.
The “Hole” House
He opened the door, and boom — the ceiling opened up to the heavens, and my view is now into a house that is far from a “few thousand” from being finished; rather, it is a house literally littered with debris, with a subfloor that feels like soggy toast, and, well, not much else. There is no kitchen. No appliances. No bathroom. Half of the drywall that was there would need to be removed because of mold. Rotten carpet. No HVAC. The list goes on and on.
We finally walked out of the house, the seller still chatting me up trying to get us interested in the house…and frankly I am pissed. We walked back over the awesome floors (that you could fall through and make your own HOLE) and then over the landing outside the front door, and onto the broken staircase.
And then I apologized to my friend. Again and again — and promised him I would find him a good house. One that will work. Not this piece of crap.
That was how NOT to be a wholesaler.
I got on the phone as soon as I left the house, and I called said wholesaler. I let them know first that the deal was NOT a deal and that they had wasted my time, as well as my friend’s time. I didn’t take a lot of time explaining all the various issues, but I got my point across. There was a lot of silence on the other end of the phone.
Come on, people.
And truth be told here: shame on me. I should have known once I was asked to be the photographer and wait a week to get into a vacant house (that should have had a combo box on it) that it was headed for something like this. There was nothing about the deal that was true other than roughly the price I had heard.
So You Want to Be a Wholesaler?
If you are a wholesaler, do your job.
If you want to be a wholesaler, learn HOW to do your job. It’s not about you making a buck. Anyone can do that. It’s about creating a value for the investors you are working with.
If you aren’t creating a value — for your time and your effort — then you are making yourself look foolish. If I can go buy the same house for 10 0r 20% less on the MLS, then what is the point? Obviously there is some value in the fact that an off market deal has less competition, but that doesn’t mean you shouldn’t know exactly what you are selling.
3 Rules to Live by as a Wholesaler:
1. Know Your Market
Is the property for flippers or investors who buy and hold?
If it is a flip, have a good sense of the expected repair costs to similar properties in the area, what that might cost, and what the ARV (after repair value) is. If the property is more geared towards buy and hold investors, make sure you understand the repairs as you would for similar rentals, as well as what the properties would rent for — and therefore its ROI and cash flow analysis.
2. Know What You are Selling
If you haven’t been inside the property, you better be working with someone who has. There is NOTHING worse in my mind than losing someone’s trust.
If you tell me a property needs a little work, it better need just a little work. Otherwise, I am not looking at another deal from you.
3. Paint a Clear Picture
I suggest a “one-sheet,” i.e. several pictures of the property, a link to a Dropbox with more pictures, values, repairs, offering price, etc. Build a template, and use it each time you do your properties. If it is in a nicer area, I even have some wholesalers who have had actual appraisals done. But do your homework. You still have to know the intricacies of the property you have, who the best buyer is, and how you accurately paint the picture with the least effort and most efficiency.
Real estate is a business of relationships. We have to take them seriously. And be willing to put in the effort to become successful in our business.
How are you setting yourselves apart in your business to become trusted and successful? What’s the least honest deal you’ve fallen prey to?
Let me know in the comment’s section below!