Newbies, Want to Break into Real Estate? Above All, DON’T Do This

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This is not a criticism against any of you who are new to the business, but as of late, there have been a lot of fake “investors” floating about. I am not sure whether it’s because the moon is in a different phase or if it’s simply that time of year, but more and more “investors” are starting to make their way through the woodwork. Or maybe it has to do with all of those seminars I keep hearing on the radio. Whatever the case, for those of us who actually do this for a living, it can be a frustrating experience. These fake investors are coming along and making promises that they cannot fulfill. I am not sure if it out of ignorance or just trying to string the seller along.

Again, this is not a dig at anyone new here — especially not against wholesalers, who seem to receive a lot of hate for some reason. This definitely does not apply if you are new and have all intentions to build your business on the foundations of honesty and integrity. Just wanted to put in that disclaimer before I proceed.

Related: How to Set Your Sights for a Bigger, Better Real Estate Year in 2015

This problem first started appearing a few months ago. As I was going on appointments, either at the appointment or after the fact, the seller would open up to me and feed me information on my competition.

For instance, how many other people have been by to look at the house, what price range their offer was in, and so on. And I started noticing a trend — more people are starting to show up at these houses and making offers at prices that just don’t make even the slightest bit of sense. That’s saying something because in the DallasFort Worth real estate market, inventory is very low. I know people who work for hedge funds that will buy in the area at 90% ARV or even higher, but their criteria is usually a little more strict. To give you an idea, I was hearing about offers on houses at 90% of ARV, and that’s not even factoring in the 20k in structural work and cosmetics the house will need. Yeah, something is not quite right.
Chris Feltus

Dallas

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What Happened

The seller who had called me off contacted me based on one of the post cards that I had sent him. On the phone he mentioned that he had received “many” other cards in the mail and was probably going to be meeting with a few other investors as well. I told him, “No problem, take your time,” and we scheduled a time to get together.

Related: So You Want to Be a Wholesaler? Here’s What NOT to Do

The property had been vacant for several months at this point, and it used to be a rental. But after some problems with the last few rounds of tenants, he was ready to throw the towel in and cash out. It had probably been almost 6 months since he had seen the house at this point.

Unfortunately for him, since the last time he had visited the property, someone had broken in and stolen the A/C condenser. Not only that, but the house dipped in the front pretty significantly and was going to need some piers to correct. Not to mention the interior of the house was trashed… whatever happened between him and the last tenant must not have ended well. There was holes in the drywall, the fridge was all banged up and several of the kitchen cabinets were about to fall off their hinges.

After tallying it all up, it was probably going to be about 20k in repairs, and the comps in this neighborhood were not too great either. For similar housing down the street and within the subdivision, it was topping out at a conservative ARV of 95. I decided to make my offer where it needed to be, and the seller kind of looked confused. I had earned his trust, but he looked like he was expecting quite a bit more. I thought maybe I didn’t present my case as to why my offer was what it was clearly enough, so I walked him through some of the comps in the neighborhood, as well all the items that needed repair.

As it turned out, several other “investors” had already been through the house, and the seller had offers in the 85k range.

Whispers in My Ear

I get a call back a few months later. It turns out in that time, the seller had inked THREE other contracts with other “investors” that had all fallen through. He begins to open up to me and talk about the experience. A lot of these other investors came in and offered a price that he just simply could not refuse. The problem is these “investors” probably received some weekend seminar level of training and were now hitting the streets and mailing these people.

These types of folk make our industry look bad. They have no idea how to determine ARV, repairs or subsequently where their offer should come in at. One thing that I have started to do in addition to educating the seller on price and repairs is to make sure that anyone who makes an offer on their house has the proof of funds to back it up, just to help protect them. In addition, I have also started incorporating video testimonials in my business, and I have started using that on appointments to help build rapport.

Some of these families are really in a bind and facing sensitive situations; the last thing they need is someone coming along and stringing them along in their time of need. Again, if you are new, hang around here on BP. Ask questions, learn how to do this the right way, and it will pay many dividends in your future.

Have you guys run into anything like this on your appointments?

Let’s discuss in the comments!

About Author

Chris Feltus

Chris is an active real estate investor who buys and flips houses in the Dallas real estate market. He enjoys helping others along on their journey. In addition, Chris operates as a licensed Realtor in the Dallas-Fort Worth area.

49 Comments

  1. Joel Berrocal

    As a “newbie” myself, I try make it a priority to do my due diligence on any deal. The main reason obviously, is for protecting myself and my investments. I also don’t want to be known as, “that guy” who has absolutely no idea what he’s doing. That could hurt me moving forward, but also create a bad image for other seasoned investors, who actually have been doing this for years. For this I love Bigger Pockets, and all the free information thats at my fingertips. Great article! Thanks a lot!

  2. Chris Feltus

    Hey Joel, thanks for stopping by. Like I mentioned in the article, but want to make clear, there is nothing wrong with being new. All of us were there at one point in time. It’s not just about not being known as “that guy” though, a lot of these sellers are in sensitive situations, and if someone comes in and makes pie in the sky promises that they can’t keep sometimes they can really hurt these families that need to take care of a time sensitive problem. Bigger Pockets is a great place to be, if you take the time to learn from the more experienced people here you will do it right. Thanks for the comments.

    • Jim Hauglid

      Not only are these people in sensitive situations they may be in a crisis situation. They cling to the pie in the sky numbers some people give them and it is very difficult to get them back to reality. The trip back to reality only adds to their pain.

  3. Justin C.

    For whatever this is worth…
    Its very common in my area to put “earnest” money down with a purchase agreement. Generally is $500 and if I, the buyer, back off the seller gets my money no questions asked.

    I’ve also seen and talked to homeowners that have had 10+ people walk through the place and either not make an offer or back out of contracts, land deals, and overall stringing the homeowner along.

    Great article Chris, thank you.

    • Chris Feltus

      I always put earnest money down, but some of these “investors” are able to scrape by and get a contract (that won’t sell) for very little earnest money, im talking $50 or less. This is earnest money im talking about not option money lol. Yah its really unfortunate there are people out there that really don’t care about the sellers or their situations as well, it gives the rest of us a bad name.

  4. Hi Chris. Great blog as usual. What I’ve been bumping into lately here in Fort Worth are “wholesalers” who are trying to flip already updated and listed properties. Mine for instance. Oy. This guy contacted me after I listed the house I just updated and offered me what I originally paid for it. I laughed, and told him I have an offer under contract for more than twice what he is offering. Then I was contacted by another guy who said he had a house I would be interested in. I asked for the address and googled it real quick to find it listed and updated as well. I asked if he had it under contract. He said not yet, but could get it under contract (at half what it was listed for). This guy was stumbling all over himself. You could tell he didn’t know what he was doing so I gave him a quick and firm education then told him to go to biggerpockets.com for more, lol. Geez, I have no idea where these guys are coming from.

    • Chris Feltus

      Hey Jane, nice to meet another BP from the DFW area. Yes, I have noticed that too! Like I said in the original post I think its a certain someone (that shall not be named) that has been making rounds through our market. I have been hearing radio ads for this program non stop for the past several months and off and on through the year. Honestly, programs like these are my suspicion as to where these influx of people are coming from.

      Thanks again for sharing.

  5. James Abuan

    Great article! As a newbie to the REI world this ensures me that having my ducks in a row is important! I’d rather be well prepared and and know my basis rather than having to second guesswork myself. As a working professional, I think this is not only crucially important but rather most common sense!

    • Chris Feltus

      Hey James, thanks for the kind remarks. You absolutely have the right mentality, and if you keep that it up you will succeed and build a business grounded in honesty and integrity that can deliver results. On the other side of the coin, you don’t want to be perpetually a student and only be in learning mode 24/7 and never take action, but you need enough information so that when you do take action you have a basis for success.

  6. Dan Shaker

    There will never be shortcuts to success. You will always have to work hard to achieve something. Those people who are taking advantage of others misfortune are all good for nothing! They don’t deserve to be trusted but then we all have our own way of criticizing people, those who are good to you might not look so good to me and vice versa I think it’s better to look at their profile first. It’s good to be more thorough and get to know them first than to be sorry at the end. Thanks for this article, Chris!

    • Chris Feltus

      Hey Dan, thanks for stopping by. Thankfully for us, people that operate their business in the manner that I described tend not to be in the business for the long term. This trend with people like this coming out of the woodwork seems to be cyclical, so hopefully I will be noticing less of this in the near future.

  7. Brian Gibbons

    Chris I coach newbies in helping Sellers with no equity or low equity. I match them up w borrowers that just missed financing.

    Wholesalers have gotten ruthless in their ethics (not all but alot).

    I have new wholesalers saying they want to help people but not offer 50 cents on the dollar and insult sellers and agents.

    Newbies can get poor experiences in real estate by getting the “push down the seller til they feel pain”.

    Find sellers with problems and offer
    1. Cash
    2. Terms Sub2
    3. Terms Wrap
    4. List it
    5. Terms Rent to Own

    Have them pick one, and go make some money.

    • Chris Feltus

      Hey Brian, I am glad the newbies have someone experienced to listen to and learn the right way to do business.

      I agree, the more options you can offer a seller the better. That’s when you really can begin to craft some win-win situations. Sometimes the house isn’t in poor enough condition to warrant a discounted cash sale, sometimes the sellers financial situation in the house won’t allow for it and a sub2 might be a better option.

      Good post, thanks for sharing.

    • Anthony Hill

      Hey Brian, wonderful reply. I especially love the fact that you try to craft win-win situations between you & the seller. I believe there is only one way to do biz & that is providing a win-win for both sides.
      I am one of those newbies you speak of ha!
      If you have a moment could you provide some enlightenment on those option offers?

      Thanks in advance brother

  8. BA R.

    Some thing else to consider. Locally all any of them want to do is get your house for .01 % on the assessed value. Its an insult. The worse part is,. as ANY ONE that rents in this area knows, is they do ABSOLUTELY NOTHING to the property. Its slum lord itis.

  9. Melanie Smith

    I’m new as well, so thanks for writing this, Chris – I don’t intend to flip, rather am looking at buy and hold (multi family), but I think that this is good to be aware of. I’ve been so absorbed in reading here on BiggerPockets for the simple fact that almost everyone here seems really knowledgeable, ethical and willing to share and teach that I didn’t even think about the road ahead in dealing with other “investors” like that. And I sure hope I’m never “that guy” (or gal, as it were).

    I actually worry about the opposite problem, honestly – making an offer so low that it’s insulting (though I’m told if it’s not embarrassing to think about presenting your offer it’s probably too high). Any tips on striking a balance?

    • Hi Melanie,
      i’m a newbie, but my experience is from buying my 2 living places (both long time/period searches)
      never go more than your comfort level. deals will come if patient enough.
      so choose an area, look for about 3 months (longer data is even better but don’t forget about inactivity killing your potential deals….) in your price/specs and compare the results from mls, zillow, redfin, realtor (.com). with a pin # in most states you can see county records.
      see patterns, see when they come back on the market.
      if looking long enough and with the right people/broker you may get the “off-market” deals. those are the best
      good luck and don’t get into biding wars…

  10. Colten Bishop

    Hey Chris!
    Thanks for the article. As newbie myself, I am glad there are people like you who around to help guide us in the right direction! BP is such a great resources thanks to people like you and I look forward to the day when I can help give back.

    Thanks Again!

  11. Don Clark

    And here I thought this was the best way to get started. Ha, just joking. I remember when I did my first wholesale deals and thinking that I really need to know my stuff before making an offer. Obviously everyone doesn’t feel this way, they just stick any price on the contract knowing they have no risk. For some reason there sure is a boom of new investors now. Bandit signs everywhere.

  12. Anne James

    Hello Chris,

    Thank you for the article addressing this concern. Other than being a homeowner, I am new to real estate as an investment. Your article as well as the comments from others has brought the seller’s potentially tenuous circumstances into greater focus. Another benefit gained is understanding the prudence of negotiating with an eye towards a meaningful contribution to the seller while seeking to acquire a valuable real estate asset. As planning for a first purchase and gaining knowledge continues, your article confirms a worthy choice in joining BP.

  13. Trudy Heller

    Hey Chris,
    This was a great article! I do want to comment on something you said tho. In my opinion, just because someone doesn’t put down a nice amount down for an earnest deposit doesn’t mean they don’t care about the sellers. I am a newbie trying to get into wholesaling myself and I know I will probably not be able to put down a big earnest deposit. But I do care about the sellers, in fact one of the main reasons I want to be a wholesaler is because I get to help people out of bad situations.

  14. Brian Gibbons

    Hi Trudy,

    Wholesalers do not help sellers ALL the time,

    .65 x ARV – all costs gets the seller a check, like 45 – 55% of value, and it is a needle in the haystack.

    A minor rehab can be accomplished with a JV with the home seller. You do the repairs, use private money for rehab, charge a $5K – $10K jv fee, sell the property, get the seller most of the time 65% to 75% of appraisal, as long as it is a minor rehab, this is called a “cooperative rehab”.

    Let me ask you a question: If ARV = $100K, needs $10K, “we buy houses” model
    .65 x 100K – sales costs – holding costs = like $50K.

    Would you let your family member take that offer?

    What if you could get $70K for the seller?

    • Trudy Heller

      Hi Brian,
      Thank you for your reply. I do realize that as a wholesaler, I will not be able to help everyone. That’s why, one of the things I want to do with my business is to network with other investors so that way if I can’t help someone personally, I can at least either refer them to someone or give the lead to someone who can help them. ( With the sellers’ permission of course. ) Also, money is not always the reason they need to sell. Sometimes just taking the property off their hands or being able to close fast is what helps them. I understand what you are saying about the money but I think you need to remember that’ its the percentage of the After Repair Value, not of the amount that they would get if they were to sell it through a real estate agent (as-is). Another thing I wanted to add was that (through my research) I read a different equation:

      (ARV x 0.7) – repair costs – wholesaler cost = highest offer
      (closing costs are included in the missing 30%)
      Ex: ARV= 100k repairs= 10k wholesaler= 5k
      (100k x 0.7) – 10k – 5k = 55k

      ( I am not trying to be disrespectful, just trying to explain what I have learned and state my opinion. Like I said, I am a newbie and haven’t even done my first deal yet so if I’m wrong please feel free to correct me. Always willing to learn from someone who’s more experienced than me.)
      ( By the way, I liked your video on negotiating with sellers. Very interesting! )

  15. Jade Davis

    Great information for a newbie such as myself. I am trying to build a solid foundation and I know that begins with the right amou tot education. What steps would you advise a newbie take to learn how to perform the correct due diligence on a property?

    • Chris Feltus

      Hey Jade, thanks for the kind remarks. You need to be able to determine correctly what a home is worth using comparable sales. To do this you will need MLS access in some form or fashion, whether you yourself are an agent or you are able to have an agent pull them for you.

      There are a lot of articles on BP to help you to determine this but here is a guide I put together on this: https://www.biggerpockets.com/renewsblog/2014/03/21/ultimate-guide-determining-house-worth/ To quickly sum up that article you want homes in the same subdivision, if not same subdivision then they must be comparable meaning similar square footage, house style, beds baths garage etc. Make sure to drive the comps

      Also read the other articles that I posted below for Bill.

  16. Bill McCurry

    Chris, as a brand-new newbie this was a great read and very helpful. I’ve been educating myself on REI for a few weeks, and BP has been fantastic. I also live in DFW, and I’ve read several times that this is a tough place for a new REI to get started right now, due to low inventory. If so, then I’m hesitant. I wouldn’t start selling hamburgers if cows were scarce and there was already a McDonalds on every corner. (I know, that’s silly hyperbole, but you get the idea.) Any perspective you’d like to share would be immensely appreciated.

  17. Shaun Reilly

    I am kind of surprised that you didn’t have all 3 of those guys that had gotten contracts on the place get in touch with you to sell you the “Smoking hot deal that isn’t going to last” they just got locked up. 🙂

    In all seriousness I have that happen a lot where I am well aware of a “deal” and have someone offer it back to me for far more than I offered. These are the same savvy investors that will send me places that are actually on MLS for more than list they don’t even have under contract…

    • Chris Feltus

      Hey Shaun, thanks for stopping by! Actually that does happen sometimes, I am on the mailing list of a lot of wholesalers/investors/realtors etc. in my area and every once and a while I will see a house that I had made an offer on come through my inbox. Usually when this happens the house is WAY overpriced, and I know at that price point no one is going to take it down. So keep an extra close eye on those houses because I know its a matter of when not if the contract will fall through.

  18. Scott Nigloschy

    This is a good reminder to me of one of the great parts of being an American – we will always have the guys trying to make a quick buck with the latest trend / fad… but if you focus, become the expert, and make honest offers where everyone feels like they get a “win,” I think that you will outlast the sharks floating around.

    I lived in South Florida for six months last year – this sounds like everyone, in every business, down there.

    Just operate honestly, ethically, and effectively, and make good sound deals that make sense!
    Thanks for the reminder about not getting caught up in the quick-buck idea and instead to focus on sound business practices.

  19. Lafontant Cherilus

    Thank you Chris. Similar to Melanie, I’m a newbie with a goal of buying and holding my first multi family unit in 2015 (triplex or quad) in the South Jersey area. The twist is that I really want to use this as a vehicle to improve working class neighborhoods, while also earning a return on my investment. This information is very helpful. At this stage I’m soaking up all the knowledge I can and in parallel getting qualified for mortgage/financing, while also conducting my driving or dollars / farming/ due dilligence to identify potential zip codes in my targeted counties (Camden, Gloucester, Burlington Counties in NJ).

  20. Anthony Morgan,Sr

    I am a Newbie. This is the reason I have not gotten into the business as of yet.
    I have no backers or list of buyers. I don’t have a crew of Brokers, or rehabbers. I have not picked the
    Real-estate Agent yet, I don’t have a Mentor/ or have asked any of the People on BP for advice yet.
    I really do not want to have a person that is in a bind and really needs help waiting on me and that person could have gotten a better deal and finalized with someone esle a lot quicker.
    I really like this Forum where I can search and discover, but I am and think I have Analysis/Paralysis.
    Janurary after reading and practicing with my wife and family, I will make offers.
    Thanks Chris for the information.

  21. jason carr

    Thanks for the article, Chris. That is all great advice.

    and @jeremyc., I like the strategy of giving an earnest money deposit. This shows that you are actually putting your money where your mouth is… Which should knock the other 99.9% of “investors” out of the running.

  22. Darryl S.

    I saw these 5 keys to success list recently and it is stuck in my head. Here I am going to try to get it out. Sounds like a good plan to me?
    1. Integrity
    2. Discipline
    3. Social Skills
    4. Supportive spouse
    5. Hard Work

  23. As a long time investor and president of the Utah / Wasatch Area REIA, I have seen this trend play out. There are a plethora of new self – proclaimed gurus out there pushing courses on what they call Wholesaling. Assigning a Contract IS NOT Wholesaling.

    What attracts newbies to this “new” technique is that it requires No Credit or Cash on their part. They make ridiculous offers, get properties under contract and the have to go find an End Buyer, typically another Investor withoney, to buy out their contract. Again, this not new nor is it wholesaling.

    When I ask newbies what method they are going to start with, most of them tell me want/need to start by wholesaling to get seed capital to become real buyers themselves. Sure, some can do OK assigning contracts, bit I’ve never seen anyone make a living or build a nice nest egg just assigning contracts. At least not enough to become the End Buyer.

    Recently, I’ve even seen listing and ads that say, “no investors”. Hmmmm, I wonder why that is?

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