Approaching first flip- Trust the Wholesalers?

Question

My business partners and I are looking to do our first flip and are in the market for a SFH in the Houston area. Two of the 3 of us have been learning extensively on BP and are truly thankful of everything we have absorbed to date. My question is regarding a near scare that we just experienced with using a wholesaler.

We were close to pulling the trigger on a suuposed $275k ARV, with a purchase price of $199K. We called in our realtor (who has 10 years experience, and a few deals under his belt with investors) who did the comps and he advised us the full retail price of the home would be about $200K given that similar houses were selling for $190k-$200k. The realtor also advised us of a client of his that is invovled in a lawsuit against a wholesaler for exaggerating an ARV.

Obsiously for rookies, this poses a serious concern and brings about the question: HOW DO WE DETERMINE IF A WHOLESALER IS CREDIBLE? Any BP family members feel like suggesting any Houston wholesalers that you've had success with?!

Thanks to all in advance!

Account Closed · Answer

I would follow up what @Ben Hughes said by saying probably 95% of everyone exaggerates what the ARV is. To me, it is one of the most critical mistakes you can make. Always be conservative on ARV and over estimate your budget.

Jon Holdman · Answer

Even with an ARV of $275K there's no deal with a purchase price of $199K.

ARV is one of the hardest numbers to estimate and is the most crucial number to having a deal.  If you're serious about being a flipper, coming up with an accurate number YOURSELF is a critical skill.  Nobody can do this for you.  Not the seller, not an agent.  Only you.  An agent may be needed to get the data, but you must be able to process that data and come up with an accurate ARV.

Andres Jaramillo · Answer

Hi @Oscar Riojas ,

It's hard to tell, but I always tell my clients to do their own homework on the properties so they have a better idea of what they are getting into.

Good luck,

Andres J.

David T. · Answer

Allowing anyone else to propose an ARV or comp a property is the same as having another do your thinking for you which is lethal. Having an experienced Realtor to advise on this stuff is great, but not a permanent or realistic solution.

Running your own comps and understanding the marketable value of any prospective property deal is at the core of your diligence. You have to take responsibility for this yourselves.

Good Luck!

Tom Keith · Answer

@Oscar Rojas

Making a purchase of a rehab home requires that YOU know the numbers. It is not up to the wholesaler to tell you. They are selling to you so they have to make deal look as good as possible.  And there are plenty of people who want to get rich "flipping" homes that don't know what they are doing.  Do your research, know the neighborhood, get correct comps, get the right contractor and use a Great Scope of Work that you and contractor work on.  Then double the repair cost and see if the numbers work. By work, I mean You make the Profit that is reasonable for the property.  best wishes to You.

Wendell De Guzman · Answer

@Oscar Riojas

Yes - you always need to check your numbers. You have to know your market to know the market values of properties. You have to get 3 bids from 3 different contractors to verify the repair estimate of your wholesaler.

A lot of wholesalers are sloppy with their ARVs and their repair estimates. They are not very "diligent". I posted in my blog what a Diligent Wholesaler is and actual deals where the rehabbers make money while the wholesaler deserves his wholesale fee. Here:

http://thediligentwholesaler.blogspot.com/2014/03/...

Ben Hughes · Answer

95% (maybe more) of the wholesalers out there greatly exaggerate ARV and under exaggerate the repairs.  Sorry wholesalers but that is the truth.  Always do your own numbers.  I thought the same things when first starting out but now I've learned.

Renee Stewart · Answer

@Oscar Riojas ,

You should always do your own due diligence.  Typically, wholesalers will tell you to run your own numbers.

Good thing you checked with your realtor!

Happy Investing,

Renee

Vee K. · Answer

@Oscar Riojas : I'm not sure if there is a a for you to know for sure whether a wholesaler is credible or not. But there are some characteristics that you can look for.

• Multiple investors in your market vouch for this person
• When you run comps, your numbers and their numbers are in the same range
• Their fix up cost estimate and yours are in line

Even after you found a credible wholesaler, you still have to verify everything yourself (ie: Fix up cost, DOM, comps, etc.) Don't just trust someone because they are credible.

Best of luck,

VK