I Know Where the "Good Wholsalers" are . . . . .

[David J.]

I have found that "good wholesalers" do not actually exist (unicorn style).In my opinion, the business model of wholesalers (get under contract and assign for a quick payoff) is not the max way to monetize the ability to find a good deal.I wholesaled my first property I found via direct mail and the second we closed I realized I just gave away (literally gave away) 20k.So I quickly found a better way to monetize the properties I found.

I believe wholesalers only exist until they find a better way (usually requires a little capital/connections) to monetize the deals (like means to an end).For example, after my first wholesale transaction, I made 9k and my buyer bought a property worth 95k for 72k.Who in the heck would not buy that!!The second I completed the wholesale transaction I thought to myself, "heck, I would have bought that from myself for 72k."

So once a "wholesaler" realizes there is so much money left on the table in the business model, they immediately look for ways to keep more of it.Some keep and rehab, some refinance out and hold as a rental, I close and sell on the MLS.My point is, wholesaling is a temporary job that happens until they have something better to do, which usually takes building up a little cash or making the right connections.That is why there are 1 million wholesalers and very few good ones.Because the second they are any good, they have enough cash or connections to find a better model to monetize the deal they found.Let's face it, finding deals is the hardest part of the game, and when someone gets even halfway decent at it, they are going to stop giving them to others until they have gotten as much blood from the turnip as their little hands can squeeze out.

The reason everyone is searching for a "good wholesaler" is because wholesalers are handing out free money.If you have the ability to find and give away free money, you won't be standing on the corner doing for very long because (i) you realize you are giving away money (ii) someone else will realize you are a leprechaun) and stuff you in their trunk.

[Sam Elder]

David - while I think that your thoughts are not without merit, I think that you have very much overgeneralized wholesaling.

Benefits of wholesaling:

1. Very fast turns relative to 2-9 months to rehab, market and close on a flip.  As the wholesaler, you are finished at closing whereas the flipper is just getting started.

2. You have no exposure to market conditions changing.  The flipper in on the hook if a hot market is no longer hot.

3. The wholesaler has no/limited exposure to changes in the scope of work that are necessary on a property, whereas the flipper must address new found issues in order to sell the property.

4. The wholesaler doesn't have potential fallout with a "permanent" occupant that a flipper does.  Despite the best due diligence, mortgages can be "tricky", and it's very problematic when you are under contract and the house doesn't appraise or the borrower's ability to purchase changes.

5. Your profit as a wholesaler is determined in advance.  As a flipper, your profit gets smaller throughout the process when pretty much anything changes.  There are very rare opportunities when things change for the better.  Usually, changes impact your bottom line.

It's not for everyone, but I would almost rather be a wholesaler than a flipper.  Of course, I would rather buy/hold than either of those.  If it's worth fixing, it's worth keeping.