Wholesaling Caution Not The Great Deal You Thought

[David Oldenburg]

I wish there was a State or Federal license required to wholesale and pitch wholesale deals.  I see countless "deals" that are not deals, or even close to being a deal. Many of these wholesalers have no real estate experience and have never had any formal training in how appraisals are done in the appraisal world.  They follow whatever set of guidelines give them the value to make it a "deal", or just create a value to justify the deal. 

If you are a newbie be very very careful of deals that are sent to you by wholesalers. The two most common areas are "stretching" the ARV (coming up with an after repaired value that is not realistic with true comps). This is easy to do when workking with newbie investors who do not themselves know how to comp to current appraisal guidelines of FNMA and FHA. Things like using outdated comps, that do not reflect the current value or market conditions. Using comps that are obviously nicer or have nicer amenities than the subject property.

The second area of concern is "stretching" how cheaply rehab work can be done, or completely leaving out work that needs to be done.  I see this all the time, here on this site and in my own business.  Be very careful when someone tells you a house can be rehabbed for a specific price.  Get your own bids, from several contractors, and ask them to "bid" their work to be equal to similar comps in the area. Yes, a contractor may be able to do the work for $20,000, but it may be work and amenities that is significantly inferior to the high valued homes in the area.  

It is amazing how fast a $40,000 or $60,000 profit can disappear when these numbers are misrepresented, or when someone without the proper knowledge unknowningly gives inaccurate numbers.

I would love to hear from others about your experiences using wholesalers, and who may be really good and very accurate with wholesaling. I have yet to find anyone in the Sacramento area who is consistent at doing their homework, and putting deals out that are solid.  I see about 5% to 10% of deals from wholesalers are actually good deals.

[Account Closed]

Are you really concerned about newbie rehabbers getting burned by wholesalers with bad numbers? Really? IMO that's the RE equivalent of trying to protect the general public from Nigerian email scams.

What's the real cause for your concern? Is it because the deals being offered look good and then due diligence shows that they aren't? Is it because you wasted time on the due diligence? 

I can never figure out what the frustration with bad wholesale deals that aren't deals is all about. We have SO many such threads here on BP. Every day the MLS is filled with listings that aren't deals for anyone. Every day there are agents giving assessments of values and repairs that are ridiculously inaccurate. Every day there are FSBO ads on craigslist that will never sell. Yet, with those we just roll our eyes and ignore them. The only thing the wholesaler has of value is a supposed contractual right to buy. You either want to buy what they have or you don't. Nobody who knows what they are doing uses the seller's value or repair or rent assessments to inform their due diligence.