First time flipper. How can one prevent a wholesaler from taking you to the cleaner?

Question

I mean they have so much control. Get a bunch of people to tour the property together. ARV is very generous. Then understate costs.

Seems like a tough situation.

Mark Munson · Answer

Hi @Alex Silang

Always ask if they are direct to seller, if they are not, you'll want to know how many chains are in the contract. Ideally, you avoid anything more than 2 chains. The ARV and costs to rehab are not the wholesalers job to tell you, that is for you to do your due diligence and come up with the ARV on your own and the rehab budget. They only control the contract; they don't control your decision to sign it, they don't control your GC/rehab budget, they don't control the ARV. Learn how to comp correctly and learn how to project rehabs correctly and they become neither good nor bad, just another source of deals for you to underwrite and decide if they fit your buy box.

Mark Munson · Answer

That or learn how to estimate yourself. The wholesaler isn't a competent contractor or even a competent investor themselves 99% of the time, so you have to decide who you want to rely upon for estimates. You can use software, get a contractor, or learn it yourself.

Evan Polaski · Answer

@Alex Silang, I will echo the others.  Wholesalers have basically no control.  They don't own the asset.  They don't force you to buy anything.

In my limited experience, they add no real value to the process, and like you said, don't really know costs, and while ARV is fairly easy to determine, they are always aggressive on those, too.

So, how do you not get taken to the cleaner?  If you can get a GC/handyman (depending on scope) to walk properties with you, that is one option.  Admittedly, the good GCs won't do that, since they are too busy themselves.

You can befriend someone that is already doing rehabs to take you under their wing.  Meet them at meetups, REIA meetings, etc.  Pay them.  Take them to lunch, etc.  Learn from them.  If you have cash, maybe you can even partner with them and learn at the same time.

And, lastly, a lot of real estate agents, but not all, have dabbled in real estate investing.  Call a dozen or so and let them know what you are needing, and are looking for a buyer agent (if wholesaler is open to letting you use one) now and will agree to use them as seller agent when project is done.  That might entice them to give a few pointers too.

Verna Littleton · Answer

I agree with @Mark Munson  You really have to verify the repairs and the ARV yourself.  I wouldn't be concerned with the number of people at the walk through.  I have attended several "cattle calls" and still had the wholesaler calling the next day begging for an offer. Just do your due diligence.  Ask the wholesaler how old the roof, water tank, ac unit and furnace are.  Some stuff you can get an "estimate" for from a GC just off the square footage.  Take good photos at the walk through and if the wholesaler gives you an estimate of repairs then shoot the video/pics to the GC to get their opinion of the wholesalers estimate.   Until you establish a relationship with a GC, it may be hard for them to come give you an estimate every time you want to estimate a deal.

Will Barnard · Answer

I hear these comments a lot, I agree that you should always ask the wholesaler if he/she is direct to seller. If there is any daisy chain, good luck, the equity is already stripped from too many hands in the pot (in almost every case but not all).

The ARV and rehab costs NOT being the wholesalers job to give: I disagree. As a true wholesaler, how do you bring value to the table if you didn't perform these tasks and how did you ever come up with your offer price if you didn't do this!! Now while I agree many wholesalers, if not most fail miserably at this process and most of that is to make a non deal look like a deal. Inflated ARV's and underestimated rehab costs are common practice with most wholesalers, much of which are newbies who have never flipped a home themselves.

As another stated, there are other ways to land deals besides wholesalers so cast a wide net and use multiple avenues to funnel your leads. This will improve your odds of successful flips.

When a wholesaler has a bunch of flip buyers coming to the house at the same time or throughout different times, your odds of getting that deal at a number that makes sense diminish. Having inside relationships with quality and experienced wholesalers who actually know how to properly evaluate ARV and rehab numbers is a plus. YOu as the buyer showing proof of your ability to pay (through actual bank statements with cash and/or closed sale transaction proof showing you are a proven all cash buyer that closes will instill confidence in the wholesaler and allow them to perhaps make less on the deal but can do more deals knowing they have a quality buyer in hand is a win win. YOU are in control of your money and YOU must also verify the numbers (ARV/Rehab), even if the wholesaler is quality at doing so, verify, verify, verify. Then location, location, location matters after that.

Bonnie Low · Answer

You have to be in control of the situation. If you understand what the property's ARV is based on your exit strategy and you understand how to estimate rehab costs, you are in the drivers seat. You should never depend on the wholesaler to tell you either of these things. And in my experience (we have bought from wholesalers) I haven't found one yet that knows how to accurately estimate rehab costs. If you control these things, you're in the drivers seat. You don't have to pay what they're asking. If they got it under contract for too much, move on to the next property. Ideally, you'll find a wholesaler you can really work with who will involve you before they get the house under contract so that the contracted price works for everyone, including the seller.

Bill J Fay · Answer

Do not take a wholesalers ARV and reno costs whole. At the end of the day, they need to sell the spread. They will send the best comp and at cost reno to justify ARV/reno.

Wholesalers provide a great niche in the fix and flip market but make sure you do your own numbers.

Bradley Buxton · Answer

@Alex Silang

There are also other ways to find flips besides wholesalers. Driving around, cold calls, google maps, agents etc... We find flip deals in the Reno, NV area that are on market and you can sometimes even have inspections done. Some are going to provide larger returns and some it might only be a few percent. It really depends on what type of flip and what strategy you can handle.  Are you looking for a full studs deep remodel, lipstick, or the carpets and paint? How long could you hold the property? Would you MTR if it didn't sell? Keep your options open besides wholesalers and good deals for you are good regardless of how they are found.

Hunter Stoudnour · Answer

Hey Alex, you need to be confident in the numbers that you come up with. Of course you will see how that compares to the wholesalers, but essentially you need to have the knowledge to be able to compare. You can do this by you gaining that information yourself, bringing a contractor, etc. You also need to be able to take the emotion out of the deal and be able to walk away. If they have a lot of people there, that's fine, just be strict with your numbers.

Matthew Paul · Answer

The wholesaler is a salesman , he wants your money , no different than a car salesman .

YOU have the control its your money , and he wants it .   Dont believe what you are told by him , do your own research and go from there

First time flipper. How can one prevent a wholesaler from taking you to the cleaner?

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