Wholesalers for flips - Yes or no?

Question

Hey BPers,

I'm getting ready to do my first flip and wanted some advice on using a wholesaler to find my properties.  Does anyone have any horror stories or reasons why using a wholesaler would be risky?

Thanks,Kyle

Doug W. · Answer

If the numbers work for you then it really shouldn't matter where the property comes to you from. Be it a wholesaler, a Realtor, a neighbor, a sign you put on a post, etc. it's all about whether the numbers work for you.

Looking at it a little differently: if you are asking if a wholesaler can be trusted then I will expand my thought a little and say that you are the one who needs to do your due diligence. Don't count on another person's numbers or estimates or whatever being accurate. If you are the one responsible for the money then the buck stops with you.

Good luck. It gets easier after the first one.

Steven Mitchell · Answer

We are somewhat new like yourself.  We started last november and just broke ground on our 10th project today so I was right where you were.

We tried doing our own marketing campaign with the yellowletters, lists etc.  We failed miserably.  Our area is so saturated with wholesalers and their marketing campaigns we just couldnt make it work.

So 80% of our stuff now comes from wholesalers.  In our short experience, they have all been snakes.  Sold us a property in flood zones without a heads up, tried selling us one with an encroachment but luckily we caught that one.  Using comps they shouldnt be using (that was before we had access to the MLS and could do our own CMA....yes we were buying before we had that capability.  We were so stupid).  We have been screwed 3 ways from sunday and havent made money on some projects but we simply do not have a solid avenue as of yet.  Most of this was from our naivety and inexperience combined with their lack of scruples.  Real estate truly is Caveat Emptor.

These guys arent selling you a quality product, theyre sole motivator is making money on the next deal without caring about a long term relationship (though the first thing out of their mouths will be thats what they want.)  You have got to keep that thought foremost in your mind when dealing with them.  Some of them dont run any numbers, they just come across properties and put them out there hoping someone will bite.  I have had 3 now stop talking to me once they figured out we finally reached a basic level of sophistication.

Im really not sure how you can protect yourselves from them without just going through the process and making note of how they take advantage of you, and then protecting yourself on the next one.  There are too many little things that can take the 10k of profit right out of a deal.  This is compounded by your not being able to get an inspection before closing which really is critical during the buying process.  Or at least they tell you you cant.  We insist now and we dont purchase without one.  This one little detail....is your most effective protection.  We were so naive we just took their word for it. Oh to be young again (six months ago, lol)

After six months we are just now getting to the point where we are comfortable buying from a WS without losing money.  We are making it now and breaking even at worst.

They are some of the worst people Ive ever worked with.   Goodluck.

ps.  you have got to expand your network.  yes its a hassle and time consuming but it will bear fruit.  The deals we pick up from out network are the best, hands down.

pss.  we have had more success dealing with larger projects instead of the smaller ones.  More wiggle room for unknowns.

Ritch Bonisa · Answer

It is a great way for an investor to pick up a great property.  Sometimes wholesalers will provide rehab costs.  I know some wholesalers that do quite a nice job on estimating potential rehab costs. I know of some others that do a terrible job.  Independently verify what the rehab costs will be before you acquire the property.  Let them tell you what the purchase price is, but don't let them tell you how great the deal is.  If you know purchase price and you have realistic rehab costs, then you know whether or not it fits into your ROI model.  That's all that matters.

A wholesaler may tell you that they can get the rehab done for X.  The reality is that X may be their cost, but NOT yours.  As with any other deal, know all the costs before any signatures come into play.  Verify those costs and then make a detailed plan that covers everything, even whatever emergency reserves you may need.  Then stick to your plan and don't deviate.  Shifting gears, switching up, making changes - all that is great, but most of those things increase risk, increase length of job, and lower ROI.

Buy a  good deal, know your costs, don't try to MAKE it work on the back end.

Kuba F. · Answer

@Steven Mitchell man, that's a hard start.  Congratulations on getting through that.

Will Barnard · Answer

Risky is a loose term with different meanings for different people. If you can not find one.on your own or through your own systems, marketing and network, then you can certainly go with a wholesaler but expect to have an even smaller margin on your deal and expect a whole ton of crap and outright lies before you find one worth anything.

In my area, everybody is a wholesaler and almost everybody has no clue what they are doing. Very few deals I see even warrant looking at them for longer than 15 seconds. Good luck.

Kuba F. · Answer

@Kyle Mitchell all great advice here. Trust no one but yourself.

A wholesaler is more likely to bring you a dud than not, and you should expect it to be completely misrepresented.  That doesn't mean it's not a deal, you'll just have to pretend that you found the property yourself and do all of the work vetting it.

All that being said, I prefer someone else finds the properties for me and I'm willing to pay a wholesaler for that privilege as long as it still makes sense.

Jeff B. · Answer

Your proposal has two players (the wholesaler & the flipper) who don't want to hold and operate the property.  That's two profit margins before the ultimate end-buyer and IMO both players are at risk in exhausting the profits.

IMO, the flipper has a better opportunity w/o the wholesaler.

Wholesalers for flips - Yes or no?

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