The 10 Commandments to Philadelphia Wholesale

[Jimmy O'Connor]

Hey Philly BP Community! 

Wholesaler with a semi-decent reputation (.. I think?) here. One of the biggest hurdles I come across when trying to work with agents, investors, and sellers is the stigma associated with my profession. Slimy, unethical, misleading, and greedy would be some of the knee jerk reactions for professionals who have either read the horror stories or been on the wrong end of a transaction. This wholesale PTSD has generated some pretty bad press for those of us who do it right. Although it may seem oxymoronic (+10 points for using my word of the day), it is possible to be an ethical wholesaler. This profession is here for a reason, it services a different population of home sellers and situations than most (not all) retail agents would be willing to take on.

This post is my take on what has generated most of my success in the Greater Philadelphia Area and create some solid relationships on the Acquisitions and Dispositions sides of the transactions. For those of you starting out, this is meant to be a non-pretentious guide on how you can earn the respect of your colleagues in this particular market. Seasoned vets, investors, or sellers, please feel free to chime in, BUT BE CONSTRUCTIVE! 

*This is not meant to be a hating on wholesalers thread. If you want to be a part of that, I can refer you to +1000000 other posts on this platform and even more on the REI Mastermind Facebook Group*

1. If you are not the buyer, do not pretend to be. 

Hot take supreme. It is 100% common practice for wholesalers to claim they are the buyer and provide proof of funds generated from www.fakelineofcredit.com. Your pitch to the seller should not be that you are some whale, especially if you are starting out. Although they may be a little unrealistic on the values of their shells, home sellers in Philly are shockingly good at smelling BS. You are not the only "we buy houses cash" bandit sign, letter, foreign phone call, or Facebook ad. Their mailboxes (both voice and physical) are usually full already. Your pitch should be that they get exposed to your network to be their network of cash offers only. You are a hub for cash buyers that close. You do not make their often embarrassing and distressing situation public knowledge nor parade a million different showings in the house. You are offering them the ability to have a "buy it now" option and lock it in before the market does something crazy to drop the property value.

2. Do not try and hide how much you are making with your back end buyer. 

Philadelphia is unique in that the transfer tax of 4.28%, which likely went up by the time I finished this novel of a post. This tax murders your ability to mask your fee to both buyer and seller via double close (in which case you technically did buy the property). Legally, your fee is going to appear on the HUD, get ahead of it. If you are making a healthy fee, that is not something you should hide from. Those big fees keep you in business when you have to take haircuts on the small ones. If your investor claims you are making too much, they often do not know about the seller you had to bring to the DMV to get him an ID, the pack of Marlboro Reds and Miller Highs you had to purchase to enter his hoarders home and the hours you spent listening to his claims about being the hitman for the Chicken Man only to have 50k owed to the IRS completely demolish your fees to 1700 bucks. I'm not clever enough to make that up. Do not fold with them if they agreed to a price they would pick it up at, everyone can make money without dipping into pockets.

3. Let the seller know the true value of their fixed-up property and the potential for the as-is price on the market.

Sellers are not stupid in this market. Unrealistic, sure, but not stupid. They know their home has value. Many times their shell they survive in is right next to a new build or a rehab. Tell them what the comps are actually selling for. But more importantly, SHOW THEM the difference between their home and their comps. Sellers often times overvalue their house. Show them the HGTV before and after and detail what exactly would need to be done if they were to go through with it themselves. This is one way to bring them to the reality that they A) do not have the means to do the rehab and B) there needs to be a discount for you to make money. 

4. You are not a contractor. Stop giving out rehab budgets to your back end buyer. 

Okay, maybe YOU are, but I would put a generous bet to say that 99% of wholesalers in this city are not. More importantly, you are not their contractor. Unless this freely given rehab budget is paired with a contractually binding scope of work from a licensed and insured contractor, it is virtually useless. This is likely  #1 Headache for most investors. It is predatory to do this for newer investors. It is a waste of time to do it for seasoned ones. Vote for this post if you've heard a full gut rehab in Philly only costs 40k. You can be confident in your comps. You can have a set purchase price. If you passed algebra, you can figure out what the budget needs to come in for the deal to have decent returns. The conversation is not "The purchase for this Grays Ferry Shell is 90k, I say 40k in work, and you can sell for 240k from the comps on the block." The conversation is "The purchase for. this Grays Ferry Shell is 100k, comps on the block go from 235-250. Based on those numbers, what rehab would make or break the deal, and is it worth us getting out there to verify and lock down?

5. Know the borders and boundaries, they are more important than zip codes.

This is a city of neighborhoods, each with its own identity. Know what the borders, all the real players do. Cobbs Creek starts at 52nd. Do not comp a Grays Ferry Property by crossing over Washington to GradHo. Newbold ends on 18th and Point Breeze on 25th. Snyder Matters. West Passyunk and Girard Estates are NOT the same things. Lehigh and Frankford is an important intersection that can make the difference between Yuppies and Zombies.  Comping over Market Street in West Philly is a no-no. North Philly is loosely defined, vast, and is almost exclusively S8 only from Lehigh to Roosevelt Blvd and then starts getting nice again once you are north of that. Drive these, look at the properties that have sold. 

6. Know how to take relevant comps. 

- 0.2 miles at most and that depends on the neighborhood, some you need to pull on that block. Going 0.5 miles is a quick way for your property emails to go to spam. 

-  +/- 20% of square footage, that is how most appraisers around here evaluate properties.

7. Have a basic understanding of zoning laws.  

- Click me- I am the Zoning Guide. For 90% of residential wholesale deals in the city, they will either be RSA3, RSA5, or RM1.

RSA3/5 = Residential-Single (Twin or Row respectively). One family is legally allowed. If it is set up as a multi and does not have zoning docs nor an active rental license for multiple units on https://atlas.phila.gov/ , it is an illegal multi. Stop advertising it as a multi if it doesn't meet that. 

RM1- Lot Size Matters. Duplex needs at least 720sf. Triplex needs 1080. Quad needs 1440. Anything above that needs 480sf of lot per additional unit. 

If you are building on a lot, you can build on 75% if the lot is interior, 80% if it is a corner lot. 

8. Verify that your seller is the seller.

Philadelphia does two things better than anyone else- Cheesesteaks and Deed Fraud. I've seen it. It's ugly. People can go as far as to make fake ID's and create all the needed docs. This can hurt your buyer if they close and they start work. Title insurance can cover their purchase, but it does not cover money invested into rehab. 

9. Set Realistic expectations on the entire process from contract to close on BOTH ends. 

If everything goes perfectly, you can close in two weeks. This is your seller getting every document into title the moment you get it under contract. This is your buyer submitted their docs to the hard money lender the day of signing and winning the lottery with a generous and expeditious appraiser. More importantly, this is reliant on the city running like a well-oiled machine... LOL. Set the precedence with your seller that the city might take a weirdly long time to send in a payoff, that they may have to hold some of their proceeds in escrow so their check from the closing table may be smaller than they imagined. Let them know that there will be a handful of people outside of yourself (investor, contractor, appraiser, inspector) that NEED to come through, but it won't change anything about your contract. Let your buyer know that Philly bureaucracy is just as slow as the worst of em.  Let your buyer know that the seller may be unreasonable to closing might be rushed as soon as everything comes in, they sometimes aren't the most rational people. No one ever said wholesaling was an easy nor glamourous business. 

10. Never, never, NEVER shop a deal that you do not have under contract.

Want your investor to never call you back? Have them analyze a deal and bring them out to the property when you have no right to sell it. 

Want a seller to sue you because they saw you are selling their home on Facebook marketplace? Make sure you include detailed pics and complete addresses!

People like straight shooters. People don't like having their time wasted. Follow these rules and you will stand out from what is unfortunately perceived as the "Industry Standard."

If you made it this far, I hope it was helpful! 

Investors, always feel free to reach out to me if you're looking for deals or my two cents on the market (watch out I might give you a dollar!). Sellers and wholesalers, feel free to me if you need something moved or need clarification on what I perceive as "best practices."