This is a long one, so buckle up. I got into real estate full time during the foreclosure crisis, these are just my observations. The timeframes may vary by market, I can only speak for what I’ve seen in the Florida major metro areas.

Around 2010 the real estate landscape was much different than today. There were unbelievably good deals everywhere and no buyers. The main source of investment property was the foreclosure auctions and foreclosures listed on the MLS. They were everywhere. Getting houses under contract at great prices was easy, finding a buyer was difficult. Wholesalers were having a difficult time convincing buyers to purchase properties that have since skyrocketed in value. The buyers squabbling over a few thousand bucks back then should be kicking themselves now. Wholesalers had to earn every penny they made back then. What a great time to be a buyer, if you had the cash. No chance of getting a bank loan, and the BRRRR strategy was not possible. You had to have hard cash back then, or find a local hard money lender. The nationwide institutional lenders we see on the scene these days weren't around back then, and getting a loan was next to impossible.

After the foreclosures, short sales blew up. Banks were approving just about every offer that came in. Then in 2012 Warren Buffet put in his 2 cents: “If I had a way of buying a couple hundred thousand single family homes and had a way of managing. . . I would load up on them.” This seemingly inconsequential quote put into motion an institutional buying spree. Buyers like Blackstone and Invitation Homes started gobbling up everything they could. This was a Golden Age for wholesaling. I know guys who went from selling 2-3 houses a month to selling 20-30 houses a month overnight.

The hedge funds cooled off a bit right around the time short sales started drying up. Wholesalers started to spread their efforts into marketing to private homeowners. Around 2014 was a good time. There were still deals on the MLS, private sellers were everywhere, and there were plenty of buyers starting to follow the institutional buyers lead.

Wholesaling itself began to become institutionalized. Massive marketing budgets, systems, and automation were put into place. Big operations were doing dozens if not hundreds of deals each month, some of which are still around today. Many other wholesalers saw the writing on the wall. Too much competition, not enough buyers, things were getting difficult, so they decided to go the route of becoming a guru. It’s often been said if you can’t do, you teach. As time went on there were way more people desperate enough to pay a guru to learn wholesaling than there were sellers desperate enough to give their houses away. And guruing is scalable. Their methods don’t need to actually work, just throw a few buzzwords like ‘financial freedom, more time with your family, be your own boss’ on a CD or webinar and the money started rolling in.

The distressed market continued to shrivel and the market overall continued to rise seemingly indefinitely, and a lot of bad fundamentals were covered up. As time went on the institutional wholesalers started realizing they no longer needed to find good deals to sell them. As the market shifted to having less sellers and more buyers, new inexperienced buyers would overpay from FOMO or just to ‘get in the game’.

That leads us into today's market. The distressed market has all but dried up and large, institutional wholesalers focus more on finding funds or new, inexperienced buyers willing to pay too much for a property, as opposed to having deals with meat on the bone for local flippers. A decade of guruing has led to a massive influx of new, inexperienced wholesalers trying to break in to the market not knowing anything about rehab costs or ARVs. Too many wholesalers are trying to wedge themselves between too few sellers and way too many buyers. Good wholesale deals are by and large a thing of the past. It's more frequent to see "deals" emailed out at 90-100% of ARV than following the 70% minus repairs rule.

Bad fundamentals and overpaying have been covered up by a never ending rise in house prices. It seems after 12 years we're finally at the peak of the market, and we could see an actual drop in prices. Most investors haven't been in real estate long enough to go through a market like that. It will be interesting to see how buyers paying too much will do when the values are the same or less 6 months into the project. If you buy at 90% of ARV today, you may have bought at 100% or more of ARV 6 months from now…

Is this what everyone else has seen? Am I way off base here? Is it different in other states?

Nick C.

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