If/When a Recession hits, will wholesaling get easier or harder?

Question

I've tried my hand at part-time wholesaling with no success. I've been working for a small REI LLC owned by friends and family for a little over a year. We are in the Austin and San Antonio TX markets which are very competitive and have seen mind blowing appreciation in the past 18 months. This meant that we did a few direct mail campaigns and CRM managed follow-ups and I like to think I know my stuff well enough that I have a good grasp on overcoming seller objections. Despite this earnest attempt we got nowhere simply because the lists we called and the people who answered laughed in my ear. Seeing the value of their homes come up 100k in a year left very few with a good reason to sell outside of the usual death, divorce, etc.

So my long winded question is: when recession hits will this process get any easier? What ways will your methodology change under recession economics? As wholesalers (I'm primarily a project manager and do acquisitions now) what things do you find the most difficult about this process and what ways are you preparing yourselves?

David Lee Hall, III · Answer

I am in Pittsburgh which had a 13% drop in median Listing price recently as reported by Realtor and Redfin. What does this mean? When I do my ARV I BETTER look at listed comps too and likely drop my ARV 10-20% based off of sales to be able to stay ahead of the market. Additionally, if you are working with a limited buyer pool, you better make sure they are still buying o and are not spooked off. If you have 1,000+ folks on your buyer list, that shouldn’t be an issue. “A” school districts recover faster and hold value better, so target them more on DMM. Those poor school districts? Make your offers even lower. People are going to hold onto their current mortgages at low APR like a loved one because with rates going up they likely aren’t going to be able to afford as much house at the same monthly payment and in a recession there are going to be fewer move up buyers.

Jay Hinrichs · Answer

bottom line its going to get a lot tougher for wholesalers in many markets..  sellers want top dollar investors are going to throttle back.

I advise my clients to offer lower on all wholesaler deals and dont fall for the ones that jam you into contract ..

Jerryll Noorden · Answer

You make the same mistake pretty much all of you here are making.

You do DMM, cold calling and driving for dollars... that doesn't work, so you blame it on anything and everything BUT DMM cold calling and driving for dollars.

I have spend the last 5 years or so, posting on BP NON-STOP to stop using DMM cold calling driving for dollars,  and anything to do with a list because LISTS DO NOT WORK!! People ALWAYS simply ignore my rants and then go asking the group that gives the wrong advise... for advise.

You follow said wrong advise, because that wrong advise they are all giving you, is the advise you WANT to hear.

You all WANT to hear that DMM works, because you are doing it. Because you know how to do it, because you are familiar. So you are far more inclined to convince yourself it is not DMM that is wrong so it has to be a recession, an appreciation.

This is laughable.

No matter how much proof and evidence one throws up, all of you simply see what you want to see.

You said:"Despite this earnest attempt we got nowhere simply because the lists we called and the people who answered laughed in my ear. Seeing the value of their homes come up 100k in a year left very few with a good reason to sell outside of the usual death, divorce, etc."WRONG!! they are not laughing in your face because the value of their home is a lot more. They are laughing in your face because they ARE NOT MOTIVATED. HOW on Earth did you draw that conclusion??? They laugh at you and you immediately conclude "oh its because the value of their house?" And you are CONVINCED of this.

NO!

If they are not motivated they will feel insulted. If they ARE motivated it doesn't matter how much their house is worth. Motivation doesn't have to do with MONEY. It could be time, stress, illness what ever.

We bought a house for 10 dollars remember?

They sold me a $250K house for 10 dollars. If it was about money, they could have sold the house to ANYONE else for $12 dollars and they would have made 2 dollars more.

The problem with all of you is that you make completely wrong assumptions, these now become fact and never agian questioned, and based on those fictional facts you will troubleshoot the issues.

LISTS DO NOT WORK.

THAT is the issue.

Foreclosures, NOT motivated

Absentee owners, NOT motivated

Probate, tenants from hell, death in family, NOT MOTIVATED!

Your problem is that you are not finding motivated sellers, and that is ALL your problem is.

Read this:

https://www.biggerpockets.com/...

Bill B. · Answer

You assume the drop in average listing prices is because cheaper homes are being listed for sale right? Either a new condo building or people selling run down properties? Maybe smaller homes? Happens all the time in vegas  if homes get too expensive suddenly cheaper condos get a lot more sales

If you think the real average home prices are down more than 5%, I’d bail on the whole market as 95% of the US is still seeing rising prices. If you’re down 13% before any correction you gotta be looking at 30-50% price drop if the nation gets a 5% price drop.

Before you bail I’d suggest breaking down your numbers a lot more. Separate out everything that isn’t SFR fi that’s what you’re buying. Only include the zip codes you’re buying/selling, and then do comps by $/SF. That might work if your zip codes consist entirely of the same quality of housing. Otherwise you’re going to have to use the ‘draw” function to search comparable and then do $/sf.

Average price means nothing unless all houses are the same size/age/neighborhood/condition/school district/type/etc etc.

Jay Hinrichs · Answer

and buyers are going to wise up and hammer on the wholesalers prices and low ball them as well..

Eliott Elias · Answer

Will be easier to find deals, may not be as easy to find the end buyer. This is where the sharks come out and start buying, wholesalers better have great deals

Bill B. · Answer

I was buying like crazy. I regret the 2 I sold and the 1/2 dozen I didn’t buy. That’s the best part right?  Vegas is known world wide for “crazy price swings”. Because it’s dropped more than 4% ONCE. So it should really be known for its one crazy price swing. Nationally prices have dropped once or twice since the country was founded?

My point was if that market is down 13% today, then that’s VERY bad. It’s going to be known for its crazy price swings for the rest of its history. But I’m betting prices aren’t down 13%. I’m betting it’s smaller/cheaper/or some other reason properties being sold instead of bigger more expensive properties. Hey shouldn’t even talk about average home prices. They should be talking about average cost per sf. And even that isn’t very comparable if one’s a single story, or is lake front, or has a big lot, or unfinished basement.

Likely higher interest rates will crush higher end home inventory numbers as sellers pull off the market to preserve their low interest rate mortgage. A 3% increase in rates affect payments on a $300k home much less than a $600k home. So more of them are sold. As people are priced out fo expensive homes by rising interest rates they buy cheaper homes, so more of them we sol. More of the lower end homes than higher end homes are rentals and some landlords might be fleeing the market so more of them are sold. All these things lead to the “average home price sold” being lower.

Rick Pozos · Answer

I think it depends on how you are trying to find sellers. As mentioned, absentee owners are not generally selling, no matter how convincing you are when you call them out of the blue. When I get the calls and texts, I block them immediately.

You have to get the people to call you. Marketing, website, seo, person who has meetups, giver of knowledge, etc.

To answer your question, if more people are hurting, it will become quite a bit easier to buy, but harder to sell. Right now it is harder for me to buy. But once I have a property, it takes no time to sell. I need to step up my online presence so that when more people are looking to sell, I will be there!!

David Lee Hall, III · Answer

@Bill Brandt I am just reporting what two National institutions reported. Additionally, you are only going to run comps agains similar style and size homes and adjust based off of those not the entire market.

You did not address the original concern of what to do for a turning market. All real estate is local and it is great that Vegas is doing great, but it also had some of the largest negative swings in the country 08-12, while PGH was flat with little if any decline. Perhaps you can address the original question of how you adjusted wholesale models in your market during that window?

Scott Trench · Answer

I think it will get easier for wholesalers. In a market with falling prices and foreclosures, middle-class homeowners become motivated sellers at higher rates. Someone who can help them close quickly will be in a better position, not a worse one, to profit.

The last few years have to have been particularly difficult times for wholesalers. Many seller's could simply list their property on the MLS with an agent, and close easily, and for top dollar 30-35 days later. That eliminates the need for a wholesaler on the sell-side for many. As that dynamic changes, the value of a wholesaler's services will become apparrent to more sellers in my opinion.

If/When a Recession hits, will wholesaling get easier or harder?

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