Buying from a wholesaler for very first deal???

Question

As a newbie, I'm soaking up as much info as possible, but most of the wholesale topics I've seen are in regards to selling. Though I'm just starting the education phase, I have an acquaintance who knows I'm very interested in REI and is putting me in touch with someone who seems to be a wholesaler, as he's told him he "may have a deal for me". I may meet with him as early as tomorrow to hear what he has to say/offer, but he definitely knows more than I do. I'm wondering what questions are a MUST ASK to protect myself from any newbie mistakes? Again, sounds like he has a house he'd be wholesaling to me to flip or rehab to rent. I think I'm too green to be considering any deals just yet, but also don't want to pass up a good deal from someone who may very well be trying to legitimately help a newbie get started. I can give more details after we meet but would like to know some good questions to ask him. For what its worth, this guy has a wide range of REI experience over many years (not just wholesale). Also, sounds like this oppprtunity would likely be close to 2 hours from my home.

Any and all guidance is appreciated!

Chad

Any and all guidance is appreciated!

Chad

Chad Tate · Answer

@Matt Vogt thank you for the quick reply information.  I'm still reading a lot and trying to determine what specific niche interests me the most, so I really haven't started researching my immediate area.  The opportunity I was asking about in my previous post just seemed to fall in my lap.  I'm a bit concerned that I'm in a fairly affluent area and the market continues to be hot around the Dallas/Ft. Worth area.  With limited capital to start with, I'm just not sure what strategy would work best to stay closer.  Any suggestions on good strategies in such a good RE market?

@Lenzy Ruffin, thanks again for the links.  I've been reading through them all evening and all were filled with great information!  I really appreciate the input both of you have provided.  I look forward to getting my feet wet and finding that first deal!

Matt Vogt · Answer

Lenzy had it right... you must run the numbers and have enough room for error in your numbers. I would suggest that you start modeling potential deals for a while before pulling the trigger on one. It's easy to get emotionally invested and make a bad decision. Use time to hone your skills, build confidence, and to use reason over emotion for these decisions. Could you be walking into a diamond of a property with this guy, maybe. Could you be walking into your biggest nightmare, finding yourself way over your head, maybe. I'd play it safe and investigate more options before being sold on one specific property/market without carefully weighing the alternatives.

One thing to consider here is that wholesalers are sales people to some degree. They are selling you on a "Deal" - be it a true deal, or a pig with lipstick. I would suggest taking everything with some salt, and doing all the due-diligence to ensure that it truly is a deal.

Have you looked at properties near you, are they out of your reach? 2 hours might work if you have all your systems setup, but you're still going to need to go there from time to time (more likely than not).

Good luck, just keep reading and soaking up all the knowledge that you can.

Chad Tate · Answer

Thanks for the reply and links to the useful information. I'm still figuring out how to navigate the plethora of information available to minimize wasting people's time with questions that might already be addressed in other areas of the site!

The gentleman I met with is intimately familiar with his market (about 2 hrs away from me, however) and is convincing me with his wealth of knowledge and access to fantastic contacts (local banker familiar with the area, property mgmt. company that he has used for years, etc). Being a friend of a friend, I really get the feeling he's really wanting to help a newbie out with my first deal. He's telling me that with the right property mgmt. company, I have nothing to worry about regarding location and keeping it rented wit $300-$400 cash flow.

I'll read all the links and may follow up with more questions.

Lenzy Ruffin · Answer

Here are some links that will show you how to evaluate a property either as a flip or as a rental. You shouldn't buy anything (whether from a wholesaler or directly from a homeowner) until you run the numbers using these rules and determine that it's a true deal and you will make money. There are lots of wholesalers who will try to sell you a "deal" that is actually a property they were foolish enough to put under contract for too much money and now they're looking for a greater fool to unload it on. These formulas protect you from being that greater fool, as long as you input legitimate comps, rehab costs, and rent rates into them.

https://www.biggerpockets.com/renewsblog/2014/02/1...

https://www.biggerpockets.com/renewsblog/2010/06/3...https://www.biggerpockets.com/renewsblog/2013/01/1...

You can run the numbers on the property that is being presented to you just so you get some practice doing it, but I would suggest you not even consider purchasing that property, regardless of what the numbers are. Two hours away from your house is just too far. If you live in a market where you don't have any choice but to invest somewhere non-local, then you should be making a deliberate choice to invest in a particular non-local market after you've done your research and put the necessary things in place to enable you to invest there. But don't go two hours away just because somebody is selling a house there. Here are some links that will help you choose a market to work in.

https://www.biggerpockets.com/renewsblog/2010/7/10...https://www.biggerpockets.com/renewsblog/2014/04/1...