Specialist · Houston, TX · Member since 2016 · 29 posts · 11 votes
Here's a question for you seasoned wholesalers (and investors who purchase properties from wholesalers)....
I am in the Houston metro area and I am constantly seeing big name wholesalers in the area bring "crappy" deals to their investor buyers. Sorry if this is you but I don't understand how a wholesaler can bring a deal nearly $100k OVER the "optimal formula" for a fix and flip (ARV * 70%- repairs= offer) on a $500 ARV property. I know everyone must do their due diligence, but it's frustrating and I feel like I can't find a wholesaler who brings value.
Am I off base here?
Many of these so called deals don't even work for a buy and hold. And who are you turning around and selling these homes to? You must be or else you wouldn't be in business stil...are there just a lot of foolish investors out there that don't know how to do math?? Lol! I am fairly new still but have a pretty good head on my shoulders when it comes to finding deals but perhaps until I start developing more relationships with wholesalers, I can't expect to get the good pickens! Please, any wisdom is appreciated! Thanks.
Investor · Houston, TX · Member since 2014 · 37 posts · 7 votes
10y
wholesalers in Houston ? Don't try them , they want to maximize there profits, left you 10% -15% ARV sometimes no profit for you at all , I never deal with them , I am Realtor in Houston PM me if you need help to find a deals on MLS.
Investor · Mckinney, TX · Member since 2016 · 26 posts · 8 votes
10y
The problem I see is the market.. The market in Houston is still hot, there are deals out there you just need to look through the crap that comes in. You never trust a wholesalers numbers!! I always find that they are way off. What I have found with everyone wanting to get in to the real estate business and willing to pay over ARV for a property then the wholesalers raise there cut to really take advantage of the market. This has happen before in the past then the market changed and a lot of wholesalers went out of business. The large acquisition company's are leading the charge. Your math is fine but people are paying way to much. I sat in on a local guru webinar the other night and he/she had funny numbers too. I'm an agent also and there are very few real deals on MLS. Hang tight the market is shifting you can see it in the housing report that just came out.
If you have some experience I would meet up with a few people that what to learn wholesaling and teach them the real way to do deals.
I forgot to add he/she wanted $1499 to receive a book and cd set.
Houston, TX · Member since 2015 · 24 posts · 10 votes
10y
The big name wholesalers will all have lists of "big name buyers" who have deep pockets and lots of funding. Those are the ones that get first crack at their best and most profitable deals.
Then the little guys get whatever's left of the deals and the duds. I long decided to give big name wholesalers a wide, wide berth because even the ones who don't fudge their ARV/rehab numbers (and in fairness, some of the big guys don't), will still have provisions in their contracts that ensure THEY make money no matter what, such as requiring a $5,000 non-negotiable, non-refundable deposit to "lock up a deal".
If you are going to deal with wholesalers, I say work with independent ones, or small wholesaling companies.
Or better yet, become your own wholesaler and start direct mail campaigns and knocking on doors yourself.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
Non-refundable deposits? That is the worst thing anyone can agree to. Here is what I tell people about dealing with unlicensed brokers: 1. Never trust their ARV. Make them provide WRITTEN comps. 2. If they give rehab estimates, make them provide WRITTEN bids from licensed contractors. 3. Make them PROVE they have a contract on it (some guys try to piggy back other deals) 4. NEVER pay a non-refundable fee.
If you were dealing with a licensed agent, here is the difference: 1. An agent cannot or should not make ARV representations. They can EASILY be sued. 2. An agent doesn't give rehab estimates. The tell the customer to get their own 3. An agent will either have the listing or be representing the listing. 4. Agents NEVER ask for non-refundable fees.
Agents have a LOT to lose. Unlicensed brokers have nothing to lose. You may very well get what you pay for.
Houston, TX · Member since 2011 · 673 posts · 360 votes
10y
Full disclosure, my company wholesales deals in Houston. We are not a little guy, might even call us one of the largest in town.
The frustrationn I'm hearing from everyone is real. But let me share with you the numbers that our buyers are currently buying at for different types of deals.
Most of the properties we wholesale are best used as rental properties. Most of the time thats because the margins for these properties are the best for us the wholesaler. Buy and hold investors want equity but want cash flow more.
So most of our independent buyers are happy buying at 80-85% equity.
The institutional buyers dont even care about equity, but have narrower buying criteria (newer houses, less work ect)
Flippers in houston are buying houses at 75% and those that are using family money or cash are happy buying at 80%.
Unfortunately we are finding if you want higher % margin deals you have to go to a price point that is not easily accessible to the small or just starting out flipper. $400k+ ARV. Unfortunately until you get over $1M thats a really slow moving part of our market right now. $1M+ is slowing down in recent months.
Hope this helps you guys. The frustration is real, the competition is real. BEST way to get the BEST deals is market for them yourself. That comes at a considerable expense of both time and money.
Specialist · Houston, TX · Member since 2016 · 29 posts · 11 votes
10y
Thank you, @Sam Craven for your insight! I had a feeling that might be what's going on. Since we are not yet buy and hold investors, I haven't spent as much time doing the research to determine those numbers. When I first started looking into investing by fix and flips, the "word on the street" was that you can get your deals through wholesalers and so I am a little disenchanted that's not happening. BTW, Senna Homes was not one of the companies I was referencing. :)
If you were dealing with a licensed agent, here is the difference: 1. An agent cannot or should not make ARV representations. They can EASILY be sued. 2. An agent doesn't give rehab estimates. The tell the customer to get their own 3. An agent will either have the listing or be representing the listing. 4. Agents NEVER ask for non-refundable fees.
Agents have a LOT to lose. Unlicensed brokers have nothing to lose. You may very well get what you pay for.
A couple issues here...
An agent is your best source of ARV comps... take price per SF... control for location, bathrooms, parking, age/style of home... and you can get an idea of what the high end of the market would bear. That's ARV. If your agent isn't providing comps, they are missing out on an important way to add value.
An agent in Florida can absolutely ask for a non-refundable fee... it's in the FAR approved Exclusive Buyer Brokerage Agreement.
Agents should be choosy about what investors they work with. It's not about the biggest list... but 4 or 5 solid buyers that make decisions fast.
They should also have an understanding of the value that wholesalers can potentially bring to the table... after all those wholesalers do a lot of the marketing that agents should be doing.
Investor · Phoenix, AZ · Member since 2015 · 191 posts · 152 votes
10y
@Christine Heartsill Full disclosure I've been an agent for a major wholesaler- New Western Acquisitions, here in Houston for a good while now. We are a fully licensed brokerage.
Buying at 70% of ARV in most areas of Houston is unrealistic even before we mark the price up and sell it to our investors. That's not just us, thats industry wide.
Sure, If you're spending 5-6 figures a month on your marketing then yea you'll come across a handfull of 70% deals. But for the most part, those deals are anomalies in the current state of the market. Like @Sam Craven said, most investors right now are comfortable buying between 75-80% of ARV which is what the market allows for right now. It is what it is...
Those investors who are buying at 75-80% are DOING deals instead of sitting on the sidelines waiting for the perfect deal to come along. Ive seen that cycle with hundreds of investors, and the ones who ACT instead of finding an excuse not to buy, theyre they ones making money.
@Crystal Em@John Thedford Non refundable deposits are necessary for a wholesaler to be successful because unlike a LISTING AGENT or a BUYERS AGENT, a wholesaler actually has money on the line. If the wholesaler gives the investor the OPTION to back out of a deal, the wholesaler could be left footing the earnest money bill, or at the very least losing their option fee. Why should a wholesaler pay for a buyer's mistake? If you saw the house and had a chance to look around inside and signed the contract, then you should be held to that contract.
Wholesalers don't have the luxury of relisting a property or looking elsewhere (like a buyers agent or listing agent) if a buyer backs out of a deal. A listing agent can just say " mr seller your buyer backed out of the deal, but we'll just relist it and I still get my 3%".
However, if a buyer backs out on a wholesaler, that wholesaler has lost ALL of that MARKETING TIME because they thought they had a buyer....now they have to either ask for an extension or lose the deal and their money.
....so tell me how is reasonable that a wholesaler who did all the work to find the deal and lock it down, pays for the mistake that the buyer made....signing a contract they weren't sure about....?
As long as the wholesaler is up front with those facts and is a reputable company, I've yet to hear a legitimate argument against nonrefundable deposits...
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
10y
^Buyers cannot just "back out of a deal" unless the seller was dumb enough to sign a contract without any earnest money or provided some kind of "buyer's remorse" contingency. Typically your only out is either on financing, inspection, or title. If you don't close for any other reason, you lose your earnest money.
Investor · Phoenix, AZ · Member since 2015 · 191 posts · 152 votes
10y
@JD Martin not sure if I follow. The buyer CAN back out if they have an option (if deposit is refundable). The debate here is whether wholesalers should or should not require non refundable deposit or whether or not investors should work with them.
@JD Martin not sure if I follow. The buyer CAN back out if they have an option (if deposit is refundable). The debate here is whether wholesalers should or should not require non refundable deposit or whether or not investors should work with them.
When you buy a property through a licensed agent/broker, i.e. working through a realtor, you pay an earnest money deposit with the seller and the contract. Those funds are the seller's guarantee that the buyer is going to follow through on the contract, unless one of the permissible contingencies comes into play (i.e. fails inspection, offer depends on financing, there is a lien on the title, etc). Outside of those parameters, if the buyer fails to close, the seller keeps the money. In your case, the buyer gives you a "non-refundable deposit" without luxury of due process. In other words, if the buyer finds out later that there's a non-disclosed lien on the title, hidden termite damage, or some other unknown defect that would make closing impossible or inadvisable, they are SOL, as the saying goes. I'm guessing that you guys don't go through any of the trouble to make sure the investor is buying a clean property, with all defects and conditions known and obvious, because to go through that trouble usually means spending money on inspectors, title searches, etc.
Investor · Phoenix, AZ · Member since 2015 · 191 posts · 152 votes
10y
@JD Martin Fortunately for buyers, your guess is inaccurate. You'll have to come to Houston and find out for yourself. Most of the major wholesalers in Houston do pretty thorough due diligence on their deals including NWA...if they didn't they wouldnt be 'major' for much longer...
In "my case" the buyer DOES have luxury of due process. They get to see the house before they sign the contract.
They can bring a contractor or someone to inspect but thats their responsibility. You're buying INVESTMENT properties, how can you expect it to pass formal inspection if it needs to be rehabbed? I don't see that being a realistic scenario.
Most wholesalers in Houston including NWA have a contingency in place that protects the buyer from having to close if any liens are not cleared prior to closing. If they don't provide that clause, then YES you should avoid them.
As far as hidden issues like termite damage...don't sign the contract if you're unsure. How is it any less the buyer's fault than the wholesaler, if both parties didn't see the hidden issues? In your scenario the buyer takes no loss for their mistake and the wholesaler is left paying for it. You'll have to go back a re read my previous post because this was explained. It is not feasible for a wholesaler to have a financing, or inspection contingency and I've yet to meet one that provides those contingencies in Texas.
@JD Martin Fortunately for buyers, your guess is inaccurate. You'll have to come to Houston and find out for yourself. Most of the major wholesalers in Houston do pretty thorough due diligence on their deals including NWA...if they didn't they wouldnt be 'major' for much longer...
In "my case" the buyer DOES have luxury of due process. They get to see the house before they sign the contract.
They can bring a contractor or someone to inspect but thats their responsibility. You're buying INVESTMENT properties, how can you expect it to pass formal inspection if it needs to be rehabbed? I don't see that being a realistic scenario.
Most wholesalers in Houston including NWA have a contingency in place that protects the buyer from having to close if any liens are not cleared prior to closing. If they don't provide that clause, then YES you should avoid them.
As far as hidden issues like termite damage...don't sign the contract if you're unsure. How is it any less the buyer's fault than the wholesaler, if both parties didn't see the hidden issues? In your scenario the buyer takes no loss for their mistake and the wholesaler is left paying for it. You'll have to go back a re read my previous post because this was explained. It is not feasible for a wholesaler to have a financing, or inspection contingency and I've yet to meet one that provides those contingencies in Texas.
So let me get this straight: let's say a problem with the title crops up. Of course the buyer is not going to close. Your 'contingency' refunds their money that they paid you, because you (as the diligent wholesaler) has ensured that the property that is being sold can be sold? OK, that's great, then that's not a non-refundable deposit, that is a contingency.
The wholesaler *should* know everything there is to (reasonably) know about the house, because you are going to be buying the house [theoretically, we all know few/any wholesalers actually have the means or intention to close on said great deal] if they can't find a buyer. If you signed a contract with Old lady Smith to buy her house for $40k, with the intention of selling it to me for $50k because I can rehab it for $20k and sell it for $100k, what's my $5k "non-refundable deposit" getting me? What did you do, other than find Old lady Smith, who might be laughing all the way to the bank because she knows there's a dozen title problems and the sill plate is long gone? In other words, are you bringing me a clean property that I can close on? I don't mean "clean" by it doesn't need rehab, I mean clean as in you have identified and disclosed any material defects in possession that would ruin the value of the asset?
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
There are all kinds of issues, not just a non-refundable deposit. In our office, we don't "hook" customers with 3 month, 6 month, etc listing agreements. Sellers can cancel their listing, we say thanks, and BTW, what could we have done better.
Another poster stated that the FAR Exclusive Buyer Brokerage agreement can be used and a non-refundable deposit earned. True, but that is not usually what most agents use. Recall a post I raised the point that properties for sale are not comps. Someone chimed in to say they CAN be. Sure, but those cases are the exception and not the norm for most appraisales.
Real buyers, going through an agent, should be pushed to put reasonable inspection times to assure the agent and seller that the "buyer" isn't playing games.
Someone states about all the money these mass marketers spend finding leads. Real estate brokerages do that. Agents do that. That does not necessarily make a valid case for a non-refundable deposit. There can be some people in the business that make money over and over by having buyers not close. How does THAT bring value to any seller? That is almost like an agent telling a buyer "give me $2500 for my time, I will drive you around, show properties, provide comps, write contracts, everything, and if you buy something I will credit you".
Investor · Phoenix, AZ · Member since 2015 · 191 posts · 152 votes
10y
@JD MartinYou're 5k goes towards to purchase price of the property and gets you the right to buy the property.
Its non refundable contingent on clear title meaning if they back out for any reason other than clear title not being provided, theyre losing their deposit. The buyer is also required to purchase TITLE INSURANCE so yes, every property we sell is 'clean'.
You ask what we did other than find the deal? FINDING the deal is the hardest/most costly/most time consuming part of making a deal happen.... Any real estate pro/active investor in this city will attest to that. We pretty much did everything for you short of rehab the property and list it...
That's like asking, why does a realtor get paid? What did they do besides list it or find the property....? Listing is actually more lax because at least if someone backs out you have plenty of time to move on to another buyer. Wholesalers don't have that luxury, which again is why wholesalers cant have inspection contingencies.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
That 5K "non-refundable" fee gives someone the "right" to purchase the property. Signing a contract and offering EM, with the seller accepting, gives the same "right" but the money IS refundable depending upon inspection, funding, etc.
Bottom line is: these unlicensed brokers are skirting the laws and trying to validate what they do. Any agency can do that and more, give HONEST service, provide protections, AND be held accountable. Dealing with fringe operators leaves the door wide open for a buyer to lose their money, etc. If a dispute about the services through a brokerage rises, either party (or both) can file complaints with their state regulators FREE of charge. Dealing with an unlicensed broker who can you file with? The courts...at YOUR expense.
Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
10y
@Trey Watson, you're wasting your time arguing with these guys. They don't like wholesalers and nothing that we say will change their mind. Treat them like you'd treat anyone else that you knew wasn't ever going to buy from you - be respectful and professional and ignore them.
There are all kinds of issues, not just a non-refundable deposit. In our office, we don't "hook" customers with 3 month, 6 month, etc listing agreements. Sellers can cancel their listing, we say thanks, and BTW, what could we have done better.
Another poster stated that the FAR Exclusive Buyer Brokerage agreement can be used and a non-refundable deposit earned. True, but that is not usually what most agents use. Recall a post I raised the point that properties for sale are not comps. Someone chimed in to say they CAN be. Sure, but those cases are the exception and not the norm for most appraisales.
Real buyers, going through an agent, should be pushed to put reasonable inspection times to assure the agent and seller that the "buyer" isn't playing games.
Someone states about all the money these mass marketers spend finding leads. Real estate brokerages do that. Agents do that. That does not necessarily make a valid case for a non-refundable deposit. There can be some people in the business that make money over and over by having buyers not close. How does THAT bring value to any seller? That is almost like an agent telling a buyer "give me $2500 for my time, I will drive you around, show properties, provide comps, write contracts, everything, and if you buy something I will credit you".
The strawman arguments here are just bad ideas...
A three, or six month listing agreement isn't some terrible thing. I've used "fire me any time' language in listing agreements as well... but it doesn't mean other agents are 'hooking' home owners with contracts they intend to be enforceable.
Most agents do less than 3 transactions a year... so if most agents don't use an EBBA... and even more don't charge a retainer is irrelevant. You certainly can, and some agents do both.
I've had buyers use a zero day inspection period to win multiple offer situations... how do they do that? They walk the property with their GC. They get a quote before they make their offer... a 0 day inspection period and a 5 day close got one of my rehab clients a house for $10,000 less than a competing offer with a 30 day close. Sometimes it pays to be 'unreasonable' when you're negotiating.
I certainly agree that the guy with the best offer wins. Sometimes that is a quick close. Other times it is cash. Other times it may be a higher price with financing but the seller wants more money. No set rules...whatever works in each situation. You are right that most agents do little, and within 5 years at least 80% are gone. When we had the bust in '08 everybody left for other opportunities. Now that RE is strong, everybody is back. Rentals can give you steady income leaving the worries of listing or selling a property behind! The guy that MUST sell to make a mortgage payment or car payment has his back against the wall.
