how to manage and approach a wholesaler

Question

Hi all –

I’d value feedback on managing and approaching a wholesaler (when looking for a flip or BRRR opportunity). I have perused these forums – including reading The Ultimate Beginner’s Guide to Real Estate Wholesaling by Brandon Turner, however, seems the info I’ve seen is framed towards wholesalers themselves – how to become one, be effective, why/ why not, pitfalls, etc. and not necessarily how an investor should think of / work with wholesalers.

These past several weeks I’ve been looking for a deal and have met with a few wholesalers. For those of you who have experience buying from wholesalers, I am curious to understand your strategy in negotiations and what level of transparency you expect (if any).

Do you expect your guy to disclose what his assignment / finder’s fee is? I appreciate the “as long as the math works, it shouldn’t matter to you” view, however, one guy I met with said from the start that he’s 100% transparent, while another guy said “it should not matter” what I paid / what I’m making. While this is correct in theory, as an investor who’s relentlessly looking for value, I can’t help myself – I really want to know!

In addition to any value that comes out of a more transparent relationship (at least value for me) – does anyone have specific strategies they’ve found successful when working / negotiating with a wholesaler?

Thanks.

Jesse Tsai · Answer

Heres how I deal with wholesalers:

Wholesaler presents a property with a price.  I go comp property and estimate repairs to get a max pay amount.  If wholesalers asking price is less than my max pay amount, then Ill buy it.

If its greater than my max pay amount, Ill counter my max pay.

I couldn't care less what their spread or assignment fee is.  Ive had a wholesaler make a $40K spread on me on a $130k property and I couldn't have been happier for her.  I want the good ones to make money so they can stay motivated and keep finding deals for me.

Heres the brutally honest truth about wholesalers.  They almost all are terrible at what they do, with pie in the sky ARVs, cherry picked comps from the other side of town, and brutally underestimated repair estimates.  In the years I've been rehabbing, I've only seen a small handful of good wholesalers, and I make sure to take care of them and help them whenever I can to keep the deal flow going.

Jason A. · Answer

Hi Account Closed - thanks for your comment. using the double close will shield your spread on the deal - but only temporarily, correct? (which is all you need) but ultimately your purchase and sale becomes public record - is that right? Thanks.

Account Closed · Answer

Yes. But that is months later usually.

Account Closed · Answer

I am an investor/wholesaler with a Florida Real Estate License. I have some properties under contract my self and I sell them to other investors based on what I feel the investor will pay. My philosophy is I plan to make more than $10,000 on the deal because I got a contract for a very low price, then I do a double close. That way the seller and buyer does not know how much I'm making on the deal. This also allows me to sell other properties to the buyer in the future. But If I'm only making less than $10,000 then I'll do an assignment and let the buyer assume my contract.

I also represent other investors that have contracts with the sellers, as an agent. On these deals I only mark up the price the seller wants by a few thousand and when the buyer closes directly with the seller with the contract, I get paid my commission from the sellers.

John Thedford · Answer

Here are some recommendations when dealing with unlicensed brokers:

1. Always require WRITTEN comps that can be substantiated2. Always require WRITTEN bids from LICENSED contractors3, Always require WRITTEN comps to substantiate ARV4. NEVER pay a non-refundable fee5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.6. Always demand a copy of their contract to make sure they have a legal interest in the property.

Unlicensed brokers generally have no insurance. From personal experience most just pull their ARVout of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.

Some of the posters here have advertised properties they have no contract on so. Refer to #6.

Glenn Kopensky · Answer

I had a house in Riviera Beach under agreement to buy from a wholesaler a couple of weeks ago but the deal went bad for reasons neither of us could control. The wholesaler was going to do a double close with the seller and with me on the same day. Frankly, I don't care what the wholesaler is making. All I care about is my deal and whether I feel I am paying a fair price.  I have looked at potential properties to buy and research on the county website shows when the seller bought it and what was paid, but it doesn't change anything about what I'm willing to pay. I only care about my deal.

Jason A. · Answer

thank you @Gabriel Amedee - helpful.

Chris Boyd · Answer

Transparency is a two way street. It is difficult to find honest investors that are genuinely interested in a legitimate win win transaction. As a example, if you, as a investor are set up to make 20k-30k on a fix and flip, we will usually make 10k-12k..sometimes more. Anyone that isn't okay with that...keep moving.

how to manage and approach a wholesaler

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