Why do I hate dealing with wholesalers?

Why do I hate dealing with wholesalers?

Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes

Lets be honest here. I don't like the wholesaling business. At least a certain segment of that business. There is nothing productive, or creative about taking a property, turning it around and selling it as it is for a profit. Having said that, I'm not completely against it either. In the land of "making a buck" it is understandable. We are,after all, a nation of cottage industries.

A recent even just cemented my opnion on wholesaling. Since I'm not here to ruin anybody's business, I will keep the names and addresses concealed.

I recently announced going to Birmingham, AL for another properties expedition (Formal announcement to come soon...) and I called all wholesaler who have properties in Birmingham to send me their list for consideration. I have buyers who could be interested.

I was contacted by one person who did send me a list, so I went over it and one property in particular caught my eye. Its address seemed really familiar. The asking price was closed to $40,000 which is way higher that what REOs or HUD is selling in that area. Much higher.

I went back and realize why this address was so familiar. Several months ago, that property was on the MLS and I actually made an offer on it. It was listed at first at $17,000. I made an offer on it for $12,000 which was rejected. Two weeks later, I noticed that the price had dropped to $10,500. I called my agent and asked him to put an offer for the asking price. He dug further and found out that the property was put up with a known internet auction house. I asked him to bid on it for that amount. He did and the bid was accepted. Contract was sent, which I signed it and then.... Silence. I didn't hear anything. My agent could not get the selling agent at all. Suddenly he gets an e-mail from the auction house telling him that the seller pulled the property out of the auction to bulk it with other properties and to be sold to a wholesaler.
They claimed that the biding was not binding.

Now, this property was not changed or improved since transacting to the wholesaler (In a matter of fact, every time I drive by it, I see a hand-written sign on it saying: "Rent this property with option to buy" ). I have no idea how they even get to that number that is closed to $40,000.

I don't mind wholesalers making a buck and some of you may say, Hey, this is a free market, nobody force you to buy it. True. However, the only thing that bugs me is, that this is preying on the innocents and those who are not really familiar with that particular market. Since it is not advertised to the public (It is not listed with any agent) I assume that this is aimed at other wholesaler or people like me.

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Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
16y
Originally posted by Chris Trook:
Wholesaling is - buying and recasting a property for 70% or less of ARV.

Do you have a problem with that?



By who's definition?

I'm actually a little bit on Eddie's side here and can see where his true frustration lies.

The fact that he made several serious attempts to purchase this property only to have the rug pulled out from underneath him can in fact be frustrating.

The problem I see with all too many 'wholesalers' is they try to 'wholesale' a property at a much higher price thinking each deal is their goldmine deal.

I constantly get 'wholesalers' who email me about properties at a 'discount'. For instance, purchase price is 95k and retail is something like 115k, that's ridiculous!!!

I have a lot of bird dogs/wholesalers on the look out for Sub2/owner financing available deals and all too often they get told to pound sand when they try to include their 'fee' to the point where it no longer makes sense simply because I could buy a house retail and get it cheaper. After multiple attempts, they still don't get and they still don't make any money.

I certainly don't mind wholesalers making money, but when its so much that it becomes overpriced even at the retail level and they try to sell you on that crap, it does get old really really quick.

See this reply in the discussion

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  • Wholesaler · Amarillo, TX · Member since 2008 · 369 posts · 75 votes
    16y

    Wholesaling is - buying and recasting a property for 70% or less of ARV.

    Do you have a problem with that?

  • Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    In the product world, wholesaling is buying in large quantities then retailing in small quantities. The closest thing in real estate would be someone who buys in bulk (builder closeouts, condo projects, bulk REO) and then sells individual properties.

    Most wholesaling, though, refers to someone who buys an individual property then resells it. In reality, its no different than brokering. You find a property for sale, find a buyer and connect the two, taking a fee. Brokering, plain and simple. Yes, I know the mechanics are different, but that's mostly to deal with the fact its unlicensed brokering. I don't mean that in a pejoritive way, just a fact. If you're licensed, you have one method for collecting a fee for connecting a buyer and a seller. If you unlicensed, you have another set of methods, and those methods are collectively called wholesaling.

    If the deal is OK, I don't have a problem.

    I do think its pretty silly that some would be wholesalers offer a property that's on the MLS at a price higher than its listed on the MLS. Duh? Or, offer another wholesalers deal at a marked up price.

  • Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
    16y
    Originally posted by Chris Trook:
    Wholesaling is - buying and recasting a property for 70% or less of ARV.

    Do you have a problem with that?



    By who's definition?

    I'm actually a little bit on Eddie's side here and can see where his true frustration lies.

    The fact that he made several serious attempts to purchase this property only to have the rug pulled out from underneath him can in fact be frustrating.

    The problem I see with all too many 'wholesalers' is they try to 'wholesale' a property at a much higher price thinking each deal is their goldmine deal.

    I constantly get 'wholesalers' who email me about properties at a 'discount'. For instance, purchase price is 95k and retail is something like 115k, that's ridiculous!!!

    I have a lot of bird dogs/wholesalers on the look out for Sub2/owner financing available deals and all too often they get told to pound sand when they try to include their 'fee' to the point where it no longer makes sense simply because I could buy a house retail and get it cheaper. After multiple attempts, they still don't get and they still don't make any money.

    I certainly don't mind wholesalers making money, but when its so much that it becomes overpriced even at the retail level and they try to sell you on that crap, it does get old really really quick.

  • Real Estate Investor · North Central Arkansas · Member since 2009 · 509 posts · 178 votes
    16y

    I'm a Wholesaler and I agree with Eddie...What that guy is doing is not Wholesaling. The value of a good Wholesaler is his ability to find properties that other people are not aware of and present those deals to someone at a fair price.

    Like Nick said, there are too many people looking at the home as their next goldmine...not exactly a smart way to build rapport and establish yourself as a go-to guy for discounted properties.

    Jeff

  • Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Chris, actually knowing that market, there's no such thing as ARV. West and north part of Birmingham is so all-over-the-map, that it close to impossible to get an estimated ARV. ARV is the price of a particular property after rehab at the time of sale... yes. Strange but true. The only way to evaluate a property in this market is by its potential cash flow and that is easy to do (find the ratio between the cost of the property + estimated rehab + contingencies in relations to the potential rent)

    Jon, Brokering is fine with me because the rules are set in advance. You have a property for sale, I find you a buyer and for that I get an agreed percentage of the deal. Wholesaling is not quite that.

    Nick, you hit the nail right on the head. Again, I don't have a problem wholesaler making money but I do have a problem with gouging. If a wholesaler bought that property for the asking price, ($10,500) and then offer it at 75% profit ($17,500) expecting 50% profit (Selling it for $15,500) that would be acceptable, but more then 300% profit? Even Gordon Gekko would think that this is excessive.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y
    Originally posted by Eddie Ziv:
    ...
    (In a matter of fact, every time I drive by it, I see a hand-written sign on it saying: "Rent this property with option to buy" ). I have no idea how they even get to that number that is closed to $40,000.

    ...


    Based on the snippet from Eddie's post that I left alone here, I'm not so sure that this was bought by a wholesaler looking to resell to some investor. It looks more like a retail sales attempt to me. Now, if that block is all rental properties, then it might be more directed at some investor who is lacking in funds (based on the lease option message). But if that block is mostly owner occupied, then this is trying to get an owner occupant buyer, and trying to get them to pay what sounds like an exorbitant price, in order to get the lease/option terms.

    I sense and have experienced some of Eddie's frustrations in trying to buy REO properties - and I think most REO buyers at some point encounter the same things. The listing on auction sites so that they can come back at you with the "multiple offer - give your highest and best" crap is just another of the games that banks will play. Packaging it into bulk is another. But I don't know what role the wholesaler played in causing that frustration.

    I agree with this part completely:

    Originally posted by Eddie Ziv:
    ...
    There is nothing productive, or creative about taking a property, turning it around and selling it as it is for a profit. Having said that, I'm not completely against it either. In the land of "making a buck" it is understandable.
    ...

    The property that Eddie is telling us about certainly seems to fit with this snippet.

    I'm not here to defend wholesalers, because what all others have posted here is dead on with my experiences with wholesalers as well. I'm just trying to make certain we're aiming at the proper culprit for the case that Eddie has identified.

  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y
    Nail on head here. This is one of teh biggest problems with so-called wholesalers. Just about everyone calls themselves a wholesaler, but in most cases, they are nowhere close to that. I think a good key/guideline for a buyer is to check out the wholesalers experience and background.
  • Note Investor · Pasadena, CA · Member since 2009 · 849 posts · 544 votes
    16y

    Well, if it makes anyone feel better, my thought is that the true wholesalers will create good buyer lists and stay in the game.

    If you are a good buyer, then you'll stick around, too. Long enough to see the pseudo-wholesalers go back to finding a day job.

  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y

    Excellent point Loc!

  • Real Estate Investor · North Central Arkansas · Member since 2009 · 509 posts · 178 votes
    16y

    I would advise if you get a "deal" sent to you that is clearly not a deal to let them know that it is NOT a deal and explain why...who knows, maybe you'll be the guy that kicks them in the butt and forces them to actually learn the business.

    Jeff

  • Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by Jeff And Cheray Warner:
    I would advise if you get a "deal" sent to you that is clearly not a deal to let them know that it is NOT a deal and explain why...who knows, maybe you'll be the guy that kicks them in the butt and forces them to actually learn the business.

    Jeff


    I did exactly that, Jeff. Thanks. :wink:
  • Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    16y

    The key to being a good wholesaler is knowing how to analyze a deal so that there is plenty of profit for the end buyer with all fees included.

    The thing is that a whole lot of newbies jump right into wholesaling without knowing what they are doing. They don't know how to analyze a deal because they assume they have a good deal just because they are getting $25K less from FMV or the ARV they don't understand the repair costs,holding costs(if any)closing costs,etc.

    Another thing a lot of wholesalers lack is negotiation skills. That's another key aspect in wholesaling. If you can't negotiate a good deal with the seller than you are in the wrong business plain and simple.

    Learn how to analyze and negotiate and you'll do good in this business otherwise you are setting up for failure which is what you don't want.

  • Altus, OK · Member since 2008 · 2k+ posts · 690 votes
    16y
    Originally posted by Chris Trook:
    Wholesaling is - buying and recasting a property for 70% or less of ARV.

    Do you have a problem with that?


    The thing is that 70% rule is no longer valid in a lot of markets especially when the next wave of foreclosures hit.

    Usually rehabbers rather go by 65% or less these days and I believe that's a good conservative number anyway.

  • Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    16y

    I'm going to be play devils advocate.

    The wholesalers in my area are making a killing right now because investors have lowered their profit margins. The wholesaling model seems to be best model for generating profits.

    A wholesaler who I spoke with yesterday is moving properties at 80% of ARV without repair for cosmetic rehabs. He is moving them around 70-75% of ARV with more work than cosmetic rehabs. I have spoken with several buyers and they are only looking to make 10% of ARV right now.

    It appears that investors are more concerned with using their money regardless of the lower return versus just sitting in the bank waiting on the 70% minus repairs property that only comes across once in a blue moon (from a wholesaler, they are easier to get by yourself).

    So if I can pick up a property and move them and make $5-7K in a week, versus buying rehabbing and only making $20K in three months. Why would I not want to be a "wholesaler"?

    Doesn't the saying go "When everyone is buying you should be selling, and when everyone is selling you should be buying?" Well, everyone is buying right now.

    IMO, there is a new definition for wholesaling in this market. Till it corrects itself, I do not think the 70% minus repairs are coming from anyone but your own hard work. The investor needs to adapt. This is how I see it in my market.

    Okay, now you guys can tear my post apart.

  • Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y
    Originally posted by wheelhouse:
    So if I can pick up a property and move them and make $5-7K in a week, versus buying rehabbing and only making $20K in three months. Why would I not want to be a "wholesaler"?

    Ok, fair enough, but what is the percentage of the sale that $5-7K represent? I bet you it's maybe 15% or most likely less. That is reasonable. Again, although I'm not a great fan of that segment of wholesaling (i.e. no added value to the prouct), I have nothing against people who are making money that way. All I'm asking is to be fair and not to gouge inexperience newbies.
    When I tell Californians that I can get them a house for $15,000 in Alabama, they think I'm talking about a tool shed. No - I say - a real house that you can put a tenant in and gross $500-$600 a month. They laugh. Why? Because if you take the worst neighbourhood in Los Angeles, you won't be able to find a one bedroom condo for less then $85,000. So, if someone lists a house in Alabama for las little as $40,000, to them, it sound like a great deal. Little they know that that someone down the street is selling a similar house for $15,000.
  • Real Estate Investor · North Central Arkansas · Member since 2009 · 509 posts · 178 votes
    16y
    Originally posted by Eddie Ziv:
    I did exactly that, Jeff. Thanks. :wink:

    Good for you.

    Jeff

  • Real Estate Investor · North Central Arkansas · Member since 2009 · 509 posts · 178 votes
    16y
    Originally posted by wheelhouse:
    I'm going to be play devils advocate.

    The wholesalers in my area are making a killing right now because investors have lowered their profit margins. The wholesaling model seems to be best model for generating profits.

    A wholesaler who I spoke with yesterday is moving properties at 80% of ARV without repair for cosmetic rehabs. He is moving them around 70-75% of ARV with more work than cosmetic rehabs. I have spoken with several buyers and they are only looking to make 10% of ARV right now.

    It appears that investors are more concerned with using their money regardless of the lower return versus just sitting in the bank waiting on the 70% minus repairs property that only comes across once in a blue moon (from a wholesaler, they are easier to get by yourself).

    So if I can pick up a property and move them and make $5-7K in a week, versus buying rehabbing and only making $20K in three months. Why would I not want to be a "wholesaler"?

    Doesn't the saying go "When everyone is buying you should be selling, and when everyone is selling you should be buying?" Well, everyone is buying right now.

    IMO, there is a new definition for wholesaling in this market. Till it corrects itself, I do not think the 70% minus repairs are coming from anyone but your own hard work. The investor needs to adapt. This is how I see it in my market.

    Okay, now you guys can tear my post apart.

    Justin,

    Are you sure these guys are not flipping these to retail buyers? If not send them my way...I could use some buyers like that. :D

    Jeff

  • Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    16y

    I can only confirm they are cash buyers. Lots of cash going around in AZ right now for properties under $200K. Retail and investors.

  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y
    Not only that, a good wholesaler leaves the MAJORITY of profit for the rehabber/investor/buyer and not themselves. There are too many people out there claiming to be investors who simply overpay for properties. There is no way arounjd that and they become our competition because they are willing to pay more with their lack of knowledge. The ONLY way I am willing to lower profit margins is IF the deals flow more in quantity, are more turnkey and I can get in and out quicker.
    Example - If it takes me 3 months to get a 25% return, then I am willing to make 13%-14% on investments if I can be in and out insid of 6 weeks. Ultimately, my annualized return is the same but I end up making more money through quantity.

    I am actually working on an edited technique to do just this and am very excited about it.

  • Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    16y

    I could not agree more. Time value of money should be the decisioning factor.

  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    16y

    Well, one of the factors anyways. Bottom line is bottom line, but time is of value and in order to compare apples to apples, using an annualized calculation approach to return is important.

  • Real Estate Investor · Dale City, VA · Member since 2008 · 317 posts · 77 votes
    16y

    Some of you are griping that wholesalers don't add value to a property. I had a Realtor say the exact same thing to me. You're absolutely correct. That's what rehabbers do. However, wholesalers fill a need by helping motivated sellers out of a jam and providing a product to buy & hold and rehabber investors.

  • Wholesaler · Amarillo, TX · Member since 2008 · 369 posts · 75 votes
    16y

    I just took offense to the "All Wholesalers Suck" approach to this post.

    If you are spending time messing around with people who don't bring you good deals then who's fault is that?

    If you've researched wholesaling then you know that the basic model is 70% of LTV - repairs. I know that some wholesalers are using 65% as I do myself. That doesn't really do much to change my argument.

    I also use cash flow analysis such as income vs expense, 50% rule and multipliers that adjust according to the neighborhoods.

    I only charge 5% of ARV or 10-20% of equity.

    If someone is trying to sell you a "cheap" property at or above retail then they are a scammer, hustler, dumb $%@ not a wholesaler.

    It sounds to me like the wholesaler bought the property and is trying to carry the note or L/O. It doesn't sound like they were marketing it as a wholesale deal. Did this guy actually market the property to you, Eddie, as a sweet opportunity for a cash buyer? I mean if you get a so-called wholesaler sending you junk then just hit the spam button.

    I also disagree that the argument "buying, doing nothing, and reselling" is a non productive activity.

    Good deals don't just walk up to you and jump into your lap! (unless you have a good wholesaler of course.)


  • Real Estate Investor · Amarillo, TX · Member since 2008 · 173 posts · 15 votes
    16y
    Originally posted by Chris Trook:

    I also disagree that the argument "buying, doing nothing, and reselling" is a non productive activity.

    Good deals don't just walk up to you and jump into your lap! (unless you have a good wholesaler of course.)


    After reading this thread I don't see the big deal, wholesalers in general are not bad, they DO provide opportunities for investors that would otherwise not be available(for the same price anyways). I agree with Chris wholeheartedly, besides, when you buy a product, mark the price up without changing the product you basically have the business plan of every major supermarket in the country. Are you mad at Walmart for having to pay $1.50 for a product that they paid only $0.75 for? Come on people, I think you hate BAD/INEXPERIENCED wholesalers, it should be left to the pro's anyhow.

  • Investor · Mableton, GA · Member since 2009 · 1k+ posts · 465 votes
    16y

    Demos, Wholesalers are basically like realtors without license, guidelines, rule or regulations. Realtors also don't add value to the property, but they work under strict guideline and fees that are predetermined. The wholesale market is wild, unregulated and although I agree that someone who doesn't have a fair business practice would not survive for long, those bad apples effect the rest of the industry.

    Chris, if I thought that the person who offered me that property is doing something illegal or grossly unethical, I would exposed that person on this site. That property was on a list of properties countrywide. That person probably works with a big wholesaler and gets the percentage upon a sale (My assumption).

    In general. I never claimed that all wholesalers are evil. This is also not the first time a grossly over priced property is offered to me by a wholesaler. The title of the thread asks a question which is answered in the body of the thread based on my specific experience, not to say that, that is the reflection of the industry. Some people may have other experiences.

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