Wholesaling â€“ What criteria do you use when deciding if an area is good for wholesaling?

Question

This was originally posted in the wrong section/forum, and reposted here...my apologies...still learning the site navigation

I was hoping that some of the BP Wholesaling Forum readers would be willing to share the criteria and/or data points they look at when determining if an area is good for wholesalingâ€¦

â€¦now I am confident that BPâ€™s resident wholesaling optimist, Ryan Webber, will say something like â€œanyplace any time is great for wholesalingâ€â€¦..and I agree that there is much sage advice in this point of viewâ€¦.

â€¦.however, I was looking to see if any of you used more discrete criteria and/or data points to determine if one area was better than another or good at all and if so, what that criteria was.

Thank you in advance for reading and your consideration of my query.

Ryan Webber · Answer

"resident wholesaling optimist"?  Hmmmm.  Yes, I guess when you compare me to some of the pessimists that reside here.

"anyplace any time is great for wholesaling"?  Well I'm going to have to be the resident pessimist on that one.  Focusing on certain areas versus others is essential to long term success in wholesaling.

I set out some of the criteria a couple months ago in this post:

http://www.biggerpockets.com/forums/93/topics/55508--wholesaler-beware-

Many posters I'm sure will follow me and share with you that you should go and find some investors and then find out what areas they want to buy in and then go find houses in those areas.

Well that idea is flawed.

Areas that are MOST conducive to wholesaling are NOT the highest demand areas in your town where EVERY investor wants to buy.  If you polled 100 investors in your town, the top 5 to 10 areas that most of them want houses in will NOT be areas that you want to focus on for wholesaling.

The whole idea of just asking investors where they buy and then going to those areas is flawed because it only factors in demand.  Wholesaling as a profession is not just about demand.  It's not even MOSTLY about demand.  I know starting out the whole issue is finding investors to sell to that have cash, but its only a matter of time before you find more investors than you know what to do with.

The bigger issue in wholesaling is supply.  To generate income on a regular basis from wholesaling, you have to focus on keeping a regular supply of houses.

And you will not find a regular supply of houses in the "most popular" areas for multiple reasons.

First and foremost is that unless an area is at least 30 years old, you won't find the equity to consistently buy deals in that area.  The "most popular" investment areas are typically not 50 year old areas.  Trying to find equity in an area that is 10 years old is a quest for the Holy Grail.  Good luck.  Obviously this does not factor in the whole short sale option, which can generate equity in these areas but is not the focus of this discussion.

The second factor to consider with the whole "most popular" area approach is that you will have the highest level of competition in finding deals in those areas.  Even if the area has plenty of equity, if 75% of investors want houses in that area, it will be crawling with competition who are drooling to buy houses there for more than you, as a wholesaler, can pay for them.  Yes, you can sell a house in that area in 3 days flat to 42 different investors with cash, but if you can only find one every 6 months to sell then you will be eating beans and cornbread nonetheless.

First and foremost, don't waste your time in areas that have no equity (less than 30 years old).

Second, don't focus on the areas that have ultra hot demand.  Too much demand is just as bad as too little.  It is more profitable to focus on areas that have moderate retail demand to minimize competition and ensure adequate supply.

I will make dramatically more money focusing on an area where I can find 10 really good deals but I only have 5 really strong investors to sell them to, versus being in an area where I can only find 1 really good deal but I have 100 really strong investors.

Wholesaling successfully is not about following the crowd.  Its about purposefully focusing your efforts in areas that will maximize the effectiveness of your time and money.

Michael G. · Answer

Robert - You posted this in the Rental Property Questions and Landlording Issues. Are you looking to wholesale rental properties specifically?  Did you look at the Wholesaling Forum? For rental properties I would look for desirable places for renters to live. Of course everybody has to live somewhere but war zone properties are probably much harder to wholesale than blue collar working class neighborhoods. I would look for properties that are near major shopping centers especially Walmarts. Walmart apparently never builds in a place where the surrounding working class economics wont support it. For owner occupied single family residences its really kind of a simple cookie cutter approach. 3/2's with garages in nice working class neighborhoods seem to be the sweet spot for most wholesalers I talk to.

Bruce Williams Jr · Answer

Hey Man honestly you want to stay in Medium to Middle Class and working class neighborhoods. I also sell my deals to investors who buy in the places most investors stay away from its all in your buyers list and what your buyers like.

Ben Wilson · Answer

That's how we do it Jovan - about once a year I go on Listsource and find out the number of absentee owner purchases for the last 6 months by zip code in the county we work in and we'll focus on those zips (actually parts of those zips) with lots of AO purchases.  btw, it rarely changes when I update the list but I usually do make some small adjustments...

Jovan Johnson · Answer

The best way to pick a proven good area every time is to check where the buyers are buying. its the easiest way and plus you dont have to spend long hours trying to figure everything out about an area you have never been to. Try to either pull up a list of recent absentee buyers in the area, that have purchased a property in the last 6 months.

Robert W · Answer

Michael,

Arrrgh....still trying to navigate my way around here....I intended this to be in the "Wholesaling" forum....and will repost it there.

Thank you for the heads-up.

Bliss J. E. Mitton · Answer

Robert...If you are talking about finding areas in the city where you now live: I would look for nearby areas that are good for first time home buyers and house renters. In TX and FL that is around 800 to 1400 square feet in size, generally sells for $80,000 to $150,000 and rents $700 to $1,200 per month. Looking in houses for rent classifieds will help find these areas.

I like areas with 25% to 50% of the houses that need repairs.
Remember you will wholesale to someone who will fix and rent or sell to an end user.

While driving around if you see a house being rehabbed, stop and ask the workers who is having the work done. Get in touch with the rehabber and ask what and where they like to buy. This way you get areas and your future buyer at the same time.

Check in with the local real estate clubs and ask vendors and general members where the hot areas are and who is buying.

Bill Gulley · Answer

Well Robert, don't know if Ryan would say that, but I think the first consideration should be is:

Is there an active market? Are properties moving in that area?

Any active market where the inventory is moving will be a better area than if it is not.

Then, what are market demands, the median size, price, DOM in relation to your supply, foreclosures and distressed sales that will feed your rehab expertise. Then what's the spread, labor rates, material costs and what are the local zoning/code influences.

I would look at supply and demand, economic stability and potential and regulatory influences that can effect your business.

Lamont Scott · Answer

Just want to say I am learning alot from this forum. I apprerciate to read posts such as what Ryan has posted. This is very good info.

Wholesaling â€“ What criteria do you use when deciding if an area is good for wholesaling?

Most Popular Reply