All Forum Posts by: John K.

Seriously, can we come up with an original reason why wholesaling is so terrible, as if it is the only segment of an industry, plagued by bad actors. 

Ever hear of Bernie Madoff? How about the countless others who have ran ponzi schemes throughout the years?

Ever hear of Enron? How about the countless other companies that have cooked the books, resulting in massive losses for the investors?

How about those accounting firms that assisted?

How about Doctors who have lost their license for various reasons?

How about lawyers getting disbarred?

Oh wait, we can't forget this one. 

How about property managers who have been indicted for stealing money? How about those that are on the run from law enforcement?

How about those that are doing it this very day, just haven't been caught yet? Please, correct me if I am wrong, are they not realtors/brokers? The professionals of real estate?  Do you suppose there are more brokers/agents or wholesalers?  Isn't the number like 5 agents, per block?/s

Let me give you some free advice about the professionals that are property managers. This is something your realtor will never tell you, because they can't rat on their own.  

This facade that somehow PMs only charge 10%, is just that, a facade. You need not have a Harvard business degree to realize, that there is no business in any industry on this planet, that can survive on 10% margins. The math will never work. The real number is 25-40%, depending on their markups. PMs do not make money on good tenants, their money comes from bad tenants that do not take care of properties and usually result in evictions. Because, evictions lead to repairs which eventually leads to placement fees. The vicious cycle continues.

I take down failed portfolios, on a monthly basis. Therefore I see a lot of P&L statements. Without fail, an overwhelming majority of these portfolios fail, due to poor management. 

So, please let's come up with some original reason, other than there are bad actors. The fact is there are bad actors in every industry, period. 

This is the hard truth about wholesalers, whether you believe it or not. A well established wholesale company, with strong systems in place, will run circles around every single realtor. Bring your best. They only know the MLS, a saturated free market, where 95% of the homes are grossly overpriced for investors. We can generate leads in the 1000s, within hours. These are true pocket listings, btw. We have the actual house education to know how to properly price a home, because we actually know what it's going to cost to fix it. You won't get, well you are going to need to call a contractor or inspector, because my professional license, does not require that I actually know anything about a house. It's only the single most important part of pricing a home, but hey, just pull a number out of a hat.

How would you feel about going to your doctor's with a concern? You are sitting on the exam table explaining all of this to the good doc, while they are looking at your history on the computer. You get done explaining and they turn to you and say, "Well according to Google...." Are you beaming with confidence at this point?

So, it's fine if you don't want to use one, it's not going to phase well structured companies. It's the equivalent of saying you are going to drop your Amazon prime membership, Amazon won't be filing for bankruptcy, anytime soon as a result.

The thing that differentiates wholesalers from realtors, is we have the buyers already lined up. 

You don't want to put the cart before the horse and just sign up a bunch of properties, with no place to go with them. You will end up spending a lot of resources, for zero return. 

You have to network and find those that are truly buyers and are truly not bothered with purchasing from wholesalers. Then and only then, should you go after properties. 

Learn the different techniques that are out there, to procure properties. It's a much bigger world than simply cash buyers and mortgages. The more strategies you are familiar with, the broader your buyer database will be. It will allow you to really get creative on offers, that will separate you from the field. 

Texas is huge and it's real estate market, will never not be in high demand. So, don't bite off more than you can chew, you will get overwhelmed. Identify the spots in your immediate area, that most likely will appeal to a majority of investors, as you grow your knowledge and buyer base, you can get into those areas that might not immediately appeal to the masses. This allows you to go after properties that most won't touch, which will always mean larger fees. 

Taking it slow now may seem painful, but it will pay off 10 fold, if you crawl before you walk. 

Best of Luck!

@Luis Avila

There are buyers for every type of property, it just comes down to price. 

The problem you may run into with this one, is the lack of numbers. 

This not a routine fix/flip, there are questions to be answered that potentially have serious dollars attached to those answers. 

As a wholesaler, you should have those answers at the ready, because it will be asked. 

Does it need to be knocked down? If so, how much is that? 

If not, is there significant structural damage from the fire? If so, how much to fix?

How significant is the mold infestation? Entire house? How much to remediate the problem?

What tends to put wholesalers in a good light, is we always offer the numbers. We can't be exact on them, because there are 1000s of contractors, but we can't simply say, "I don't know". It's much easier to wholesale a home, when all the data is available. 

@Luis Avila

Just because a home has taken on excessive water and now has mold, doesn't mean it needs to be torn down. In the Texas heat, or not. Mold can be safely cleaned and the home be deemed safe for occupancy. 
The determination on whether it needs demolished, will come down to how much damage the fire actually did and does it make financial sense to repair any structural damage, if in fact it's not a total loss, done with the fire. 

The confusion comes from your numbers. 

With Home: 350K

Without Home: 230-250K? How much land is this on, that makes a 2500 sq. foot home, worth only 100K.

If the purchase price is 150K and this needs to be demolished, I think it's a bit of a stretch to think you could replace this home, for 200K. What size home can be built in Houston, for 200K?

You really need to dig into the costs here. This is not a normal scenario, so you should look for the numbers so you can accurately determine if 150K is a good number, or not. Contractors to estimate the damage, engineers to determine if there are any structural concerns and mold cleanup/treatment. 

I can tell you that if the mold has taken over the entire 2500 sq foot house, the cleanup costs will be significant. 

Good Luck!

@Mike Cumbie

You are focused on something that I never said or implied. I only said that wholesalers generate far more leads, than 99% of realtors could ever do. Of course, wholesalers do not have the corner on cash buyers. A majority of a realtor's buyers, are in fact John & Susie Q homeowner, who need loans. 100% of my buyers, are cash. This allows me to do the volume I do per month, because I am not playing the bank game. 

I will respectfully disagree with you on whether or not a wholesaler has an advantage over realtors. We generate leads by the 100s, per month. We HAVE to have intimate knowledge of a house, we can't get away with call an inspector or bring your contractor. This allows us to properly price a house based on real repair numbers and not require our clients to drop a few hundred on an inspector, just to find out the repairs are too extensive. There is so much that is wrong with that, where would one begin. Wholesalers are not in it for a commission, we have a fee. This allows us to honestly negotiate the best deal for our buyers because our commission is not at risk, thus eliminating the very obvious conflict of interest. We do not share our fees with anyone, other than the IRS. The whole concept of I do 95% of the work for a share of 3%, sounds a bit Amway...ish, right? If it looks like Amway...and smells like Amway...just saying. You have to admit, the alignment of power forms a nice pretty triangle, and that money definitely trickles down.

@Mike Cumbie

I never questioned whether or not realtors had access to cash buyers, of course they do. So their ability to close within a week or so, should not be a problem. 

My reference was the fact that wholesalers are focused on doing large quantities of deals, therefore we don't have time to play with pre-approval letters and lenders that can't analyze a deal within 3 weeks, so it can close in 4 weeks. 

It's a different mindset and a different business model. Realtors are looking to do dozens of deals a year, we are looking to do dozens of deals per month. 

Not really sure where the capital aspect comes into play in all this. Wholesalers don't need to go into massive debt, to be good at this. We figured out how to do it, without risking our capital.

I don't see any more or less problems than exist on a daily basis. As long as there is an interest in real estate investing, there will always be a way for wholesalers to thrive. 

I think the problems that face wholesalers in general, are largely self inflicted. I don't understand the logic of finding a "deal" first and having no where to take it. It's not as if a wholesaler can just put it on Zillow. I think if you focus on finding buyers first, you will discover that you will find deals, quicker. You have to know what someone is willing to buy and at what price, before you can start looking and securing a property. Too much time and energy wasted on rolling the dice. 

The concept of wholesaling is to move at a fast pace. The reality is a wholesaler that has systems in place, can generate leads at a pace that 99% of realtors, would have no shot at. For this reason, you need buyers that can perform and perform quickly. It's always concerning for a wholesaler to take an agreement with financing contingencies in place, because we are aware of the incredible inefficiencies of most lenders and their willingness to back off the deal, for whatever reason. If you focus on finding that small group of individual buyers or better yet, a hedge fund or partnership, you can spend your time feeding them exactly what they want. This of course, will lead you to focus on only quality leads, not flip of the coin leads. 

Because wholesalers are conditioned to move and move fast, there is never a reason to lock up a deal for more than 30-45 days, unlike are professional counterparts that need up to 6 mos. That's always confused me, btw. When you have the buyers, and I am not talking about a bloated email list that everyone and their brother has joined, most of your deals can close within 1-3 weeks. I only add the extra week or two, just in case there is a glitch on the title. This allows wholesalers to put multiple properties in the pipeline and focus on working leads, rather than marketing properties. 

There is a huge difference in negotiating a house with a 100% sell, versus I I wonder how cheap I need to get this so I can sell it. 

Summary...Don't put the cart before the horse. IMHO

I would recommend you use the services of an RMLO. They will ensure that all regulations are met, in regards to disclosures and TIL statements. The fee is usually paid by the buyer. This will give you the insurance in case something were to be challenged. 

@Austin Wood

There is also another method, that my work.

If the property is in a really strong neighborhood with a history of consistent appreciation, say 7%, you can hold it for 10 years and sell at that time. 

230K Value Now = $452K value in 10 years @7% appreciation.

Clearly will only work in a neighborhood that has that history, otherwise it's flipping coins.