I have 16 active flips going and four of those flips I bought from real estate wholesalers. I usually buy my flips from the MLS, but I had a goal last year to find wholesalers so I could diversify my business. I also have three flips under contract to buy in the next month, and all of them are from wholesalers. It took some time to find good wholesalers in my area or let them find me. It can be frustrating because there are a lot of people who call themselves wholesalers who never wholesale a house. You have to be diligent in your search if you want to find wholesalers who actually have great deals.
What is wholesaling a house?
Wholesaling involves a real estate investor finding a great deal, getting it under contract, and finding another real estate investor to buy the property. A wholesaler could use a double close or an assignment to transfer the property to the new investor. The wholesaler usually does not do any work to the properties and they do not use their own money to buy the property.
A double close involves the house being sold to the wholesaler, and the wholesaler selling the house the same day to another investor. The wholesaler does not need any money to buy the house, because the title company uses the money from the end investor to pay the original seller. Not all title companies will do this, but there are some that cater to investors and will. I have bought most of my wholesale deals using this technique.
An assignment is when the seller signs a contract to sell their property to the wholesaler, the wholesaler then assigns that contract to another investor. The wholesaler will most likely use their own contract and not a state real estate contract with the seller. Not all contracts can be assigned. If you are dealing with REO properties or short sales, it is unlikely you can assign those contracts. Wholesalers make their money by charging more to the end investor than what they agree to pay the seller.
How does it work when you buy a house from a wholesaler?
When a real estate investor buys a house from a wholesaler it is much different from buying a house from the MLS. The investor does not have much flexibility on how long they have to close or other terms. Many times the investor has to put a non-refundable deposit down and they get no inspection. The houses are sold in as-is condition and no repairs will be made. These terms can make it tough to get a loan on a wholesale deal, especially if the lender needs an appraisal completed. It is tough to buy a wholesale deal as a new investor because of all these restrictions.
Wholesale properties are not advertised on the MLS, because most wholesalers are not real estate agents. They also do not want to pay real estate commissions. The wholesaler will find as many investors who may want to buy their properties and let them know whenever they have a deal. The wholesaler will usually send an e-mail to all their investors listing the price, repairs needed, terms, and what they think the house is worth. I never trust these numbers, and always verify everything myself. The wholesaler compiles a list of investors who want to see the property, and meet the investors at the house (usually more than one at a time).
Every wholesaler does business a little differently, so how they decide what investor gets the house can vary. In some cases the first investor who says they want the house for the asking price will get it. Some wholesalers will use online forms to submit a contract and the highest offer gets the deal. If there are not enough investors who want the deal, the wholesaler may negotiate their fee or try to get the seller to come down in price.
When I look at a property with other investors, I make sure to tell the wholesaler as soon as possible if I want the deal. You cannot be timid and wait for the wholesaler to talk to you or finish talking to other investors. If you want it, tell them right away.
Why do most wholesalers never complete a deal?
The tricky part in dealing with many wholesalers is they never do a deal. There are a lot of people who call themselves wholesalers, because it is the most common type of investing taught. There are a lot of programs that promise big money, without using any of your own when you wholesale. Wholesaling is tough and not easy to do. A wholesaler is selling houses to investors who want a great deal. They are paying cash, have no inspection and must be very flexible on many of the terms. The investors who buy from wholesalers want a huge discount from what they could buy on the MLS or it is not worth their trouble. The wholesaler has to get an awesome deal that leaves room for them to make money and room for the investor to make money. It takes a lot of time, effort, and marketing to find those deals.
I would estimate that 90 percent of wholesalers never find a deal good enough to sell. Here are some problems I see with many wholesalers:
- They may find properties they think are deals, but they do not know market values well. They overestimate market value, underestimate the repairs, and don’t really have a deal.
- They do not know how much profit an investor needs on a deal. Many flippers go by the 70 percent rule, and many wholesale prices do not have that much room for profit.
- They assume the repairs are the only cost on a deal and forget about carrying costs, selling costs, etc.
- They do not know how to market, or have the money to market like they need to.
They will not tell investors they have never done a deal, so when looking for a wholesaler you must be very careful. You can waste a lot of time with wannabee wholesalers who will never send you a deal. If you find the right wholesaler they can be an awesome source of deals.
How do you find a great wholesaler?
There are many ways to find wholesalers, but they are not all effective. Here are some of the ways I have found wholesalers and ways I have heard of others finding them:
- Real estate investor meetups: Most areas of the country have real estate investors meetups and they can be a great place to network. I have met many wholesalers at meetups and never seen a deal come from any of them. I am not saying that you cannot find a good wholesaler at a meetup, but that is where many newbies go.
- Search online: Many wholesalers have websites set up for investors looking to buy deals. You can search online for wholesalers in your area, but again it can be hit or miss if they actually have deals.
- Ask around: Some of the best ways to find wholesalers is to network with other investors, but they may not be keen to giving you their source of deals. Besides investors, ask real estate agents, title companies and other people in the business. Many wholesalers will e-mail real estate agents to find buyers.
- Look for marketing by wholesalers: If a wholesaler is marketing, you know they are at least trying to find deals. Instead of looking for wholesalers, look for their marketing. Look for bandit signs, billboards, Craigslist ads, Facebook posts, and call the number. Most wholesalers market by advertising they will buy houses fast for cash. Tell them you don’t want to sell your house, but you want to be on their buyer’s list. If you receive a letter from someone wanting to buy your house, do not throw it away. Call them back and tell them you are a buyer.
I found the wholesalers that I bought houses from by accident. One of them sent me an email because I am a real estate agent and they wanted to know if I had clients who were interested in buying their deals. Two other wholesalers found me online through my blog. I spent a lot of time actively looking for wholesalers, and the only ones that worked out, found me!
Finding a wholesaler is not easy, but it can be a great source of deals. I hear from investors who tell me there are no good wholesalers in their area. While most wholesalers may not be very good, almost every market (if it is decent sized) will have wholesalers doing deals. If you are looking to buy in the larger markets, I may even know some awesome wholesalers I can introduce you to. [email protected]