Wholesaling real estate has a mixed reputation among real estate professionals with some seeing it as a good way to get started in real estate and flip houses with little risk while others see it as something close to acting as a real estate agent without a license and doing what amounts to a net listing.
Regardless of what you think about wholesaling in general, however, it often makes sense to buy from wholesalers. And if you are going to buy from wholesalers, there are a few things to keep in mind.
What to Know About Buying From Wholesalers
The first thing to remember is that generally speaking, you are not going to land a grand slam from a wholesaler. Remember, first the wholesaler needs to cover the purchase price to the seller, then cover their marketing and administration costs and then make a profit. Furthermore, there are many other buyers out there, so if there’s a larger profit to be made by increasing the price a bit, they will usually do that instead of passing that profit on to the end-buyer. This is especially true in an extremely hot market like the one we’re in now, where even Wall Street is buying houses like there’s no tomorrow.
In other words, there usually isn’t a lot of meat left on the bone.
That being said, we have gotten quite a few good deals from wholesalers. We’ve had to sort through a lot of bad ones to get those few and rarely have we gotten a great deal. But we have gotten plenty of good ones.
It’s also important to remember that most wholesalers will want a quick closing so it’s important to have either cash on hand or private financing available for making offers.
Where to Find Wholesalers
Wholesalers aren’t hiding, so fortunately it’s not particularly difficult to find them. Indeed, they will often look you up and ask to put you on their list of buyers. While this will lead to a lot of SPAM emails, it’s worth it overall.
I would recommend going to your local REIA (Real Estate Investors Association) meeting and networking with as many people as you can. You will meet a lot of wholesalers there and they will generally be the more serious ones. Make sure to get on their lists.
Many wholesalers advertise far and wide too. If you come across one you aren’t getting emails from, ask to get on their list (especially if they are highly active in the market). Usually though, if you’re an active buyer, they will already have you on their list whether you want to be or not.
Tips for Landing Deals from Wholesalers
As noted above, many wholesalers want quick closings. So it’s essential to get your financing in order ahead of time if at all possible. This will be a big advantage as many wholesalers will take a cash offer over a higher financed offer.
It’s also important to follow through. Wholesalers need end-buyers who can close and will quickly stop paying attention to offers from buyers who back out. If you find something in due diligence that makes the deal untenable, go ahead and back out (or ask for a price reduction). But don’t make a habit of it. Remember, most wholesale houses are in bad shape, so you will need to anticipate repairs going in (and budget for additional expenses as rehabs tend to balloon when unforeseen problems come to light after the walls get opened up and the like).
It’s also important to try to evaluate properties before visiting them. These trips can waste a lot of time and a lot of what wholesalers send your way is junk. Comp the property to get its value and try to guestimate its repairs from the pictures. You will need to verify by visiting it, of course, but this will sift out a lot of deals that aren’t even worth an offer.
Finally, the best way to get good deals from a wholesaler is to get to them before the deal goes out to the rest of their list and the market in general. If you can become a “go-to” buyer for a wholesaler, this can be a huge advantage. You will need to close at least one and probably more than one from the same wholesaler and tell the wholesaler you can close consistently and quickly and also have a big appetite. If all that happens, you can sometimes get wholesalers to send you leads before the rest of their list as most wholesalers are looking for volume and not to squeeze as much profit out of each deal as possible.
So while most wholesale deals aren’t particularly good, there are some that are very good and worth pursuing, as long as you go about it the right way of course.