18

Why the Vast Majority of Wholesalers Are Not Appreciated

by Danny Johnson

Real estate wholesaling and why wholesalers are not appreciated

The vast majority of real estate wholesalers don’t have a good reputation.

It’s just a fact. I’m actually glad that is the case.

You see, when most wholesalers send out complete garbage (stuff flies don’t even appreciate), investors tend to ignore them. Their emails go unread or are read with such disdain that any hope of them realizing when the numbers are actually accurate is dashed.

This presents an opportunity for people that wholesale real deals. Before I get to what constitutes ‘real’ deals and how to make sure you are not seen as one of the these less-than-human wholesalers, let’s look at exactly why they are seen this way.

There are several reasons for it, both from the original owner’s point of view and from the point of view of potential investor end buyers.

Reasons For Disdain From The Homeowner’s Point of View

From the seller’s point of view, they are sneaky and dishonest because they don’t inform them that they will not actually be the ones closing on the house.

You see, most investors don’t tell homeowners (or real estate agents) that they intend to assign the contract they are signing with them. If they did, the homeowner would probably have a problem with it, if for no other reason than that they don’t understand it.

The only time I tell homeowners that I am going to find a buyer is when I am not sure if I really can find a buyer. This is usually the case when a deal is tight. The numbers don’t quite work but I have a hunch that they might for someone.

But, this gets back into the perception thing. It’s really only a problem if they find out. This usually happens if another investor tells the homeowner that is what is going on or the when the investor can’t find a buyer and therefore can’t close on the house.

If they can’t find a buyer, it really leaves the seller steaming.

Reasons For Disdain From Investor End-Buyer’s Point of View

From other investors’ point of view, these wholesalers always miscalculate the after repair value as well as the cost and level of repairs needed for the houses they are selling.

While I’m sure much of these misrepresentations are simply a matter of inexperience in determining home values and costs of repairs, they are seen as being deceptive by the person that is being pitched the deal.

Many investors view what the wholesaler is doing as trying to find the greater fool. The deals aren’t really deals and they are just trying to find a sucker to buy them so that they can make a quick buck. It’s understandable.

Many real estate investors immediately question why they are even selling the deal if what is stated as the potential profit is true.

Then you have the instances where an end buyer investor is interested and ready to buy the deal. The numbers look good and he/she has done their own due diligence. Then, when it’s time to sign the assignment of contract, they freak out because they see how much the wholesaler is making.

There is just some kind of inner conflict thing that goes on when this happens. The deal is a deal, but somehow how much you the wholesaler are making causes friction. Some people just can’t seem to stand seeing others make a great profit for less work than they are going to have do.

They are just going to have to get over it. If you want to avoid this situation, just suck up the extra cost in doing a double close or find another investor that truly does not care what you make.

The wholesaler also can become the scapegoat.

When an investor buys a deal from a wholesaler, they have certain expectations as to the profit they are likely to see at the completion of the flip. If they screw up (and most people do often), it can be easier to blame the wholesaler for the loss than oneself.

Maybe they did a horrible rehab and got screwed by a contractor. This could result in higher than normal rehab costs and reduce the price that the house eventually sells for. The numbers the wholesaler gave could have been accurate had the rehabber not goofed it up.

Sadly, there is not much that can be done about this situation.

How To Be The Wholesaler That Buyers Are Begging For Deals

I want to show you how to be the wholesaler that everyone is begging to send them deals. To be the wholesaler that always performs for the seller so that they are very happy with their decision to sell to you.

It’s possible to become the one that somehow (almost magically according to other jealous investors) finds the best deals and makes the biggest wholesale fees.

This is really, really simple. Yet, it can be very difficult to continue to do. Greed, hope, and desire conspire to sway you to become like all of the other wholesalers. You have to fight it.

Here it is: You have to make sure that your numbers are accurate and that there is enough meat left on the bone for your buyers.

Common sense, but it’s amazing how many people let their emotions fiddle with the numbers. The house needs 15k in repairs. I’ll just put $12k so that I can make $3k more on my assignment. There was one comparable sale that sold for $150k and the other 5 sold for $120k. I’m not sure why. I’ll set the ARV (after repaired value) at $140k because I’ll bet they can get it. That will really make this look like a deal. Ugh.

If you consistently give conservative repair estimates and conservative ARVs, buyers will love you. They will know that your deals are really deals and do whatever it takes to make sure they are the first investor you call when you get another one.

Now in order to get these true deals, you are going to have to generate a lot of leads. This is a numbers game. I’ve said it before, and I will always repeat it. You have to generate a lot of leads. Don’t be OK with a few leads and get stuck trying to figure out how to turn them into deals. It doesn’t work.

The problem is not the leads you are getting, it’s that you aren’t getting enough leads.

Even though that may sound simple, it really is advice that is golden.

Danny
Google+
















Get the EBook and REO Interview FREE

If you enjoyed this post, please share it!

{ 18 comments… read them below or add one }

@buyhousescheap February 28, 2013 at 8:33 am

Spoken like a true wholesaler Danny. My mentor gave me a piece of advise that changed my wholesaling business and that was when looking at a property to wholesale you should always look at it like an investor that is buying the property to flip yourself. If there is not enuff meat on the bone for you then chances are ther is not enuff for your end buyer.

Reply

Danny Johnson February 28, 2013 at 10:20 am

That’s a great piece of advice. I know the temptation arises that makes us want to start to think that somebody out there will be happy with less profit, but it’s best to not go down that road.

Reply

ralph February 28, 2013 at 10:49 pm

Hello Danny,
I totally understand, as I too, live in the San Antonio area and have been doing research with these other wholesalers and the numbers seem to be a little off (and I’m just a beginner at this). Their ARV and DOM seem to be inflated and it seems like they always say that their property is in one of the best neighborhoods. BTW, don’t worry about me taking away some of your deals as I have yet to get into the REI world (very interested and tempted though). Maybe in the near future I could be purchasing some deals from you or maybe even sending some your way. I wanted to ask you what your opinions are on buying tax liens from Bexar county? I was there last month and it seemed like those folks got some good deals (with the exception of the 6 month or 2 yr waiting period)..

Reply

Danny Johnson March 1, 2013 at 10:49 am

Ralph,

I wouldn’t be the best person to answer the question about the tax liens. I’ve not ever bought them. The right of redemption period would certainly thrown a kink in the flipping process.

Regarding being my competition. Don’t ever worry about that. There are so many other people out there competing and there will always be a lot.

Reply

@buyhousescheap March 1, 2013 at 7:39 am

Danny when making offers do you give the seller a price based on the comps and just input a ruff repair est into your formula or do you always have to walk through the house first before making a offer?

Reply

Danny Johnson March 1, 2013 at 10:51 am

If they don’t seem very motivated and I want to give a ballpark over the phone, that is what I do (based on comps and a rough guesstimate for repairs). This is to feel out their motivation.

If it seems that there is motivation or I like the area or house based on what they’ve told me, I wait to say anything about my offer until I meet them at the house, see what repairs are needed, and can calculate my actual offer.

Reply

Ralph March 5, 2013 at 10:31 pm

Hello Danny,
I know you had mentioned previously that you decided not to get your real estate license, but I wanted to know if you could explain and maybe give us some pros and cons on getting it. I would think that having full access to the MLS and saving on commissions would be beneficial.

Reply

Danny Johnson March 6, 2013 at 12:11 pm

Hey Ralph.

That’s a good idea for a post. Maybe I’ll write about that next.

For now, the reason I never did get one was because I didn’t really need one. I’m able to get comps and we don’t make many offers on listed properties. When we do make offers on REOs, I would make them through the listing agent so that they would get both sides of the commission. I’m ok with giving up the selling side commission when we sell houses in exchange for not having to deal with taking calls and messing with selling the houses. The other side of it was that I didn’t want to always have to disclose that I was a Realtor all the time.

Reply

Mark March 18, 2013 at 2:29 pm

I’m helping my son whos just into his first rehab and flip. All the numbers worked great the only issue is it’s been on the market since 1 Jan and under contract 3 times now. The first 2 offers feel through for financing even though they had a preapproval letter from the bank. How do you ensure that people are truely qualified. These were all VA buyers.

Reply

Danny Johnson March 19, 2013 at 10:30 am

Hey Mark.

There is a difference between pre-approved and pre-qualified. Pre-qualified means that they’ve provided all of the documentation needed by the lender to qualify for a loan. Make sure they are pre-qualified.

I hope this 3rd buyer works out for you. We’ve been there before and it’s not fun.

Reply

alex March 26, 2013 at 4:31 pm

Hi Danny,
I know you are based out of San Antonio which has a population of about 1.4 million. I am sure you have no issues doing comps with previously sold properties. What do you suggest for those that live in smaller towns and the closest city is about 30 minutes away and only has a population of 200,000? How do we get comps in smaller towns if nothing has sold for quite some time and if we find sold properties they are about 20 miles away? Thanks.

Reply

Danny Johnson March 27, 2013 at 8:58 am

I’d recommend going back a year if you have to to get comps for a property. If all else fails, talk to other investors or a Realtor to get their opinion. When in doubt about the value, low ball your offers. Once you get an idea of the values, you likely won’t have to run comps as often as things don’t change that fast. Keep an eye on what is for sale and how much they are selling them for and how long they are sitting on the market. Just going to take research and being conservative.

Reply

Brodrick April 10, 2013 at 12:02 pm

Danny You get my respect dude. Your the real deal and just wanted to say thanks for everything man!!

Reply

Danny Johnson April 10, 2013 at 4:21 pm

Thanks. I appreciate that.

Reply

Steve April 16, 2013 at 12:59 pm

I like your blog,
How do you do your comps.I want to know
because its hard sometimes
buyer come with there own value
Can you Help me
Thank You
Steve

Reply

Danny Johnson April 16, 2013 at 9:43 pm

Hey Steve.

I get comps from the MLS sold properties. If you are not a licensed agent, you should work on developing a relationship with one that can get you comps from the MLS. Some places allow access to the MLS for agent assistants. Hope this helps.

Reply

Obi April 24, 2013 at 1:59 pm

Hey Danny I enjoy your blogs. Are there any good REI clubs you would recommend in the area?

Reply

Danny Johnson April 25, 2013 at 2:50 pm

Thanks, Obi.

I’m sorry but I am not aware of any that I would recommend. I’ve not been to one in a long time.

Reply

Leave a Comment

Previous post:

Next post: