What To Look Out For When Buying Property From A Wholesaler

There are TONS of ways to find good deals on properties in South Florida.  You can invest in marketing campaigns for motivated sellers, call up a realtor to see what’s available on the MLS, or go directly to a proven real estate investment wholesaler. But probably the easiest and most effective way to get a great deal is to purchase a discounted property from a local real estate wholesaler.

So, what is a “Wholesaler” when it comes to real estate?  

A true real estate wholesaler offers properties to real estate investors, landlords, flippers, etc at prices significantly below market value (at least 70% or less of market value).  The investor then resells or rents the property for a profit. Just like the local department store owner who purchases items wholesale at a discount and resells to it’s customers for retail, the investor can resell the property on the retail market for a significant profit.

What’s in it for the Wholesaler?

Many will ask, “Why wouldn’t the wholesaler just resell the property on the retail market and make higher profits?”  That’s actually a really good question, and in fact, many wholesalers will do that with some of their deals.  But the reality is, this strategy isn’t always feasible for the wholesaler.

See, there are many reasons why wholesalers offer real estate deals at incredible discounts.  For one, there is only so much money and so much time available to any particular wholesaler.  Using the business model that our company uses as an example, we typically wholesale 75% of the deals that we procure.  We then use this revenue to purchase properties for our long term real estate portfolio.  Although we realize that we give up hundreds of thousands of dollars in equity to other investors each year, this strategy allows us to meet our real estate investment goals.  This creates a win-win scenario for our company and for the investors that we resell our real estate deals to.

It’s also important to understand that most wholesalers are specialists in one particular area of the real estate investing field – Finding & securing real estate deals far below market value.  Once again, using our own business, “South Florida Investors” as an example: we are experts in finding the best deals and solving the many problems associated with distressed real estate.  We’ve found it much more effective to focus on what we’re best at (finding the deals), and leave the investor to focus on what they’re best at (fixing/flipping/landlording).

Why would I work with a wholesaler?  Can’t I just get the deals on my own?

Sure, you certainly could put together a marketing campaign, start calling back motivated sellers, and put some deals together.  But first, you must ask yourself – “Is this the best use of my time and money?”  We spend a lot of money each and every month to get the phone to ring.  We also spend a lot of time speaking with sellers.  A good portion of the time, we don’t get the deal.  Yep…that’s right!  It’s not as easy as the “Gurus” on TV would lead you to believe.

Fortunately, we’ve been working in this specific niche for over 10 years, so we have  the systems in place to make this business a bit easier.  But the truth is, procuring great real estate deals is both expensive and time intensive.  Compound that with the fact that you also must be a great sales person, like-ability, etc. to make the deals happen once your sitting in the homeowner’s living room, nose to nose.

Most rehabbers and landlords have found buying a property from a wholesaler to be the most cost effective, efficient way to invest in real estate.  When you factor in the expense of sending out marketing campaigns, the time spent dealing with sellers – and the risk of not getting a deal at all, wholesalers are the most attractive option.

What To Look Out For When Working With A Wholesaler

It’s not as simple as just looking on the web for a “Real Estate Wholesaler” in your area.  It’s a sad, but true fact that a good portion of the marketplace that calls themselves “wholesalers” are not really selling properties at discounts.  So, if you want to be sure that you’re working with a true master of the trade, and get the best possible deal on an investment property, you need to be sure that you do a little research into the deal that is being offered & the wholesaler themselves.

Are You Dealing With A Principal?

We’ve found that a good portion of the real estate investment community proclaiming to have the “Best Wholesale Deals In South Florida” are merely re-marketing another wholesaler’s deal.  It’s not uncommon to get an email from 5 different “wholesalers” who are pitching the exact same property – with 5 different prices! Often, this property was sold by the original wholesaler long ago and these “wholesalers” are unaware of this fact.  The whole process turns into an unfortunate waste of time for the serious investor ready to take down their next deal.

You can avoid this scenario by sorting through the garbage and only dealing with principal wholesalers.  As a rule, we will only send out deals that our company has procured.  This is why you will only see one or two deals at a time from our wholesale emails.  If a wholesaler has 5, 10 or 15 properties for sale at any given time, you have to start questioning where the deals come from.  The majority of the time, they’re a compiled list from several other wholesalers in the area with additional fees attached.  I would advise any investor working with a wholesaler for the first time to ask directly — “Is this your deal or are you JV’ing this deal with another wholesaler?” and listen carefully to their response.

What Kind Of Experience Do They Have?

While this may not seem to be of much importance on the surface, but it’s definitely something to be aware of when dealing with a wholesaler.  Oftentimes, wholesalers will provide you with data such as “Estimated Rehab Costs” or “Projected Rental Income” to assist in making your investment decision, and oftentimes this information is extremely wrong.  The reality is, there are many newbie investors who get their start as wholesalers.  There’s nothing wrong with that – everyone has to start somewhere.  The problem arises when they provide inaccurate data that only real world experience can provide.  The majority of these wholesalers have never completed a rehab project or managed a rental property.  In these cases, you’re going to need to verify everything. Don’t make your decisions based on a wholesaler’s projections ever!

Is The After Repair Value Correct –  Verify the Comps 

That brings us to the next topic – “Accurate Comparable Sales”.  Keep in mind that many wholesalers will provide you with the highest possible comps in an effort to raise the perceived value of the property.  As we mentioned in the video above, you need to do your own research and verify everything!

Whenever we provide one of our buyers with comps or purchase a property for ourselves, we follow a very simple system of determining the value.  First, we locate the most recent sales of very similar homes, within a very close distance to the property we are interested in purchasing.  We print out the properties and then hop in the car to go “drive the comps”.  We then go to each property on the list and ask ourselves, “Is this house very close in look, size, etc. to the property that we are interested in?”.  If the property is not, we strike it from the list.

Here’s Our Challenge To You:  Open up any random wholesaler’s latest deal and drive the comps.  I can guarantee that you’ll be surprised to find that many of the houses are not really comparable.  While they may be similar in size and construction, the higher priced comps may have some more desirable features that could only be determined by going out and driving to the property.  Now, drive through a list of comps that we have provided with a deal and you’ll see the importance of working with a wholesaler that has experience and provides accurate data every time.

Where To Find Experienced Real Estate Wholesalers 

Some of the best wholesalers can be found through referrals.  Network with other successful rehabbers and landlords, and ask them who they have purchased great deals from in the past.

If you are looking for wholesale deals in South Florida, we can get you some of the best deals in the area.  We’re currently wholesaling deals in the Miami area (Dade County), Fort Lauderdale area (Broward County), Palm Beach area (Palm Beach County) and the Treasure Coast (Saint Lucie & Martin County).  We’re always looking to work with both new and established investors all over Florida.  Feel free to give us a call or drop us an email any time!

You Can Give Us Call Direct:  305-741-3122
Email Rich:  rich@richurban.com