I’ve said it before, and I’ll say it again. I love good wholesalers. They can make your life easier and your bank account bigger.
I was coaching a class last night and I started talking to another coach. When we started discussing what we do for a living, I told her that I’m a real estate investor and she replied, “That’s great! I’m a wholesaler.” Talk about kismet. We started discussing business strategies and where to find deals. Needless to say, there is coffee at my favorite coffee shop coming up in the near future to work out how we can do business together.
So, why do I love wholesalers so much?
1.) If you have a full time, job they can provide you with something that you don’t have much of right now: Time. Tim Ferriss, in his book The Four Hour Work Week talks about outsourcing certain tasks in order to make your business more efficient. When you purchase a good project from a wholesaler, they are saving you the most precious commodity that you have, and that’s your TIME. It allows you to do other things (like finding more deals) that are important in your personal and professional life.
2.) Wholesalers are convenient. Wholesalers will bring the projects to you. Once you have a good relationship with a good wholesaler, you can pick the deals that you want. Not every deal will be right for you. Price ranges, profit amounts, neighborhoods and many other reasons may take a deal off the table for you, but if you keep open lines of communication with wholesalers they will know what you are looking for and will tailor offers to engage your interest.
3.) A wholesaler is a specialist in one area of real estate. Most of them only wholesale properties and don’t do many (if any) rehabs. The good ones know what a rehabber is looking for and know which properties are good candidates for a rehab. I know wholesalers, just like rehabbers, who only work in one specific price range. There are those that deal only in higher end homes and those that deal with your middle class homes. Talk to the wholesaler and find out if they deal in the type and range of projects that you are interested in. Some only deal in multi-family homes, others in single family residences. Make sure that you are working on the type of home that they are handling.
4.) A good wholesaler is more interested in doing volume business over making a large profit off of one project. They are the middlemen of the industry. Typically, I look for at least a $40,000 profit on any deal that I’m going to do. I don’t expect the wholesaler to be looking for that much when they sell the contract to me. They want to do a volume business. Any wholesaler worth their salt will not price themselves out of repeat business. They make a little bit off of each transaction and keep moving, with little capitol at stake.
5.) Wholesalers negotiate the properties so that the prices are attractive to the rehabber. They spend their time finding and fine-tuning the deals so that you don’t have to. They want to earn the reputation of reliable partners that deliver good projects at good prices. That way they continue getting business and keep the paychecks coming in.
There are a few caveats in dealing with wholesalers. First, never trust their ARV’s. No offense to the good wholesalers out there, but I’ve been given comps that are two miles away or two years old. Neither is good when I try and resell the house. Always do your due diligence when you pick up a property. Personally, if a wholesaler sends me bad comps, I’ll have a talk with them about how they figure the ARV. If we cannot agree on how it is done, I move on from them. At that point we just do business differently. There is no good or bad, it is just different. I prefer to work with people who do things the same way that I do, including running comps.
People have asked me what I believe an appropriate wholesale fee should be. Quite frankly, if you are making good money on it, does it matter? I think that 1%-1 ½% of the ARV is a good number for Los Angeles. That may not work in other areas, but for here it seems reasonable. One thing that I do believe, though, is that they should NEVER make more than you do on a deal. You are the one taking on all the risk so your profit should be more than theirs.
If anyone has more questions or wants more one-on-one coaching, don’t hesitate to contact me. This is a passion for me and I truly enjoy sharing what I know with others. Thanks for visiting MOR Financial’s REI Blog and getting a bit of the education. Until then, remember that you, too, have that inner warrior that it takes to achieve greatness and success. Feel free to drop me a line at Coaching [at] BaileProperties.com.
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