Wholesale real estate has a controversial reputation and has even faced legislative restrictions in various places. Regardless of the legal and ethical considerations, however, wholesaling can be done in an above-board way. Furthermore, wholesalers can provide some very good deals for end-buyers. 

Unfortunately, most of their leads aren’t any good, and it’s rare to get one you can fully “BRRRR out of” (i.e., 75% ARV), but they do have some good deals, particularly the quality wholesalers.  A small number do the vast majority of the deals.

However, to have success buying from quality wholesalers, it’s important to know how to approach buying from them.

Understanding What’s Important to a Wholesaler

One of the first things wholesalers try to do is build their buyers list as big as possible. Then they quickly learn that most of those “buyers” are unreliable. Wholesalers can learn from end buyers, it’s important to “narrow your buyers list.” This way, “you know these people can actually close,” and the buyers actually feel like they’re getting “a good deal versus a piece of spam.”

Just as the large majority of wholesale deals—particularly the good ones—are done by a small number of wholesalers, the large majority of wholesale deals are sold to a handful of end-buyers. I have heard this same story from just about every successful wholesaler I know. Wholesaler Sam Craven, for example, noted on the BiggerPockets Real Estate Podcast that “We have a buyers list of 990 people, I think, at this point, but 90% of our properties are sold to the same five or six people.” 

With a smaller list of buyers, it is easier for you to get to know each one, their likes and dislikes, and begin to foster a long-term relationship. Think of yourself as the custom deal locator or seller… Don’t get caught up in thinking that this numbers game is all about massive lists of buyers. You need to cultivate a quality list of legitimate buyers whom you know are primed to act.”

So, what this means is that wholesalers (at least the good ones) are predominantly looking for a handful of high-quality investors that they can sell multiple properties to.

This might be disheartening if you are just getting started or don’t have the capital or desire to close more than one deal a year or something along those lines. That by no means makes it impossible to buy from a wholesaler, though. 

While it will put you at a disadvantage, wholesalers are not dead set on only selling to a handful of investors. And they always want to find that next consistent buyer as there will always be some churn amongst their best customers. And even if you just buy one a year, you can still work your way to the top by providing what they really want: someone who can actually close.

Being Able to Close (Quickly)

It’s important to remember that wholesalers get a property under contract with the ability to assign that contract to another buyer at a higher price. They then make the spread between the price they have it under contract for and what they can assign it to the end buyer for. Thereby, wholesalers are usually under the gun to close a property, so the ability of an end buyer to close quickly is essential. 

The faster you can close, the better, as wholesalers will often want to close within 7-14 days. Furthermore, sometimes they have a hard deadline and need to close by a certain date. From time to time, wholesalers can push that date back with the seller, but many times they can’t. And if they cannot move the close date, they will lose their earnest money and any potential money the deal could have made. 

This means it’s critical to be able to close reliably. 

Wholesale deals are usually not the ones you will want to (or be able to) get a bank loan on with a 30-day close and 15-day inspection period. Therefore, if you want to go after wholesale deals, it’s important to either have cash on hand, find a private lender (or a hard money lender who can close quickly), or use a HELOC. 

In addition, it’s not only important to be able to close, it’s important to actually close. 

Usually, wholesalers won’t give you an inspection period for due diligence. Sure, you can do some, but whatever earnest money you put down is usually hard on day one. (One wholesaler we do a lot of business with demands $5000 earnest money that goes hard on day one.) 

Now, if you find something really bad with the property, you should ask to retrade on the price or back out. After all, everything is negotiable. But generally, that’s a no go and certainly not going to win any points with the wholesaler for the next deal. And “the next deal” is really important, as we’ll discuss later. 

Indeed, there was one deal in which my due diligence on a property found a broken sewer line. I could have backed out, but the deal still made sense (barely), and I wanted to stay at the top of this wholesaler’s list, so we closed. It’s important to do what you can to maintain your relationships with good wholesalers. 

This also means you should add a contingency to your repair estimate that accounts for the fact that your due diligence will usually be limited. Be ready for unexpected repairs. If that means you need to offer less than what the wholesaler lists the price at, do so. And yes, you can offer less than what a wholesaler is asking for. They usually have some room to negotiate.

Speed

Of course, most wholesale deals suck, so you will have to see a lot of garbage leads in your email inbox. But that’s just part of the job. So, I try to get on as many wholesaler lists as possible by reaching out to them on the BiggerPockets forums or at our Real Estate Investors Association meetings. They also reach out to you quite often. And then, I check those emails as they come in throughout the day and reach out immediately on any that seem interesting.

With emailed leads, it’s important to be fast. I don’t recommend blind offers, but you should be ready to get up and go to the ones that look good as soon as possible. Sometimes they’ll have open houses or group showings, in which case it will be hard to get a good deal. But oftentimes, if you’re fast, you can get to the good deals before anyone else and, thereby, actually get a good deal.

What’s more important here than the deal, though, is that once you can get that first deal, you can build trust and move up that wholesaler’s list of favorite buyers.

Getting to the Top of the List

Getting to—or near—the top of a wholesaler’s list can be very lucrative. Oftentimes, wholesalers want to get a deal done with someone they know will close, especially when they have a hard close date or an odd deal. They also want to keep their best buyers happy. If they send each one out to their whole list and do an open house, they’re basically just a real estate agent trying to get the highest offer possible (which is the biggest criticism of wholesalers). In such cases, you can rarely get a good deal.

Wholesalers become a really good source of deals when you can get near the top of those lists. When wholesalers start calling you with potential deals that you alone have first dibs on as opposed to just having you as one of hundreds on a mass email campaign, that’s when you get the best deals. 

Conclusion

To be successful with wholesalers, the key things are to get yourself in a position where you can close without a bank loan, preferably quite quickly, and be flexible enough to call on and visit interesting properties quickly. Build in a rehab contingency and stick to your word when under contract (unless you find something really bad, of course), and try to work your way up the best wholesaler’s list to be one of their top buyers. 

If you can do this, wholesalers become less of a means of filling your inbox with spam and more of a means of finding a consistent stream of quality deals.

CTTO Article Source: www.biggerpockets.com