6 Issues Rehabbers have with Wholesalers
Charlie Einsmann
?? 400+ flips, 50+ rentals ?? Virginia, Maryland, DC ??? Built my business to zero to $100M by finding distressed assets, here’s how ??
Wholesalers are real estate investors who find discounted properties and turn them around for a profit. A wholesaler gets the property under contract and assigns the right to that contractor to either a buy/hold investor, end user or most likely a rehabber. Rehabbers fix and flip the house. Rehabbing homes is more labor intensive and involves much more risk then the wholesaler. The rehabber relies on the market place to realize the estimated After Repair Value (ARV). The rehabber also needs to keep the renovation budget tight as to not have to many cost over runs. Below are 6 Issues that Rehabbers have with Wholesalers.
1. Renovation Budget is too Low - Many times we see wholesalers off by a wide margin on the proposed renovation budget. It is usually too low. The causes the margin of the deal to be too risky for the rehabber.
2. ARV is incorrect - Wholesalers do not take enough time to fully understand the asset they are selling. Surely they get comps, but sometimes the comps are outdated. I see too many wholesaler SOLD comps that go back over a year in time. This is too far out and the market has changed. I see comps out of the subdivision or just too far away from the subject property. There are many other reasons as to why the ARV is not correct but keep in mind the wholesaler is just trying to justify the out price to make as much money as possible.
3. MLS deals - If the deal is in the MLS how can it be a wholesale??? I see too many times where a wholesaler is trying to sell an ACTIVE listing in the MLS or even a short sale. Do you even have control over the deal??? Very doubtful. The first thing we do when vetting a deal from a wholesaler is to look in the MLS. If we see it there, 98% of the time we move on unless the wholesaler can prove any kind of control.
4. Cascading/Layered Wholesales - This is where there more then one wholesaler is involved in a deal. Time and time again we will see a deal from a wholesaler where the wholesaler does not have direct control over the deal. It is a wholesale from another wholesaler. This makes things very complicated and reduces the chances that the deal will ever close. It also increases prices to unrealistic prices.
5. Title Issues - One big mistake wholesalers make is not understanding the title. They need to understand who the actual owner(s) is/are. They need to understand that the deal under contract will satisfy all of the liens against the title.
6. Wholesalers prices are too high. The wholesale model has recently evolved from a fee-for-service model (5-10K) to one of extracting maximum value out of every deal. This has caused asking prices to be way to high. One important criteria that wholesalers should ask the buyers from their cash buying list is what is your profit margin.
Bottom Line
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Wholesalers have to understand that the REHABBERS are a valuable part of their team. It must be a win win situation. It is too risky for a wholesaler to overvalue a property/undervalue a renovation and sell to a rehabber that breaks even or potentially loses money. This will be one more rehabber off of your cash buyer list!