There have been some discussions lately about the legitimacy of wholesaling. Darren Sager has made a good case that wholesaling is, for all intents and purposes, similar to a net listing (which is illegal in many states). Furthermore, Illinois has severely restricted the practice of wholesaling and other states are likely to follow suit.
Still, others argue that it can be done properly with full disclosure and reasonable margins between the wholesaler’s purchase price from the original seller and the sales price to the end-buyer.
While I have misgivings about wholesaling and we don’t wholesale ourselves, we do buy from wholesalers from time to time. And there are plenty of wholesalers around these days. So it’s worth knowing the best way to buy properties from them as there are, sometimes, good and ethical deals to be found.
How to Find Wholesalers
Wholesalers are not at all hard to find. You’ll meet plenty at your local REIA (Real Estate Investment Association) and they will generally have advertisements up all over Zillow, Trulia, Craigslist, etc.
Whenever you inquire about their properties, they will want to add you to their list. If you are active at all in real estate, they will be calling and texting you to get your criteria (price point, size of rehab, where you want to buy, etc.) so they can put you on their buyers list.
Thus, if you start getting on their lists, you will start getting inundated with potential deals. Most will be junk, but not all. From what I’ve seen, it’s extraordinarily hard to get a BRRRR deal or a 70% rule-quality flip from a wholesaler, but there are a good number of decent deals available from them (about 10% to 20% equity). Of course, there is a lot of trash as well.
Many (though by no means all) have very bad rehab estimates. They seem to have gotten better in the last few years, but I’ve seen estimates that were off by several hundred percent. I’ve also seen “rehab budgets” on houses that were bulldozer bait. So yes, you need to put together your own rehab estimate and not trust that of the wholesaler.
And while it should go without saying, some of them are a wee bit oversold. “40% Cash on Cash!” “25 cap rate!” “$50,000 under market value!” “This deal will cure cancer!” etc., etc. Again, value the property yourself.
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