5 Newbie Mistakes in Property Wholesaling

OopsSignThese property mistakes came across my desk just today!

I believe in the power of networking and doing JV deals on wholesale properties, particularly when working wholesale real estate in other states.

However, it is also very easy to blow your reputation by consistently putting forth wholesale real estate deals that don’t make any sense to the end buyer.

Here are five lessons from mistakes that wholesalers presented me this week:

1).  Don’t pitch a “Deal” that is still active in the MLS.

That’s just embarrassing.

The only times I have ever done that is when my offer has been verbally accepted and it’s not marked as pending.  I tell my buyer that I’m waiting for the agent to mark it.  I do that in a phone call with a buyer I have a personal relationship with.

I’ve also done it with a hedge fund where the owner gave my team permission to find a buyer, but I disclose that up front before I mention that to any of my investor buyers.

I had two of these today.  One was even priced higher than the MLS system.

2).  Make sure your comps are comparable.

I had a wholesale real estate deal pitched to me today.  It was one half of an attached house.  The wholesaler pegged the ARV at about 130k, based on his comps.

His comps were sold at 170, 180, 190, but all were single family detached houses.

The subject property was in a block of attached houses where the two sides have different house numbers.

I wanted to find comps that were comparable.   Another townhouse in the same block was sold at 75 and another for sale at 83.

3).  If they don’t come close to our normal formulas, don’t present it.

Yet a third wholesaler today wanted me to buy a ARV house of 385 for 345 with 10 in repairs.

Real simple, if it doesn’t fit the MAO formulas we normally use as fix and flip investors, don’t waste our time.

I know some buy and hold people will go up to 80% with no repairs, but 92%?  Don’t think so.  I made that mistake once and it creamed me on holding costs and sales costs.

4).  Use comps from the last six months if possible, not the market peak at 2007.

This one really got me.  I nearly laughed at unbelief.

I had run comps for the same neighborhood earlier in the day, so I knew that ARVS for the renovated houses were 99k maximum.  Not 160k, 170k as they were in 2007.

Not one renovated and restored house sold over 99k in the last 12 months in that neighborhood.

When I asked the wholesaler for comps to justify his claims of 160k and 170k, he sent me comps dated 2007.

5).  Don’t send an inspection or appraisal that was done in 2009.

A wholesaler sent me a screaming hot deal, based on the numbers he had run.    The numbers were good, the deal was not.

When he sent me the address, I was already familiar with the property.

His wholesale price was over 2x the last MLS price on an expired listing.

Moreover, he even included an inspection report, done in 2009.  None of the conditions present in 2009 were likely to be the case today, as the property is currently boarded up.

Please don’t make these newbie mistakes

Hopefully, I will keep you from making such embarrassing mistakes.

We all make them.  I’ve made my own mistakes in missing items in my inspections, underestimating rehabs, and even making some bad comps in areas of the city where blocks make a difference.  I learn from them and move on.

When a new wholesaler starts making mistakes like that, they will loose their credibility if they keep making them.

So I’ll continue to coach when necessary.  I was the young investor, eager to make a deal.

A mentor came along and helped me with a few deals and I got on my way.

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