In real estate, one truly needs to be wise when dealing with estate wholesalers. The key component of any worthwhile sale is the financial gain. Unfortunately, it isn’t easy to be as trusting of wholesalers as one would like to be. A good real estate investor will deal with a wholesaler that colleagues have used and who has a solid reputation of being trustworthy and honest. The major concern is that investors rely on a wholesaler’s recommendation on whether a piece of property holds its value. Not knowing the wholesaler you are dealing with can be risky business.
What’s the reason for such a strong opinion?
Wholesalers like real estate agents are sales people. I am not trying to imply that a wholesaler should not be trusted; rather warning you of those who are not so trustworthy. Here is why:
1. As a sales person, the wholesaler presents a deal in the best light possible. It is important that the investor (acting buyer) ensures that this same deal is beneficial to them.
2. A wholesaler can only estimate what the average renovator may incur as expenses, while the actual expenses may be much more based on the investor’s (buyer’s) needs.
3. There are wholesaler’s who are shady characters.
These people make a living by preying on people who are vulnerable.
Selecting a wholesaler is something you should do with care. Do your due diligence. Ask colleagues who they recommend. Conduct a background check of your own. In the end, the time you spend will be well worth it.
What else should I consider doing?
Visit the property and calculate your own specific costs to determine if it is a good deal FOR YOU. If the numbers are too high, consider the bottom line profit. Is the end result worth investing more then you intended? Only you can answer that question. It isn’t unthinkable to pass on a property because your budget doesn’t balance. To truly gain wealth in the real estate industry, you need to be objective.
How can I determine the value better?
The property can also be evaluated at the after repair value. This is done by obtaining an appraisal. Although an appraisal holds more value for a lender and not an investor, ultimately your goal is to sell the property and the appraisal can make or break the decision to move forward with the purchase. A realistic approach is to get three different appraisals to find a TRUE VALUE.
Conclusion
To properly configure whether or not your wholesaler is giving you a great deal for the dollar, you need to do your homework. It begins by asking you one simple question: “What will this house sell for after the rehab is complete?”
1. Do not use the comp of a home that sold higher than others.
2. Use the highest price cluster of similar homes to determine the value.
It’s important that you do not under-value the property making it impossible to buy deals; nor over-value the property resulting in no profit. There is no secret calculation that helps you derive at some magical number. Do not expect to be able to pinpoint a value; rather arrive at a realistic figure.
