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Excuse Me. Can I Buy Your House?

Have you ever received one of those calls asking, “Are you interested in selling your house at a ‘fair’ price?” If you own property, of course, you have. These calls seem only to be growing. For my properties, I often receive as many as ten per day. They can be incredibly annoying. However, for a real estate investor who is seeking to find a deal for their buy-and-hold portfolio or a home buyer looking for a bargain, these annoying callers, known as wholesalers, can be helpful. Before we get into why let’s discuss who they are and why they are so gosh darn annoying. 

Why So Annoying? 

Wholesalers call at all hours of the day, often at the most ill-timed moments. For instance, I receive these calls in the morning, afternoon, and evening. Too often, I get them while teaching a class, attending a meeting, or eating dinner. Clearly, some of them are no respecter of time, I find them particularly annoying when I’m waiting for an important phone call, and it finally rings. But, when I answer, I hear a greeting, “High, this may seem out of the blue, but I was driving by your house today at [insert address] and wanted to know if you’ve thought about selling it?”

The intro usually has slight variations. Maybe they want to add it to their portfolio, or perhaps they’re doing renovations in the area. Oftentimes, their timing is just bad, so my patience is short, and the call doesn’t go very far. At other times, however, I may chat with them for a few minutes. As the conversation moves forward, inevitably, they get to their “fair” offer. 

The Fair Offer

Precisely, what is a fair offer? You might think it is the property’s market value. But, nope. Not at all. Usually, these callers employ a 70 percent rule or strategy. Following the strategy means they will offer 70 percent of a property’s After Repair Value (ARV). They may even subtract repair costs from their offer, so the “fair” offer could be much less than 70 percent. 

I’m sure you are thinking, “Wow! Sign me up for that!” What’s stopping you, right? Exactly who are these people? More importantly, why do they think that calling us at all hours of the day with these low ball offers will lead to a successful deal? Let’s talk about that. Allow me to introduce you to the wholesaler.

What’s a Wholesaler

Wholesalers are a type of real estate investor specializing in finding motivated sellers who will accept substantially less than market value for their property. As I just mentioned, their offers are frequently 30 percent less than their target property’s value. A wholesaler may not even plan to purchase the property. Instead, they seek to secure a purchase agreement with the seller and then list the property as an off-market deal for potential buyers.

In that regard, they are more like a middle-man, connecting buyers to sellers for a profit. Unfortunately, their function also makes them a part of the ecosystem that results in all those unsolicited phone calls and texts.

Some real estate investors may even begin as wholesalers because it has a low bar to entry and poses little risk. Consequently, locating these deals does cost time, and time is something many established investors are willing to outsource.  

Wholesaler Resources

For more information about wholesalers, check out these references.

Motivated Sellers

While you and I are not interested in selling our property for anything less than market value, some people are. Their motivations may range from new job opportunities to an unfortunate family emergency. Here is a list of some reasons a property owner might consider selling below market value.

  • Divorce: During a divorce, couples may want to move quickly and liquidate assets, like their house.  
  • Family Emergencies: Families can find themselves financially distressed for many reasons, needing a rapid influx of cash.
  • Job Opportunity: Occasionally, a great opportunity comes along requiring immediate action. A new career may force the property owner to move quickly.  
  • Investment Opportunity: Investors sometimes find a better opportunity or need to exit a renovation project that doesn’t go according to plan. 
  • Inheritances: A family who unexpectedly inherits properties may decide they want to sell the property and split the proceeds quickly. They also may not be prepared to cover back taxes, insurance, and mortgage for the property, making them motivated sellers.
  • Changes In Tax Laws: On occasion, changes in local regulations or tax policies could motivate investors to sell assets to take advantage of another opportunity or tax break. 

Don’t Sell, Buy

Photo by Tierra Mallorca on Unsplash

When selling your property, market value should always be your goal. And, the best way to do that is to sell it yourself or use a real estate agent. Many people cringe at using real estate agents. Wholesalers know this and exploit it. After all, if you sell to the wholesaler, you don’t have to worry about those pesky real estate commissions. But, let’s be honest. A real estate agent’s six or seven percent commission is a paltry sum compared to the 30 percent you give up when using a wholesaler.  

So, when a wholesaler calls asking if you would consider a fair price for your property, understand that there is nothing fair about it. You will give up a sizable portion of your property’s value by selling to them. You are better off not answering the phone or saying you’re not interested. If you are planning to sell your home, then politely refer them to your real estate agent. He or she will be happy to discuss selling your property. On the other hand, there is another discussion you could have with that wholesaler. 

Wholesaler Conversations

Certainly, it makes no sense to sell them your property. Nevertheless, there are reasons you might consider getting to know them. For instance, if you are a buy-and-hold investor, working with wholesalers can produce valuable leads. As I mentioned earlier, wholesalers make money by finding buyers to purchase their off-market deals.

Better yet, their sale price does not have to be market value. Many wholesalers try to generate quick deals to create revenue. As a result, you can often negotiate a purchase price of 75 to 80 percent of the property’s market value. Such a purchase provides buyers with immediate equity. That can be a substantial benefit to your real estate investing strategy.

With rising inflation and interest rates biting into rental revenues, generating a cash flow from properties is extremely difficult. Yet, purchasing a property below market value can reduce risk. It can also ensure you receive a cash-flowing property that pays for itself.

With all the above in mind, you may want to let those wholesalers know your not looking to sell. However, you will consider buying. Ask if they have any properties they are looking to sell. You may be surprised by the answer. If not, let them know to reach out when they do. Many of them will be happy to add you to their buyer’s list.    

Conclusion

Wholesalers represent an annoying part of the real estate investing world. Nevertheless, they can bring value to your investment portfolio. The properties they offer are considered off-market, so you won’t find them listed on the MLRS or other real estate applications like Zillow, Realtor, etc. In a future article, I may write about my first deal with a wholesaler as a buyer, For now, you can check out my book or read my other article discussing real estate investing.

I’d love to hear from you in the comments. What is your experience with wholesalers? Do you have any lessons learned?

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