By Michael Gier
Of course the title doesn't apply to all wholesalers, but it does apply to most. It seems that now-a-days everyone is a wholesaler, and most know nothing about real estate. You have to be careful as a buyer to always do your own due diligence.
I was recently given a property from a wholesaler I hadn't worked with before. They sent me details about the property including the price they wanted, a repair estimate, and the after repair value (ARV). The property was listed on the MLS and they confirmed that they had the property under contract.
They wanted $569,000 for the property, they estimated repairs at $40,000, and they put the ARV at $859,000. This looked like a great property with a potential to make a very large profit; but it was all wrong.
It's a good place to start but much more due diligence needs to be done to verify the true comp value. First, you must know the area or have someone on your team that knows the area. In this case, the property was in an area that was located in a little pocket between two great locations. To the right and left of the subject property were very nice high end homes and a very desired area. Zillow.com took comps from these other areas to estimate the comp for this home. The problem was, this little pocket was not desirable.
After doing my own due diligence, I found that the property was currently worth maybe $500k and the ARV was maybe $600k; no where near the $859k the wholesaler said. Had I not known better, I would have over paid for the property and then when I went to sell it I would have been shocked to find out the resale value.
Always do your own due diligence, have a trusted team member that knows the subject properties area well, and drive by the comps to verify that they are actually good comps for the subject property. Comps on paper mean nothing, you must see the comps first hand.
On top of everything else, it turned out that the wholesalers did not have the property under contract. It was on the MLS for $515k (they were selling it for $569k), and if they found a buyer willing to pay above the $515k asking price, then they were going to put the property under contract for $515k or less and cash out as the middleman. This is a BIG No No! You can not sell something that you do not have interest in. You must have the property under contract to legally sell or wholesale it.