Four Wholesaling Mistakes to Avoid

Most investors located deals through networking at local REIAs, connecting with agents and their pocket listings, placing bandit signs in target areas, or, as I did, driving for dollars. I would spend entire afternoons scouting neighborhoods, looking for vacant homes, and leaving letters on doors. Without modern skip tracing services, I had to match the legal description to the actual address using a limited online database. Then, I would mail letters via USPS, thinking they would be forwarded to the tax mailing address and hoping the owner would contact me. That, my friends, was how many of us found deals back in the day (cue grumpy old man voice).

Today, the landscape has changed. There are countless lead generation services available, making it easier than ever to find motivated sellers. I see 15 to 20 different services advertised daily on my Facebook and Instagram feeds and it makes my head spin. Platforms like DealMachine and PropStream can help identify off-market properties, while skip tracing services like Need to Skip provide owners’ contact information instantly.

Wholesaling remains the lowest-cost entry point into real estate investing. While experienced investors may spend $15,000 to $50,000 a month on marketing, new wholesalers will start small. Most beginners drive for dollars or partner with seasoned wholesalers on joint ventures to learn the business. They either split the profits or take a percentage before flying solo.

However, some wholesalers take an alternative approach by targeting MLS listings thinking they are finding stellar deals. They attempt to negotiate a discount a wholesale pricing, get the property under contract, and then send it to their investors.

Last week, I received such a deal from a wholesaler pitching a three-property portfolio.

Here’s what he sent:

• On Market

• Total List Price: $260,000

• Under Contract for: $190,000

• Assignment Fee: $10,000

• Buyer Purchase Price: $200,000

• ARV: $315,000

Property Breakdown:

1. First Property – 3 bed, 1 bath, 1,112 sq. ft. (Vacant)

   • Market Rent: $950/month

   • Section 8 Rent: $1,500

   • Listed at: $110,000

2. Second Property – 2 bed, 1 bath, 827 sq. ft. (Leased, 1 year remaining)

   • Market Rent: $750/month

   • Section 8 Rent: $1,200

   • Listed at: $80,000

3. Third Property – 2 bed, 1 bath, 1,054 sq. ft. (Month-to-month tenant)

   • Market Rent: $775/month

   • Section 8 Rent: $1,200

   • Listed at: $70,000

Exit Strategies:

• Fix & Flip: Estimated ARV: $315,500 | Repairs: $30,000

• Buy & Hold (Section 8): Repairs: Under $5,000

The Four Mistakes

While this deal may have looked interesting at first glance, a closer look made it dead on arrival:

1. MLS Deals Rarely Work for Wholesaling

   • The wholesaler was upfront about these properties being on the MLS, but that’s an issue. The MLS is designed is mostly designed for retail sales, meaning properties are typically priced at or near market value. Successful wholesalers secure deals at 50-75% of the after-repair value (ARV) minus repair costs.

   • The wholesaler claimed an ARV of $315,000, but after running my own comps, I estimated it closer to $250,000. That means his contract price of $200,000 was 80% LTV, far too high. Investors with MLS access likely already saw these properties and passed on them or made lowball offers directly to the listing agent.

2. Disclosing the Assignment Fee

   • While I personally don’t care whether a wholesaler makes $10,000 or $50,000 as long as the numbers work for me, other investors do. Disclosing an assignment fee upfront can give buyers leverage to negotiate it down. A skilled wholesaler never discloses their fee until after the purchase price is agreed upon and the assignment agreement is sent over for the buyer to sign.

3. Overestimated Rents

   • The wholesaler projected Section 8 rental income is much higher than market rent. The actual market rent for the three-bedroom is approximately $1,350-$1,400, and the two-bedrooms were closer to $900-$1,000. A $100 rent discrepancy can make or break an investor’s cash flow.

4. Underestimating Repair Costs

   • The repair estimates were way off. He claimed $30,000 for all three properties combined for a flip and $5,000 total for rentals. When I asked how he calculated these numbers, he admitted to estimating them from the pictures—despite having zero construction experience. After I reviewed the photos, I would need to initially budget at least $20,000 per door.

   • An experienced wholesaler never provides repair estimates unless they have extensive renovation experience. Every investor has a different skill set and budget, so it’s best to let the buyer determine rehab costs.

Lesson for Wholesalers

This example highlights the importance of due diligence. Securing true off-market deals at the right price is the key to moving inventory to investors. MLS properties, misleading ARVs, inflated rental projections, and unrealistic repair estimates will quickly ruin a wholesaler’s credibility.

If you’re new real estate and wholesaling, take the time to learn proper valuation techniques, understand investor expectations, and build relationships with experienced wholesalers. By doing so, you’ll set yourself apart and create a wholesaling operation that thrives long-term.