Re: Things that make me cringe….. Daisy Chain Deals.
I feel it’s my responsibility to keep our WREIA members informed on the current trends in our industry.
Buckle up. I’m fired up about this topic.
I’m going on a bit of a rant here because I HATE seeing so-called “investors” taking advantage of other people.
One of the biggest trends right now is shaking up the world of WHOLESALING.
In short, wholesaling is defined as getting a property under contract and assigning or selling the contract for a fee.
There are dozens of ways to control a property using various types of contracts.
The biggest shake-up in our industry is happening because seasoned or “mature” investors are going back to the wholesaling model.
Some of them tell me the biggest reason they are doing this is related to RISK.
Risk of money.
Risk of time.
Risk of liability.
I’m sure you have noticed the atmosphere in our country at the moment. People are angry about a lot of things.
So, some seasoned investors are fleeing to safety. Wholesaling a property is much less risky than performing an entire renovation and then trying to sell the property.
Regulations among the mortgage industry are clamping down on loans. Perhaps rightly so, perhaps not.
Regulations in the building industry have created a wide ranging number of inspectors for everything from electrical, structural and plumbing codes to chimney and mold inspections. Perhaps rightly so, perhaps not. We aren’t going into that debate here.
Wholesaling AVOIDS most of those regulation issues.
Wholesaling a property quickly passes on the risks associated with purchasing, renovating and selling or renting a property.
Perhaps I am a dying breed. I like to renovate homes and have enjoyed it for the better part of two decades.
I enjoy fixing up old houses and get satisfaction from “doing it right” and making them safe for a new family to enjoy.
We buy plenty of homes every year from wholesalers – but something is starting to bother me in the world of wholesaling, and you need to be warned about it.
The dreaded DAISY CHAIN DEAL.
They were really big a few years ago in Atlanta. So big that they got to be a problem for a lot of investors. No one in the community knows who to trust in these deals after a while. Lots of things can go wrong when so many people are involved.
Whether I get this deal “notice” buy phone, text or email the conversation goes something like this:
“Hi John, I have a deal for you. You have to act fast because it is going to be gone today.”
I’ve heard this before, of course, but my reply is usually – “Tell me about the deal.”
At this point they begin to tell me about a deal that I also got in my email two days ago, with an additional $2,000 tacked onto it. That’s a “finders fee” they explain to me.
Ok, great. This probably means that over the next few days half a dozen other “wholesalers” are going to tell me about this great deal using email, text and maybe even a few phone calls.
It’s become absolutely terrible….
BECAUSE NOW IT’S GOING NATIONWIDE.
We are starting to hear about “deals” in Texas, Arizona, Colorado, Michigan and half a dozen other states.
A few well known “real estate teachers” are talking about software that let’s you do all this in your pajamas.
Let me tell you – on a couple of occasions I might have taken a call from home. But I have never done a deal without someone from my office laying my eyes on the property. Never.
Do your due diligence people. Check those comps. Make sure you are looking at recent sales, not sales from 3 years ago and 9 miles away.
You don’t have to go far to find horror stories of over excited people who paid cash for contracts on homes – only to find them demolished with an additional enormous city tax bill.
My point is this – Be careful and know who you are dealing with in 2017. There are lots of shady people running around “daisy-chaining” trying to act like big wigs with lots of deals.
Now, why are the seasoned people starting to wholesale again? Because some of them are good marketers.
There is no harm in being a good marketer. My hats off to them.
The seasoned investors also see a national market. If they can get a property under contract and sell it to a list of national buyers, why not go nationwide and start looking for deals?
Better yet – if they can “partner” with other wholesalers and promote the property to their list – everyone wins – right?
Maybe.
Then again, maybe not.
When the deals are spread so thin, and every nickel is taken out of a wholesale deal before it hits the renovator – then we are no longer talking about a deal. It’s just another property for sale.
I think this trend of “master wholesalers” daisy chaining deals is going to be a disaster – with lots of carnage along the way. The little guy trying to do a couple deals a year is going to get taken advantage of – and lots of people are going to be confused at closing tables when they find out 6 other people are getting paid a couple grand for “marketing” a property to their email and text lists.
Ugh…..
Be careful.
As someone who wants to either become a wholesaler, a true wholesaler, you need to learn to market for properties – not buyers – as so many GURUS are starting to teach.
If you are someone who wants to flip properties, LISTEN UP. If you learn to market for properties you can save yourself thousands of dollars – sometimes 10’s of thousands of dollars. More importantly you can finally ignore all those daisy chain wholesalers.
Learn to find good deals. That my WREIA friends is what I am going to be talking about at WREIA this Monday night.
Come out and join us. Network with real people doing this business who aren’t hiding behind emails and daisy chain “deals”.
I’m fired up about this topic.
It’s going to be a good night.
Do you have recent experience with a “Daisy Chain” and want to share your story about your business – can you get in touch with me? I would like to hear your story and maybe we can share your lessons learned with our WREIA members next Monday?
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Join us on Feb 13th and expand your belief that other people are out with me right here in the DC area making money in Real Estate.
Let’s FOCUS and make 2017 a great year for your business!
Let me know how I can help you,
John Peterson
301-881-5541
Washington REIA Network, President
Profitable Property, Founder
P.S. Interested in a lender or construction partner for your pending project? Yes, we do that. We lend to and partner with people all over the DC area. Call the office and lets set up a time to talk through or walk through your project.
