Like every deal, this one is dependent on the numbers. If it is a $250K house in a fantastic neighborhood, it's probably a deal. If it's a $105 - 110K house (more likely) in an average neighborhood, then it's not.
That said, it has been my experience that most wholesalers fall into 3 basic categories:
Category A ='s those wholesalers who are new, uneducated / unknowledgeable. These folks are doing the best they can, but they have not invested enough time, effort &/or money into gaining an REI education, and thus they make amateur mistakes (overvalue ARV, undervalue Repair costs). In the years I've been in this business, I've seen this category of wholesaler contain the largest number of wholesalers. Unfortunately, I've also seen the vast majority of them fail within 6 months.
Then there are those folks in Category B. These wholesalers are professional network marketers. While there are not many of these folks, for most investors, these wholesalers' efforts tend to represent the vast number of wholesale "emails" you get daily. These wholesalers have an almost identical modus operandi. They tend to actually know what real repair costs and ARVs are, but they don't care. They ascribe to "the greater fool" theory of Real Estate marketing - meaning, they know they can rape a new investor and make $15 - 30K on a deal if they can just advertise their property nicely enough to enough people. These wholesalers eventually find a newer investor who is desperate to do his or her first deal, but uneducated enough to not know they are getting screwed. The new investor will pay WAAAAAY more than the property is worth and the wholesaler makes a fortune on that deal - which is not really a deal. If the investor is lucky, they get stuck holding a property they paid massively too much for. Eventually, 10 - 20 years later they might get their money back. If the investor is unlucky, they go out of business. Most of the time you can spot these jerks by their emails. The "deal" is being delivered by a sophisticated email platform like ConstantContact, iContact, Mad MiMi, etc. They use lots of pictures, flowery descriptions, TONS of superfluous info., lists of the exact repairs that need to be made and "quotes" from contractors who'll make them for you, and there's always a line in there somewhere that says "Hurry, at this price it won't last long!" Which is almost always followed by some statement like "$2,000 non-refundable fee required." If you still have doubts as to whether or not someone is in this category, don't buy the deal and continue watching your inbox. Usually, in a day or two you'll see the same deal re-marketed as "SOLD!!" If you actually track the deal you'll find it did not really sell. The wholesaler is just trying to train / condition the new investors into buying his deals quickly (creating a false sense of urgency). He's also trying to make another $2k of another uneducated investor. What happened was a new investor jumped on the "deal," paid the wholesaler his $2K non-refundable assignment fee, then had the good sense to back out of the deal. Then the wholesaler remarkers the deal hoping to snag another new investor for another $2K (or more). If you are on enough wholesale mailing lists eventually you'll see the same house being marketed by another wholesaler for slightly less money, and then the whole cycle repeats.
Finally, there are the wholesalers in Category C. These are professional wholesalers. These are the folks new investors want to find and work with, and frankly, they are the kind of business people new wholesalers should emulate. These wholesalers have businesses which they run in a moral, ethical, and businesslike manner. Unfortunately, b/c these guys are highly successful, these wholesalers are kinda hard to find. They tend to not advertise very much b/c they don't have to. They run the numbers (correctly), buy the house right (meaning below (ARV - R) *.65 = MOP)), and tend to sell their properties quickly to a small, select group or tried-and-true investors who make decisions in an hour or less, pay cash, and come back and buy again.
If you have more questions about how to deal with these knuckleheads, don't hesitate to contact me.
-Greg Wilson
The REI Mentor
http://www.reimentor.com
