We all know that whales are mammals that roam the seas and they are usually very large. The size of aquatic whales is about all they have in common with “terrestrial whales”. Terrestrial whales were originally referred to as high rollers in various casinos around the world. They are usually only significant in the sense of the large sums of money they spend to gamble.
Similarly in real estate investing, whales are highly capitalized investors and aggressive buyers of property. They can buy these properties at courthouse foreclosure auctions, as bank-owned properties (REOs), or from other investors in wholesale transactions. The wholesale price involves the buyer paying well below market value, as they will be rehabilitating the property and selling it at fair market value (“FMV”).
To define the number of properties that these large investors buy each month, it depends on the places where the properties come from, such as foreclosure auctions or REOs directly from banks. It must also be taken into account that these whales use their own money or the money of others (“OPM”). However, in general, to be considered a whale-sized buyer, he must buy between 5 and 10 properties per month.
If we look at what these people do with their properties, the first and most common use is to rehabilitate properties and sell them to the retail buyer’s market. For guidance only, these investors will not rehabilitate or sell a property for less than a net profit of $40,000 to $50,000 after all repairs, carrying and closing costs. If they feel that the expected profit will be lower, they will pass the property on or buy it and wholesale it to another investor.
It is rare for a whale to purchase properties directly from owners due to the time required to obtain and close the deal. These types of purchases are left to individual investors or “baby whales” who purchase one to three properties per month. All in all, even a baby whale is a desirable catch for an investor looking to wholesale their properties to these continuing buyers.
Another distinct characteristic of whales is that they dislike spotlights. Remember, they can make hundreds of thousands of dollars a month, so why should they need someone to know how they’re doing it? “Only a fool is easily parted from his money” as someone in the story said and it’s very true with them. If they are in the spotlight, other investors will quickly move in and try it for themselves and likely ruin a massive source of income for them.
Whales can be found at foreclosure auctions. With a history of literally controlling selling prices through sometimes unfair bidding practices, many counties are turning to online auctions to avoid this problem. However, they will always be looking for deals outside of auctions and this is your chance to find them. They can be found, despite their best efforts to remain anonymous, by searching public records for transfers of ownership.
By the way, you won’t find them at public auction very often. These are auctions held by national auction houses that sell “problem” properties that could not be sold on the MLS® and are often bank owned (REO). They won’t be there because the heated auction atmosphere too often causes properties to sell well above wholesale prices. Since a high percentage of these sales do not close, there is another opportunity to purchase these properties when they return to MLS® at lower prices than before.
In summary, whales and baby whales in real estate investing are almost mystical characters but they really do exist and make a fortune in very select niche real estate investing. If you find them, which is easy, you can hang on for a ride if you offer them viable wholesale deals.