We all know that whales are mammals that roam the seas and they are generally very large. The size of aquatic whales is about all they have in common with “land whales”. Land whales were originally designated as large gamblers in the various casinos around the world. They are generally big only in the sense of the large sums of money they spend gambling.
Likewise in real estate investing, whales are investors who are highly capitalized and are aggressive purchasers of property. They may buy these properties at courthouse foreclosure auctions, as bank owned (REO) properties, or from other investors as wholesale deals. Wholesale in price implies that the buyer is paying well below market value because he will be rehabbing the property and selling it at fair market value (“FMV”).
To define how many properties these large investors buy each month depends on the places the properties come from such as the foreclosure auctions or REOs directly from banks. Also it must be taken into consideration if these whales are using their own money or other people’s money (“OPM”). However, as a generalization, to be considered as a whale sized buyer, he must purchase between 5 and 10 properties a month.
If we examine what these individuals are doing with their properties, the first and most common use is to rehab the properties and sell them to the retail buyer market. As a general guideline only, these investors will not rehab and sell a property for less than a $40,000 to $50,000 net profit after all repairs, carrying and closing costs. If they deem the expected profit will be smaller, they will pass on the property or buy it and wholesale it to another investor.
Seldom does a whale buy properties directly from homeowners because of the time involved in getting and closing the deal. These types of purchases are left to individual investors or “baby whales” who buy one to three properties a month. All in all, even a baby whale is a desirable catch for an investor looking to sell his wholesale properties to these continuous buyers.
Another distinct characteristic of whales is that they do not like the spotlight. Remember, they may be making hundreds of thousands of dollars a month so why should they need anyone to find out how they are doing it? “Only a fool is easily parted from his money” as someone in history 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 the foreclosure auction sales. Since they have had a history of literally controlling the sales prices by sometimes unfair bidding practices, many counties are going to online auctions to avoid this problem. However, they will still be looking for deals outside the auctions and this is your chance to reel them in. They can be found, despite their best efforts to remain anonymous, by searching the public records for property transfers.
As a side note, you will not find them at public auctions very often. These are the auctions held by national auction houses that sell “problem” properties that couldn’t be sold on the MLS® and are often bank owned (REOs). They are not going to be there because the heated auction atmosphere too often has properties sell well above wholesale prices. Since a high percentage of these sales don’t close, there is another opportunity to buy these properties when they go back to the 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 a very select niche real estate investing. If you find them, which is easy, you can hook on for a ride if you come to them with viable wholesale deals.