No question about it, there are a lot of bad wholesalers out there…and many of them are “bottom feeders”.
But are they all “bottom feeders?”
In the spirit of full disclosure, I am not a wholesaler myself, but I do purchase properties from wholesalers. Whether it’s just luck or it’s just how I work, some of my best deals have been sourced from wholesalers. On many occasions, I have acquired property from wholesalers, so I can then rehab the house extensively then sell it for a profit. It’s a pretty basic real estate investing formula. And I use wholesalers all the time.
On the flip side, especially when I was first starting my house flipping business, it was hard for me to tell the good wholesalers from the bad ones. So like so many other real estate investors, I too have made my fair share of mistakes with wholesalers. Being new to the real estate investing world, when I first started I wrongfully believed that the majority of the wholesalers I was dealing with were honest people. It’s not that I was naïve, I just have a personal belief system that you should trust people until they give you a reason to no longer trust them.
Since then, I’ve met many wholesalers who I would never deal with in my business. After real estate investing for a while and getting to know the players in my market, there are some wholesalers who have the dubious distinction among the local real estate investment community for being less than honest. Obviously, those are wholesalers I don’t work with. But by the same token…there are just as many real estate investors that I wouldn’t work with either.
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Wholesalers: The Misunderstood Real Estate Investors
So why is it that wholesalers are the ones that gets such a bad rap in the real estate investment community?
I’m not sure if this is because they were taught incorrectly, whether they just don’t take it as seriously as they should or whether many of them think that wholesaling is just a quick and easy way to get into real estate investing. True, wholesaling properties can get you started in the real estate investing business with little or no money. and this may be the reason why some seedier elements get involved here, I don’t know.
One thing I am absolutely sure of, if you are short on cash, wholesaling is a great way to get started in real estate investing. Additionally, if you’re not 100% sure if you want to get involved in real estate investing, then getting your feet wet as a wholesaler is a relatively easy way to get going. Very little commitment and money is needed and learning how to be a wholesaler has a fairly short ramp up time; to at least make some money and get some deals going.
It may be BECAUSE of all these reasons above why wholesalers get such a bad reputation. Easy in, easy out…nothing ventured, nothing gained. This mindset may have the tragic side effect of setting up many wholesalers for failure right from the start.
However, some of the best house flipping students I’ve ever coached started as wholesalers – and perfecting their skills in the rehabilitation and renovation side of the business, as well as the sell side, was a logical step for them to increase their earnings. Many of them are now tremendously successful, buy-and-hold real estate investors and rehab style house flippers. And their success now as much to do with them starting their real estate investing careers by wholesaling.
Wholesalers…Just “Wannabe” Real Estate Investors?
Many wholesalers are wannabe house flippers and real estate investors. They start their careers wholesaling in order to get involved in the community so they can eventually become full-time house flippers or buy-and-hold real estate investors. Once they do a few wholesale deals, its a very logical leap from wholesaling to other forms of real estate investing.
The term “wannabe” tends to be extremely derogatory to many people. But it shouldn’t be. We all got our start somewhere. At one point in my career I was a “wannabe” real estate investor. Now, I am a real estate investor. We all need to start somewhere.
True, many wholesalers do want to get into house flipping, but many don’t. One of my partners actually enjoys wholesaling more than he does doing the renovations of traditional house flipping. It’s his personality. He just likes wholesaling better.
And he’s really good at it too, having sent me dozens of deals – a handful of which I did actually end up buying, rehabbing and selling for a nice profit.
Because he’s a wholesaler, does that make him a “bottom feeder”?
Every Industry Has Its “Bad Apples”
Wholesaling is a real business and should be treated as such; as a serious business done with honesty, integrity and always keeping an eye out on doing the right thing. Of course, this isn’t always the case. There are many wholesalers who don’t take it seriously (could be that easy in, easy out thing) and feel that dishonesty is the way to grab the quick cash because they really don’t care about the long-term ramifications. This is really too bad.
However, it’s not the wholesaling that makes you dishonest – only the individual can make themselves dishonest. It’s a choice we all have.
Yes, we know as real estate investors that there are a lot of unqualified wholesalers. But there are a lot of dishonest real estate investors as well. And as we all know, there are lots of dishonest “house flippers”.
Let’s take it a step further. The same could be said of the medical profession, the legal profession, or any other profession you can think of. There are tons of dishonest doctors and there are loads of dishonest lawyers as well. The list goes on: plumbers, electricians, carpenters, teachers…the list goes on and on. There are bad apples in every bushel so to speak.
There are plenty of fraudulent real estate investors as well. But what industry doesn’t have their fair share?
House Flipping and Wholesaling: Are They One and the Same?
When you really think about it, traditional buy, renovate and sell house flipping and traditional wholesaling are both house flipping. One flips a house after significantly renovating it, whereas the other flips a contract.
The types of house flippers that merely slap “lipstick on a pig” and run away for a quick profit get their fair share of negative press as well.
So as a card-carrying member of the house flipping club, I realize that the same can also be said that house flippers are bottom feeders. I get this accusation all the time. And although it upsets me, I see where the confusion comes from. If you buy a distressed property at a significant discount to the market due to a short sale, foreclosure or any other way in which you can acquire a property below market, slap on some minor changes and then throw it back on the market in basically the same condition hoping for a quick sale, that can be called “house flipping” as well.
These are the kinds of house flippers that give this particular niche of real estate investing a horrible black eye. As much is this reputation upsets me, I can see where the confusion comes from. In house flipping, there are good, reputable and honest house flippers and there are bad, deceitful, dishonest house flippers. I get it. I don’t like it, but I do understand it.
With wholesalers though, this distaste seems to go much deeper. And because house flipping oftentimes gets a bad reputation, this may be the reason why I am quick to defend the wholesaling profession. Wholesalers have gotten a bad rap for long time and probably will continue to carry that same reputation as long as their deceitful ones out there. And as long as people think that wholesalers are just after a “quick buck” so that they can get on to “real” real estate investing, that reputation will probably continue.
But don’t throw the baby out with the bathwater… although wholesalers may have the reputation of being the bottom feeders in the real estate investing world, when done correctly by an honest businessperson, they can be a vital source of deals for any real estate investor.
What do you think? Are wholesalers bottom feeders? Am I completely naïve? If you’ve made it this far, please leave a comment below and let your opinion be known! I would love to hear what you think, no matter which way you feel.
Photo: Michael Filion