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Newbie Alert – Don’t Buy Into the Wholesaling Hype

by Ben Leybovich on December 10, 2013 · 108 comments

  
Don’t Buy Into the Hype

I know that a lot of you are struggling to find direction in real estate. 

This is evident from the daily posts on the forums here at BiggerPockets, and it is understandable indeed as you are bombarded with conflicting messages coming at you from every direction.

I received a call from a fellow BPer yesterday.  He is not a newbie; he has been trying the wholesaling racket on for size unsuccessfully for 9 months.  Did this sink in?  Let me say it again – he has been trying UNSUCCESSFULLY to wholesale houses for 9 months!  Now – the wisdom which lead him to me is not entirely clear to this dumb landlord (me), but he, and we talked, and he asked and I answered – he needed clarity.

Don’t know about clarity, but I think I did OK for him.  The guy is rather sharp indeed and asked all of the right questions, so I think that he’ll be just fine.  After about 45 minutes, he thanked me and said that I helped him to visualize things quite a bit.

Today, in hopes of helping a few more of you newbies out there, I’ll do my best to outline the central points of what was said.

Why He Struggles

As I mentioned, when he called the first thing out of his mouth was that for 9 months he’d been trying to figure out wholesaling.  He told me that in that time he has had 2 deals fall apart on their way to closing.  He told me that retailers seem to be excruciatingly particular and simply will not invest outside of very narrowly defined geographical areas and economic parameters.  The numbers, he said, have to be an absolute flat-out slam dunk…!

Are you paying attention – you guys?  You think your neck of the woods works any different?

He further told me that he has been marketing, and he is getting leads, but it is extremely difficult to find the type of spreads that make wholesaling possible, and I know that he is not lying because I know his city very well – I lived there for 7 years!

Now – as it turns out, this young start-up is doing wholesaling as a means of coming up with down-payment for income-producing long-term holds, which is what he really wants.  And he is taking this route because he is following advice that is heavily propagated here on BiggerPockets and everywhere.  A few observations:

Observation #1

The first thing I told him and will now tell you is this: please be careful what kind of advice you listen to.  In the world of Real Estate investing and like-kind activities, wholesaling is one of the most intricate activities to master.  Translation – wholesaling is hard as hell – period!  If anyone suggests to you that this is a “good place to start”, then either they don’t know a thing of what they speak or they choose to lie to you; in either case – RUN.  And if this happens on BigerPockets – the advice is the same; jump to another thread, read another author.  Wholesaling as a place of entry and a means for coming up with easy cash is the most ass-backwards thing I’ve ever heard…a lot!

The reality is that as a wholesaler you have to be at least as well educated as your buyer; and you must assume that your buyer is a PRO.  You must understand construction and know the costs, because otherwise you can not possibly do the numbers on a rehab.  You must know the local codes to know what can and can not be done to the property.  You must understand the marketplace to establish the retail price-point in order to walk the whole deal back on paper.  You have to be cognizant of the financing options available to your buyer so that you can include those with your numbers.

None of the above is impossible, and all of this comes with experience – do you have experience?  If this is your way in; if you’ve never opened a wall in your life; if you’ve never put-in a main sewer line or replaced a breaker box; if you’ve never dropped a reciprocating saw into a wall covered with asbestos shingle siding in order to replace a window – how the hell do you know what’s involved…?

Observation #2

Just the other day Brandon Turner was trying to convince me to give up on my lame attempts at Internet Marketing and instead go wholesale houses if I wanted the money.  Brandon, of course, was playing the Devil’s advocate since he understands very well that I would take internet money passively several times per month before I even think about making $3,000 via wholesaling, which is anything but passive.  Understand this:

Wholesaling stops making money if and when you stop wholesaling!

Saying that you want passive income and so you’ll get started by wholesaling houses is like saying you want to get out of debt so you’ll go borrow some more – see what I’m saying; you ain’t the government…?

Observation #3

Wholesaling does not work in every market; sad but true.  For instance, in a blue-color area where a house will retail for $80,000, assuming $25,000 of repairs, which is not much, this house literally has to be put under contract at no more than about $20,000 in order for you to get a $5,000 and leave enough meat on the bone for the retailer.  Don’t forget, it is he who will have to pay the Realtor at the back end; it is he that will have to absorb the carrying costs; and it is he who having estimated 25k for the remodel will likely come in at 10%-20% over.

Tying up that house for 20k is very hard indeed and not something that you can build a business model around.  You will eat a lot of crap getting one deal in a million, and at the end of the day you will have earned $5,000 of pre-tax income, which will be taxed as ordinary income and might even push you into a higher bracket if you’re not careful…

Now – this works better if you play around in neighborhoods where mid-range houses retail for five times as much – $400,000.  It works better because the remodel does not cost five times as much.  Thus, for example, if you pay $180,000 for a house which needs $50,000 of rehab and can be retailed for $400,000 then obviously there’s room in the deal for everyone to make money.  Most of you, however, do not live in those kind of areas, and to do this business on smaller spreads really requires that you be a PRO – are you a PRO…?

Observation #4

No matter how many deals you assign for $5,000/each, you’ll eventually come to realize that it’s impossible to earn enough so that you can buy as much income-producing property as you say you want.  At the end, you’ll still have to figure out financing options.  Here’s the thing:

If you want to attract capital with which to buy income-producing assets, then everything you do in your investment life needs to reflect this.  In other words, spending all day every day looking at junkers may eventually lead you to become an expert wholesaler but it will teach you nothing about income-producing sector and financing thereof.  So, if that’s what you really want, then you are wasting your time with wholesaling by definition.

OBSERVATION #5

A fool is born every minute of every day, which makes you one of many.  Just as you’ve heard the message – wholesale a few houses to make enough for down-payment on a keeper, so has everyone else.  As a result, everyone and their mother, father, and uncle is out there calling themselves wholesalers and pretending like they know the steps to this dance.  For your own good, please understand that out of 100 wholesale deals, the PRO gets 95, a part-timer gets 4, and a fool gets lucky once – are you going to get lucky?

Conclusion

Do not buy into the hype. 

Wholesaling is the highest form of making money in real estate, requiring good grasp of marketing, construction, and contracts; not to mention insane negotiation skills.  I can’t believe I am going to say this, but as dangerous as fix and flipping is it represents more of an opportunity for a start-up like you by far.  But, at the end of the day, if it’s passive cash flow you want, then instead of warring about making the money for the down-payment, learn how to create it out of thin air – learn Creative Finance
Photo Credit: DG Jones

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{ 108 comments… read them below or add one }

Aaron December 10, 2013 at 11:45 am

I agree 100%. My first deals were purchased from a wholesaler. I then did everything under the sun to find my own deals; pennysaver, bandit signs, internet, car signs, mailers, door knocking, MLS, radio spots, etc. Eventually, when I learned how to build good deal flow and was consistently closing, I partnered with that same wholesaler to help me move some of my inventory. With his permission, I then went direct to some of those same buyers while I built up my own short list of buyers.

It took me several years to build the competent skills necessary to become a good wholesaler. Your article is right on point.

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Ben Leybovich December 10, 2013 at 3:34 pm

Thanks a lot Aaron!

There are marketplaces where committing yourself to learning the craft of wholesaling makes sense. But, one must truly commit…

Thanks for your comment!

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Curt December 10, 2013 at 11:47 am

Great post. There’s been a few good articles on wholesaling is hard. I wish they could be collected up.
Comically as I was reading this, a national Guru’s email came in with the subject: the LAST wholesaling book you’ll need to read…
This article and the hyperbole of the Guru’s email pretty much sums up the hype re wholesaling for beginners.
Sooooo…. What should the experts who do care about new folks being successful be suggesting?
LOL

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Ben Leybovich December 10, 2013 at 3:36 pm

I suggest that you stay out of wholesaling until in the business of RE for a minimum of 7 years :)

Thanks so much Curt!

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Kimberly H. December 10, 2013 at 11:52 am

Now that MLS deals have dried up I stood up at a RE investment club meeting a few months ago and said I was looking for wholesalers. A bunch ran up to me and gave me their cards. I emailed them my criteria. Never heard from any of them. Now I know why. What do I need to do to find the PRO wholesalers who can actually find me deals?

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Ben Leybovich December 10, 2013 at 3:43 pm

No idea – I’ve never bought from a wholesaler in life :) I figure – why spend the time to find a wholesaler; I would rather spend time to find my own deals. Besides, wholesalers by and large deal in SFR. Ive never been a fan, but especially not now with SAFE and Dodd Frank. If your idea of an exit is anything other than conventional retail, you’re going to have to eat a pound of poop to sell to owner/occupants. Not impossible, but just got a lot more difficult Go into multi-family and be a happy, boring landlord – like me :)

Thanks Kim!

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Chad Carson March 28, 2014 at 9:13 pm

Ha! Eating a pound of poop. Well said!

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Roy N. December 10, 2013 at 12:28 pm

Well put Ben!

I understand the principles of wholesaling, but I’ve never “gotten it” … but that is probably because it doesn’t work in my area {I would offer, at the risk of being inundated with nasty-grams, that it doesn’t work in most of Canada}.

I also do not believe a fresh-face to real estate whose knowledge and experience may even be less than my limited repertoire {I’m an even slower landlord than you} is going to find me better deals than I trip-across myself.

Finally, in this day and age of Internet social media and marketing tools in the hands of Jane Q Public, I stand amazed that wholesaling is not destined for the same end as buggy whips … or simply be reduced to little more than bird-dogging.

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Ben Leybovich December 10, 2013 at 3:44 pm

You may be right :)

Thanks for reading Roy!

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Michael Sadler December 10, 2013 at 5:21 pm

That’s a good perspective to know, thanks!

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Ben Leybovich December 11, 2013 at 1:13 pm

I agree

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C.J. Jones December 18, 2013 at 3:12 pm

I have heard someone say before that wholesaling is not the way to go,yet what can a person who is flat BROKE like me,do.I can’t buy property.My credit is jacked up!!!!What am I supposed to do.Living paycheck to paycheck!!!I need money ASAP,NOW!!!!

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Ben Leybovich December 18, 2013 at 8:10 pm

C.J. –

In order to become successful at wholesaling, the amount of time and energy you must invest is nothing short of HUGE, and the pay in most cases can be described as walking over dollars to get to the cents. As I mentioned, 1 out of 100 makes good money…

Now – money in RE follows knowledge. Thus, in lieu of focusing on money I suggest you focus on knowledge. If you become knowledgeable, then opportunities will present themselves to put deals together (syndicate deals in some way) whereby others supply the money:

knowledge + Money = Deals You don’t have to have both, but you do have to have one or the other. Knowledge for you holds the key! Study creative finance. Understand how money thinks and what it wants. Learn how RE goes round and round, and you’ll se opportunities to help others win while allowing yourself to piggy back. Makes sense?

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Taylor Jennings December 10, 2013 at 12:30 pm

Hilarious, but Truth.

When I got started in wholesaling I immediately realized how wrong so many of them were doing it (while not knowing the right way myself!).

I’m wholesaling in the $50k-$80k market and you can for sure call it the “Wholesale Hustle”. There is a lot you need to know about your local market, how to do the calculations, and who in your buyers list is or isn’t going to buy in particular neighborhoods.

It’s diverse and it’s upsetting to see so many gurus promote how effortless it is… oh and how you can do it for no money down (Other than the $1000 for their bootcamp, the $250 for signs, $500 for direct mailers (First month), another $1000 for misc expenses, and the countless hours it will take for you to create, send, post, marketing materials, educate yourself, attend networking meetings, lunches, coffee?, only to spend even more time screening callers, visiting houses, doing calculations, contacting buyers, and endless nights thinking about wholesaling….. etc etc) (Was that a run on sentence? ha)

The wholesale hustle indeed.

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Ben Leybovich December 10, 2013 at 3:53 pm

The wholesale hustle – I love it and will use it going forward!

Thanks a bunch Taylor!

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Karin DiMauro December 10, 2013 at 12:58 pm

Well shoot, where were you when I was fresh off that guru boot camp and thought wholesaling was my path to stardom?

Seriously, I wish I had read this about 2 years ago! I would have saved myself about a year of trying to get my foot in the door with the alleged newbie route (read: wholesale first, then move on to more “complicated” strategies). I have since learned that, for about the same amount of effort and cash outlay, I can find and flip the darn house myself and make more money. And it’s a heckuva lot more fun, too.

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Ben Leybovich December 10, 2013 at 4:40 pm
Aaron Yates December 10, 2013 at 1:18 pm

Thank you for this post Ben. I’m glad I am not the only one who realizes that wholesaling is by no means easy. I decided earlier this year to start wholesaling to bring in more capital and build my personal portfolio.

In 6 months of online advertising, vehicle advertising, but only 1 month of mail marketing, I received 6 leads. One from postcard marketing, 2 from LinkedIn, and 3 from vehicle advertising.

Again, you are right about the market and the numbers and the market area. In fact 2 of the leads wanted $50,000 MORE than the ARV would even be after repairs.

But all the internet marketers will push you to use them for marketing because they get paid by you know matter whether you do a wholesale or not. I’ve had them tell me that their way is the only way to market if I want to wholesale.

Amazing isn’t it?? For over a year I have heard Guru’s and norm’s alike boast about wholesaling. I thought I would be good at it since I have the experience in finding, researching, evaluating and estimating the rehab. But that doesn’t matter if you don’t have that ‘Perfect’ lead where the seller truly doesn’t care about selling their property for about $0.30 on the dollar if it’s under $150,000 ARV.

Essentially the leads I received would have needed to agree to me buying for $0.30 on the dollar. WOULD YOU DO THAT??? I sure wouldn’t.

But for those wholesalers who are making it work, that’s great. You obviously have figured it out and have much more time to do so than I do. But I would never suggest someone start out in wholesaling. One of the main reasons is because it is NOT free and easy to do!

Anyways.. AWESOME post.

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Ben Leybovich December 10, 2013 at 4:47 pm

Aaron – I’ve not bought for 30 cents on the dollar, though I have bought for about 40. BUT THIS IS SO RARE!!! I do not wholesale actually – too hard; too much work rediscovering the wheel every day…

Thanks so much for your comment!

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James Pratt December 10, 2013 at 1:25 pm

Great article Ben, Karin, you’re right on. Instead of spending money on “Gurus courses” why not invest in a community college course to learn the skills you need.

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Karin DiMauro December 10, 2013 at 1:33 pm

haha Truth! Though I will add that I did learn a lot of valuable info at this particular boot camp (which cost about $1500 for 5 days, so it was reasonable) … it’s just that the wholesaling stuff did not pan out for me, much as I tried to do it exactly as they taught. At the same time, I tried it first-hand and learned some ins and outs, so the experience wasn’t for naught.

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Ben Leybovich December 10, 2013 at 4:52 pm

I don’t know about that James. First, this article was not intended as a guru bashing – I’ve read the same stupid advice offered here on BP! I do believe that there are educational product out there that have merit – never 5k worth of merit, but merit. I also don’t know a college that can teach you to see what others can’t see, which is the essence is investing. If those professors had the “vision”, they wouldn’t be teaching at college…

Thoughts James?

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James Pratt December 11, 2013 at 11:14 am

I agree, professors either teach for a living or they teach because they really enjoy it. I was mainly referring to learning as many parts of real estate as you need for investing. Such as construction, repairs, taxes or designing to name a few. I have a strong background in construction and a real estate license then went to college and got a Civil Engineering Degree. Money well spent to reach my goals where I can buy, rehab, sell or keep for future income.

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Michael December 10, 2013 at 1:41 pm

Very well written post. The biggest thing people fail to recognize when getting into REI is that if you don’t come to the table with enough money to do a deal, you’re going to have to make up for it with time. This is exactly the case with wholesaling – you’re not going to meet a wholesaler that collects $5K checks every month without lifting a finger unless they are a PRO that has built a system with a LOT of effort.

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Ben Leybovich December 10, 2013 at 4:53 pm

Almost Michael – PROs work like hell; just ask Sharon Vornholt…

Thanks so much Michael!

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chuck wilson December 10, 2013 at 3:10 pm

Good job on this Ben. I think to start out in this business you should learn the rehab aspects of this business first !! Are all these guys afraid of a little hard work? Pick up a paint brush or hammer and go learn about what it takes to fix. Learn about over improving or under improving, learn about usually going over budget on your estimates to rehab. Now after you put in a hard day on the construction site, then take some real estate classes in the evening at your local community college. Now if you were to go get a real estate sales license, then you can go to work at the local real estate office and learn to use the MLS to search properties, and start learning about values in a neighborhood. How about going out on brokers tour once a week and looking at all the new listings. They say you should look at least 100 houses. When you think you kind of feel comfortable then its time to get your feet wet with a flip of your own.

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Ben Leybovich December 10, 2013 at 5:45 pm

Chuck – I am not a huge proponent of doing the work yourself. You don’t have to open the wall yourself to know what’s in the back. But a wholesaler should know what’s in the back and all the expensive way this can go wrong for the retailer! You know – when I’m rich and bored, may be then I’ll wholesale lol

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Bill S December 10, 2013 at 3:20 pm

Amen

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Ben Leybovich December 10, 2013 at 5:46 pm

Thanks for reading Bill!

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Leo Kingston December 10, 2013 at 3:27 pm

These are very wise words from a very wise person that wrote this article.

This is the first time I have ever read anything on BiggerPockets that made sense about wholesaling.

Oh wise one, thank you for your article.

Leo Kingston
Wholesale Investor and Master Negotiator

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Sharon Vornholt December 10, 2013 at 4:29 pm

Nice comment for Ben Leo. I for one get really sick of folks telling newbies to go out and wholesale houses when they have 0 experience. They are being set up for failure.

Sharon

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Ben Leybovich December 10, 2013 at 4:55 pm

Hahaha – be well my son…lol

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Brian Gibbons December 10, 2013 at 4:08 pm

OMG there is more to real estate investing than Wholesaling and Rehab – Retailing!!!

The WSJ wrote this article 12 months ago…
http://blogs.wsj.com/developments/2013/01/22/six-reasons-housing-inventory-keeps-declining/

Wholesale marketers throw out more than 90 percent or more of their marketing leads for “we buy houses.”

Pretty houses that have no equity can be:
-Sub2 purchased and rented out – sold on terms-
-Wrap purchased and rented out – sold on terms
-Lease optioned and sandwiched or assigned
-CFD (Installment sale) purchased and rented out – sold on terms

Pretty houses that have no liens – free and clear – can be:
-Purchased with a private note and given cash flow
Ex) explain to a seller that wants 100% of their equity out (Cash vs Terms)

Why is it only Wholesaling vs Retailing with BP Nation?

Buy or control a low equity, pretty house and sell that on terms, make $5K without all the crap mentioned in this article! Builders, Picky Retail Buyers, etc.

See my BP blog for more info on Seller Financing.

Ben, what do you think for the newbie? Does my way have value for the newbie?

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Ben Leybovich December 10, 2013 at 5:57 pm

Brian – thanks for reading man!

Let me correct you – the phrase you used (pretty houses can be) is the wrong phrase. YOU can, because you understand what’s in the contract; you understand what’s in the SAFE Act; you understand whats in Chris Barney Act – YOU do, and God bless indeed! But, most do not. If wholesaling is hard as hell, then what you are suggesting is not a chance in hell for most newbies. They should not even try. Instead, buy a freaking 4-plex and be happy with $600/month of cash flow…

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Sharon Vornholt December 10, 2013 at 4:47 pm

Ben –

I used to think that I did things “backwards” by only wholesaling houses after buying SFR’s to hold and rehabbing some other ones. It was years down the road before I ever wholesaled a property. It is a tough niche just like you said. Good wholesalers need to know so many things, and they are all skills that a newbie just doesn’t have. You really nailed those skills in your post. Well said.

Sharon

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Ben Leybovich December 10, 2013 at 6:01 pm

Hey Sharon – yours is the face that comes to mind when I think of wholesaling. They just don’t freaking get it. I just can’t spend 45 on the phone with everyone.

Incidentally, if you ever put together a wholesaling course for around $300, I’ll be your first buyer; I’d like to know what I don’t know!

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Brandon Turner December 10, 2013 at 6:06 pm

Oh Ben, you know – everyone is cheering you on, so you know I have to be the dissenting vote….

Okay – I agree that wholesaling is not necessarily as easy as the gurus make it sound. But then again, either is creative cash flow investing, landlording, or any of the other things we do. This is all simple – but none of it’s easy.

That said, I’ve wholesaled one deal. I offered a lady 15k for her house (listed at 30k) and then called up a buddy who bought it from me. That was easy. Will it always be that easy? Nope. But it took me $0 to do that. It was an MLS property that took 10 minutes to write up and send.

So, is wholesaling a bad way to start? Well, yes, in that doing anything before getting educated is a bad way to start. However, is getting educated, then trying your hand at wholesaling before getting into buy and hold investing a bad idea? I don’t think so. Different folks, different folks! Learning how to wholesale isn’t any different than learning how to buy a rental property – is it? Make low offers, look for the best deals, analyze the deal, etc. There is just one more step – find someone to buy it. However, if you did a good job and found a good deal, that’s going to be easy. If someone came to me right now, today, with an identical triplex to the one I just bought for $70,000 and told me I could have it for $75,000… of course I’d buy it, cause it’s a good deal. So where are the wholesalers in my area? Oh yeah, watching TV on their couch.

Therefore, the problem with wholesaling (in my humble opinion) has nothing to do with wholesaling. It has to do with motivation. Wholesaling works, and it’s been proven to work over and over and over. However, it only works for those who work because it IS a job, just like landlording, internet marketing, and swinging the hammer.

Speaking of internet marketing… you can’t tell me anything about this past year is “passive” in regards to your online marketing (or your real estate.) This is all active. If you left town tonight and went off the grid to Guatemala for a year… upon returning, would you have any income coming in? Exactly. None. Because none of this is passive. Internet marketing is just active income that you get sitting on your butt instead of pounding nails. Yes, you can tweet that.

Okay, I’ll get off my soap box now. I just couldn’t let you get a big head :)

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Ben Leybovich December 10, 2013 at 6:23 pm

Hello there – sweet heart! Couple of things:

Your idea of buying a rental property is all about looking for the steal – I know. That’s how you wind up with WALDO! Hahaha – killing myself over here lol; seriously – I don’t care who you are, that right there is funny… I am putting finishing touches on a post with a working title “Why You Should Pay More than You Know Property is Worth”. Not sure where I’ll post it, but yeah, we do that :)

Yes – everything takes work. But, what kind of work would you rather do? Never mind – I know the answer :) Wholesaling for beginners is a game of luck – fine if you want to play it, and surely fine if you get lucky. But, that’s not a business model in my opinion.

You are kinda prickly today – everything cool?

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Brandon Turner December 10, 2013 at 6:49 pm

Hahaha I guess I’ll give you this one. I just have to play a little devils advocate. I really agree – Wholesaling probably isn’t the easiest way to start REI. It’s possible, but I think buying a small multifamily with an FHA is probably the easiest – but that’s because it fits my personality. I suppose someone who loves sales and networking might do well at wholesaling as a beginner. However, I don’t think it’s luck. All the wholesalers we’ve interviewed on the podcast have the same thing going for them as the successful flippers and buy and hold guys – they all treat their business AS a business. Thoughts?

And I love my Waldo!

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Ben Leybovich December 10, 2013 at 6:59 pm

Say hi to Waldo. And, you are barking up the wrong tree – no wholesaling for beginners; period. Manage 10 rehabs and buy 4 rentals, and then you’ll begin to gain perspective necessary for wholesaling – that’s my opinion :)

Thanks for reading Brandon – I know you are a busy guy.

Greg Jackson December 11, 2013 at 4:17 pm

You guys are killing me… ahaahaaa!!

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Ben Leybovich December 11, 2013 at 7:28 pm

Hey Greg!

I feel man love for Brandon – can’t help it. I guess it shows :)

Walter March 30, 2014 at 11:31 pm

Thanks Brandon! I’m one of those “newbies” who are coming in with a goal to start off by wholesaling. Your points are right on point – Yes wholesaling is difficult, but in reality so is everything else in REI! I’m still completely in the education state, so reading this article made me feel a little down. I know it’s going to be hard, I know it, but it sounds so darn exciting! But for me, wholesaling makes the most sense. My “real job” is internet marketing so I know email marketing, I understand squeeze pages, adwords, direct mail, lead generation, building a website, bandit signs, building lists. I understand the marketing! So when I started listening to the BP Podcasts, I connected with the guests that were wholesalers, but not because it sounded easy!

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john December 10, 2013 at 6:23 pm

Well heck!! Now I’m all confused! Thanks Ben!!!! LoL Incidentally I have come across a course for $500 and the gentleman is an investor. I was gOing to get the course bUt now I don’t know!!!!! LoL Thanks I guess!!!!! LoL Back to the drawing board!

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Ben Leybovich December 10, 2013 at 6:24 pm

Why won’t you get the course John?

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John December 14, 2013 at 11:02 pm

Sorry it took a while to get back to you.I just don’t have $500 laying around at the moment and I am hoping it’s not another person just trying to get money. I guess I will have to just stick my neck out out there..

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Ben Leybovich December 15, 2013 at 6:17 am

I’ll allow myself to quote Derek Bok, past president of Harvard:

“If you think education is expensive, try ignorance.”

Believe me when I tell that that I’ve paid dearly for what I know :)

Andrew Joseph December 10, 2013 at 9:10 pm

Ben – Great post. I started doing direct mail to find more flips. $3,000 later, I haven’t signed up an additional deal.

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Ben Leybovich December 11, 2013 at 5:47 am

Sorry Andrew – I am chuckling lol

Thanks so much for reading!

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Gerald K. December 10, 2013 at 9:24 pm

Ben,

Thanks for the straight shooting dose of reality newbies need to hear. Great article!

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Ben Leybovich December 11, 2013 at 5:49 am

You are so welcome Gerald. A lot of nonsense is routinely spoken on the subject, so I thought…

Thanks for your comment indeed!

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melodee lucido December 10, 2013 at 11:09 pm

Wow Ben, I usually love and agree with your articles but this one left me scratching my head.

I don’t believe this is a black and white issue! I believe if someone really wants it—like I did–they will find a way to make it happen. I started off in lease options 18 months ago and then just fell into wholesaling (even though I didn’t think I could do it). As a result, I was able to quit a job that I had wanted to for a long time—even though it was my company.

I work as hard as I ever did but love what I do—-which is basically marketing and talking to people. I have good people skills which has probably helped me a lot. I have networked and asked questions of those that have found success. Failing was never an option. I didn’t buy expensive courses; I aligned myself with kind people who took me at my word gave me a list of to do’s and started learning AND doing.

This is why I have a strong Birddog/Property Finder team. Because I am paying it forward. I teach others—for free—what to do. I teach them to learn while they are in action. If they are serious, they will learn wholesaling faster than buying a course. Those that only want the dream and are afraid to do the work (98%) wander off in search of a get rich quick scheme.

My business now, 18 months after starting, is primarily virtual wholesaling. I find that wholesaling opens up many other doors—opportunities to learn new investing skills/niches. I am not rich but I am making enough money to start buying houses within the next 6 months—for cash. I am passionate about wholesaling. I wake every morning eager to get going and go to sleep most nights feeling like it was a great day.

It hasn’t been easy and sometimes when the phone’s not ringing or emails flowing in I get a bit nervous wondering if I just got lucky for several months. Silly me. When this happens I just pick up the phone and continue networking to get more business. It works if you work it.

I know you may be trying to help people take off their rose colored glasses or take a reality pill about how much work this biz is. I just don’t think we should throw the baby out with the bath water. I DID work for free for months (supported by my other job) but many professionals have to in lots of different industries.

I appreciate you Ben. Your financial understanding and wisdom blows my mind. I’ve thought sometimes when reading your good stuff, “I wish I had a brain like Ben’s”. However, I am me. And I love wholesaling—even as a relative newbie.

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Ben Leybovich December 11, 2013 at 5:52 am

Melodee –

There are rules, and there are exceptions. You are the exception that proves the rule. Very good for you – keep knocking them out as long as you can. On my part, I can teach 10 out of 10 newbies how to buy a 4-plex and collect $600/mo of CF any day of the week – it’s easy compared to what you do…

Thanks so much for your comment and I hope you’ll continue to read my stuff :)

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Karin DiMauro December 11, 2013 at 1:47 pm

Hey Ben – where do I sign up for that course on the cash-flowing 4-plex? :) Am setting my goals for 2014 and Professor Leybovich’s class (or book?) might be just the ticket as I march off into the world of multi-families.

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Ben Leybovich December 11, 2013 at 7:26 pm

You know Karin – not long after I got to know Brandon and Josh, I can’t remember which one of them did it first, but they started privately to refer to me as “professor”; something about the way I speak and write – we have love :)

[removed (as predicted by Ben)]

If the information above gets taken out, just PM me on BP. Thanks :)

Sara Cunningham December 11, 2013 at 12:40 am

I’ve never wanted to try wholesaling. However I have tried to use wholesales to help me find property especially because I don’t live in the area I invest in. So far nothing. I thought it would be easy. This has opened my eyes.

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Ben Leybovich December 11, 2013 at 5:53 am

It ain’t easy!!!

Thanks so much for reading Sara.

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Tom Sylvester December 11, 2013 at 5:48 am

Great post Ben and I agree 100%. Usually these posts draw a ton of criticism as most people hear this advice all over the place, but it was refreshing to not hear a ton of criticism and a lot of agreement.

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Ben Leybovich December 11, 2013 at 5:56 am

Hey Tom,

Hard to argue with the truth (unless you are Brandon Turner and the truth is spoken by Ben Leybovich :) Interestingly, the comments here seem to be by people who personally have discovered the realities I speak of; may be that’s what made the difference in the type of comments…

Thanks a lot for reading and commenting Tom!

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Ben December 11, 2013 at 6:51 am

Excellent post, Ben. I’m always surprised by the number of wholesalers who want to put me on their buyer lists, given that there is very little spread for them on the types of properties that I look for (trash flow is how one investor politely puts it.) Even so, I’m still hoping that one of them will bring me something useable!

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Ben Leybovich December 11, 2013 at 7:52 am

Haha – good luck Ben!

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Darien Gipson December 11, 2013 at 10:12 am

I completely agree with you Ben. I’m relatively new myself to real estate investing. Initially I was all gong ho about starting off wholesaling, like so many other newbies. Then I took a step beck and had to ask myself. Do I really want to do all this work (marketing, negotiating, finding leads, finding buyers, etc.) for a little $5000 assignment fee? I’ve decided I might as well just flip the house myself and get a greater share of the pie.

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Ben Leybovich December 11, 2013 at 1:16 pm

:) That’s what Im talking about!

Thanks a lot for reading Darien.

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Dan Guillermo December 11, 2013 at 10:48 am

I think this was a great post. A few years back, I read some books and followed some advise on wholesaling. I spent money on marketing and lead generation and never actually did a wholesale deal but did realize that wholesaling is not what the books make it out to be. I also realized that it was not what I was looking for. Its not investing its a sales job and I am no salesman. I changed my strategy and now am a buy and hold investor. I don’t consider myself a landlord since I use PM’s. I very much prefer this semi-passive approach.

Thanks for writing this.

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Ben Leybovich December 11, 2013 at 1:19 pm

C’mon Dan – wholesaling is the most passive activity in real estate. It’s not quite as passive as active day trading, but it’s almost as passive :)

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Greg Jackson December 11, 2013 at 4:35 pm

Ben,

Terrific post and commentary from the BiggerPockets family! I considered and investigated becoming a wholesaler a couple of years ago. I quickly had an epiphany that as a new investor, wholesaling was the equivalent of me building the Space Shuttle …

So to get started, I got another techie job, and put my toe in the water via private lending out of my new SDIRA.

Happy Holidays! … :)

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Ben Leybovich December 11, 2013 at 7:31 pm

I love it when comments begin:

I considered wholesaling, but then thought – what am I freakin nuts?!?!? That’s like so right on it couldn’t be any more :)

Love it – thanks Greg!

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Diana Cruz December 11, 2013 at 6:34 pm

Great article especially like the part were you are realistic with the start here and make so much money. I Don’t believe the hype and feel that Real Estate Investing is the buy hold and sell process of Real Estate. I am with you when you say learn creative financing. That’s were I am now also stating to look at fixer uppers to flip but need to learn more about that.

Hope no wholesalers get offended.

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Ben Leybovich December 11, 2013 at 7:35 pm

Hey Diana,

You are right – RE Investing is buy and hold, but definition. Wholesaling is a sort of trading technique. Creative finance opens doors; for sure! Fix and flipping is hard and requires very honed in negotiation skills.

You see – when structuring a CF deal there are many elements that play a role – many terms. As such, the negotiation give and take is a lot easier because there are many more profit centers. Wholesaling and Flipping not so; you have to get a low price – period. If you can, you win…

Thanks so much for your comment!

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Lisa December 11, 2013 at 6:49 pm

Good article! I always wonder why a newbie would try wholesaling first. IT seems so little payoff for the amount of work, leverage, and overhead you incur. A quick 3k-5k versus 7-9k a year in a income, and only work at the beginning. Anyways, great article, succinct.

I have purchased a property from a wholesaler, but you should have seen the list of 30 houses he had. I mean, just overburdened and sweating trying to make more sales, and I thought, “Thats not how i want to run my business.”

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Ben Leybovich December 12, 2013 at 3:46 am

Haha – well Lisa, there are good wholesalers. But very, very few

Thanks so much!

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Randy December 12, 2013 at 11:05 am

I do a good amount of Wholesaling in the SFR arena as well as Buy and Hold.
Experience is the key.

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Ben Leybovich December 12, 2013 at 11:34 am

Yep – experience IS the key!

Thanks so much Randy.

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Kay Khan December 12, 2013 at 11:17 am

Thanks for your very informative and educational post Ben. You struck a cord (with me and with lots of other people because you have comments pouring in). I am a new be and trying to educate myself in REI. The more seminar I attend the more confuse I get because of conflicting info. I think, you have to evaluate your skills, personality (negotiator, people’s person, good orator, hustler, hands-on) and determine which route you will take in REI. I am in Metro Detroit (sorry Brandon LOL) holding SFR and like to educate myself in multifamily holding for CF. any suggestion?

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Ben Leybovich December 12, 2013 at 11:40 am

Hey Kay,

You are not too far from me in Lima OH. I do strictly multi-family. If you haven’t been to my website yet, please do – there is a lot of information there on multi… (you’ll find the link in my forum signature as well as the BP profile).

Thanks so much!

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AC Cooley December 12, 2013 at 12:45 pm

Hi,

Two years ago I was one of those struggling newbies trying to wholesale. It took me a year to find a real deal. It was because I treated it as a hobby not a business. In the beginning I said I will “try” wholesaling. I didn’t have the attitude I WILL wholesale. Once I started treating it like a business and following the advice of a mentor I began to see success. But really what can you do to make $3,000-$5,000 a month consistently without treating it like a business?

If someone isn’t willing to wait 6-12 months or talk to 99 out of a 100 sellers before getting their first deal then wholesaling might not be for them. But it’s not darn near impossible for a newbie as the article suggests. Is it hard work? Yes. I do appreciate the fact that the article will scare off some lukewarm newbies off who will fail and quit after 3-5 months anyway. Some people just aren’t built for this.

Also wholesaling and buy and hold is not in the same arena. Rehabbing and wholesaling is for people who need cash to live off of. Rental houses is a (semi)passive long term strategy. I don’t believe it is an either/or thing with wholesaling and buy and hold strategies. What if someone has bad credit and only has $500 in the bank? They are going to have to work their butt off to make buy and hold investing produce $3,000-$5,000 a month also correct? (If not tell me where to sign up!)

I look at it this way at wholesaling: Yes it is a lot work. That first deal is an uphill battle but once you figure it and get your systems going it is not that bad. Your 4th and 5th deal won’t be no one near as hard as the first. If it takes you one year of learning and spending marketing (consider that your tuition) and another year of doing deals infrequently before doing deals consistently every month, is that really bad? Not many careers you can jump into with zero experience and start making $5,000 a month. If someone spent tuition of $6,000/year (marketing dollars at $500/month) for two years and came out making $60,000/year we wouldn’t call that “bad” would we? Some people spend more than that for 4 years and make less as a new college grad.

I guess it is all about perspective. The people who go to the seminars expecting to make easy money vs. people who come in with realistic expectations.

For people who have little money and bad credit I would say finding the money to rehab 2-3 deals yourself is another alternative to trying to find 12 wholesale deals. Not buy and hold is not an alternative. Two different objectives.

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Ben Leybovich December 12, 2013 at 3:30 pm

AC – you state your case eloquently indeed! “I guess it’s all about perspective” – such is the essence of life.

Thanks so much for reading and continued success to you!

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AC Cooley December 13, 2013 at 12:50 pm

Thanks Ben!

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Christopher Meaker December 12, 2013 at 1:15 pm

Thanks for the eyeopener! I am completely new to REI, only 20 years old and have yet to make my first deal. Just as many others I was lead to believe that wholesaling was an easy thing to do and I should start there. However, I’ve been stuck in “analysis paralysis” for awhile now despite absolutely loving the concept of wholesaling. I suppose its because it didn’t completely make sense to me. I knew I’d never try to wholesale anything under 250k in retail value as it just seems silly to me to not think big but something still didn’t sit right with me. This really helped affirm that feeling I had that I should start with what I ultimately want to do and that is multifamily housing and being a landlord. It also showed me that I wasn’t concerned about not knowing enough about wholesaling for nothing. I still appreciate the concept of wholesaling and maybe will try my hand at it in the future but for now this really helped solidify my focus of my business plan. Thanks Ben and to everyone else who commented!

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Ben Leybovich December 12, 2013 at 3:32 pm

Christopher – I think you are right on with your comment. If fundamental investing is what you ultimately want, then study that!

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Keith December 12, 2013 at 5:53 pm

Ben,

As a budding Wholesaler I’ve done only a few deals so far but I’ve not made less than $10k on any of them. I’d like to offer my perspective to your post. I’m NOT an expert or a complete newbie either. It is true that finding the deal you can make a significant profit on is difficult and very time consuming, but they do exist. The market I focus on features properties between $70K and $200K ARV. Although going after the $400K+ properties with the fat profit margins would be awesome, it’s not necessary in my market. And I have not found any cash buyers who have pockets that deep.

I know my results are the exception and not the rule. I primarily focus on probates which is working pretty well for me. I would have LOVED to do as you suggested in one of your follow up posts and get an FHA loan on a multi-family home and make passive income til the cows come home.

But due to my financial situation and poor credit that was not an option. So while I appreciate you trying to look out for the wanna be investors who think wholesaling is the unlocked door to unlimited riches. You don’t give an alternative option to those budding wanna be investors who don’t have deep pockets, rich uncles, perfect credit and years of experience. Why not?

I agree wholesaling is a brutal way to get into investing, and NOT for the lazy, unfocused or those with no people skills or problems being honest with people.

To me wholesaling is like those weight loss commercials on at 3am. where everyone is losing 30, 70, even 100 lbs or more on their diet program. The Company offering the program is NOT lying to the consumer. The program DOES work as advertised… “IF” (and this is the HUGE unspoken rule) “IF” you put the effort and hard work into getting the results you want to receive and follow the program. The people who put in the hard work and effort will succeed to varying degrees. Those who don’t, won’t, it’s that simple.

MOST people won’t put the effort in required to get the results they want. It’s not that the program is flawed it’s the lack of hard work and effort by the individual that will determine the level of success or failure. This is true of ANY program or Business. Whether it be a weight loss program, a small business or wholesaling real estate (which IS a business not a hobby as many treat it). Which is why many do not succeed. Yes the concept of wholesaling is easy, the execution however is NOT.

If there is another way for someone with no money, bad credit and limited real estate and investing experience to be able to invest in real estate and make a significant short term profit I’m sure there are ALOT of budding and wanna be investors out there who would love to hear it.

It’s easy to say something doesn’t work, It’s much harder to say something doesn’t work but here is how you fix it or here is a better way to get the result you want. If you have a better suggestion of how someone who has no money, no credit, no rich friends/family, bad credit, doesn’t know any private lenders or can afford the cost of hard money can make a profit in real estate that’s easier than wholesaling I would love to hear it.

I’m not saying that to be a smart ass. If you have a better way, with less effort I would truly love to know what it is.

I personally had to pass on many deals that don’t have enough spread to make it a viable wholesale deal, but would have made great investment properties for either fix and flip or rentals if I was able to buy or finance the deal myself, but due to my financial situation I was not able to.

If you know of a way I can close these deals with no cash, credit and poor credit I would be happy to hear it. Until then I will continue to grind it out wholesaling properties until I save enough to buy one and or my credit improves enough to let me qualify for a loan.

I agree wholesaling is not for everyone, but that doesn’t mean I can’t or doesn’t work.

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Ben Leybovich December 12, 2013 at 7:45 pm

Wow – I never said it can’t or doesn’t work. I think Shaon Vornholt kinda disproves that :)

However, I don’t think that Sharon is running around with contracts stuffed with 10 out clauses. I think that if Sharon’s buyer fell through she’d still close – because her name is everything to her, and because she is a pro. Unless people can do that; unless people can perform regardless, in my opinion they should not be wholesaling – that’s most wholesalers.

As to the other part, I closed on a 10-unit in February (you can read about it here on BP Keith) with $5,300 out of pocket – this was the first time I brought money to closing as far as I remember :)

Thanks so much for reading and leaving a comment!

Look -

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Leo Kingston December 12, 2013 at 11:18 pm

Keith.. I like your attitude and thinking. I would like to communicate with you and see what your ambitions and dreams are. What direction are you heading? You sound like a person I like to do business with. I am a person of substance. I’m looking to network and make connections from coast-to-coast. Please contact me [email protected] or call my office 405-521-1800.

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Keith December 13, 2013 at 9:43 am

Ben,

I read your other article as you suggested. There is nothing in there that says anything about being able to buy that property with bad credit and no money. As I understand it you got a loan for 70%, private money for 25% and paid 5% out of pocket. I don’t understand how someone who is just getting started is going to pull ANY of that together. How does someone with bad credit get a loan? how does someone that is broke have ANY money for a down payment? How does a budding investor have the connections to secure private funding?

Yeh you made a deal for 5% out of pocket cash. Yeh it was only $5300. but not everyone has $5300 or even $1000 for that fact to buy an investment property. That is why so many people are drawn to wholesaling in the first place.

I’m not trying to diminish what you know or the deals you have done. But you have the credit, money, connections and know how to do a deal like this.

Those who choose wholesaling don’t.

So I will ask again, show me a better way to make money in REI that someone with little or no money, bad credit and little knowledge can make money in a short period of time that doesn’t require all the hard work and effort wholesaling does?

I understand what your saying about wholesaling, I do. And it does nobody any good if you sign a contract and can’t close the deal for any reason. Personally my contract is 1.5 pages in length, Its very simple and easy to understand, I don’t have 10 ways to get out of a contract only one the inspection period of 7 to 14 days depending on the deal. I have only not closed once, during the inspection period I found a major electrical issue that required a lot more to fix than I had budgeted for and the homeowner was not willing to renegotiate. All others I have closed because I make sure the numbers work before I sign the contracts. And I have a decent buyers list.

If not wholesaling, how else is someone supposed to get started in REI with no money, bad credit and little knowledge?

If you have a better way I’m willing to hear it.

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Ben Leybovich December 13, 2013 at 1:59 pm

Keith,

You are the exception that proves the rule. Many comments on this article and many more PMs and emails to my website of people whose experience reflects the essence of my message. Not only is wholesaling technically difficult, most people struggle with it conceptually as well. I am very glad that you found a niche, but you are the exception.

Now – $5,300 was about 1.5% of the purchase price not 5%; but who’s looking :)

Pay attention to this next part Keith. I haven’t been able to qualify for a traditional mortgage for a very long time. My issues started out when I settled a couple of credit cards which trashed my credit, and now my DTI and sheer size of my portfolio preclude a Fannie/Freddie type note.

The structure of the deal in the article involved a portfolio note and a private note of a blanket variety. What you need to know is that on the commercial side, while the borrower’s credit is some what important, it is much less so than on the residential side. Why – because they know that if not for the asset itself, there’s no way that I can cover the payment out of my earned income. Thus, it is much more the asset itself that qualifies for the loan than the borrower. I wouldn’t be surprised if the bank never even pulled my credit, though they might have.

Why am I telling you this. Because while a deal like this would have more than likely been too big for someone off the street (I have a relationship with this bank), something smaller would not have been out of the question. Furthermore, while I used private money via a note and mortgage, which meant that it had to be accounted for in the DSCR, had I simply taken on a partner, the financing would have been that much easier.

All of this is to answer your question of what one can do without money aside for wholesaling – LOTS. One can get a small piece of a big pie for putting many different kinds of real estate deals together and staying in as principal. Does it require knowledge – sure. Does wholesaling require knowledge – absolutely. You’ve chosen to stake you claim to wholesaling – God bless. But here’s a question for you- will there be a time, do you think, when you’ll want to hold income-producing property to alleviate the need to wholesale so much? If so, I invite you to understand principals of creative finance, because it not the entirety of what you’ve earned wholesaling houses will be gone in a minute into down-payments. While you are making lots of connections with people who will buy from you, are you making connections with people who will stay in the deal with you long-term because you are the most knowledgeable RE guy they know…? Makes sense Keith?

You are obviously a tellented guy. Wholesaling is hard work and you may not want to do it for long (God bless if you do). Personally, I don’t like anything about RE aside for what it stands for and what it can do for my family…

Keith December 13, 2013 at 6:41 pm

Ben,

Thanks for the kind words.

To answer your question. My end game is to absolutely get into the buy and hold portion of REI. Wholesaling is a means to an ends for me. But a necessary one given my circumstances. The biggest frustration for me is having had to pass on so many opportunities I would have loved to have been able to pull the trigger on. Those which do not fit into the wholesale model. But are still awesome deals for fix and flip or buy and hold. There was just not enough meat on the bone to add my wholesaling fee and still have it be an attractive deal for another investors. Through wholesaling I am working my way to get in a position to be able to take advantage of these kind of deals.

You recommend learning the principles of creative finance. I have done “some” research into creative financing in the past. Most guru and experts suggestions are not an option for me. I don’t have rich friends or family to borrow from, IRA’s or credit cards with limits high enough to use my credit. I’ve looked into hard money but it seems so expensive and it requires the ability to get a long term loan within 2-3 years if I remember correctly. And hard money doesn’t cover the repair costs. I would love to do private money, but have not made any REI relationships I would feel comfortable asking for $100K or more.

Can you recommend any specific resources or ways I can take advantage of these deals? I’m sure I’m throwing away opportunities here. Any suggestions on how to move forward? You suggested “One can get a small piece of a big pie for putting many different kinds of real estate deals together and staying in as principal.”

I am very interested in finding out how I can do this. I hate having to walk away from opportunities I know are great deals just because I can’t make any money off them as a wholesaler.

Any resources or info you can provide to get me closer to my goal is very appreciated.

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Ben Leybovich December 13, 2013 at 7:53 pm

Keith – you blow my mind; I mean it. When I say to people – if it’s long-term holds you want then why are you spending time learning something else. I am truly baffled…

You are obviously a capable learner and a proactive person. I simply know that were you to put your energies behind something other than wholesaling, you’d get there – doesn’t matter what. Money has nothing to do with any of this Keith. This is how I see it:- I think that’s my blog post for next week, so thank you btw :)

Out in the world, there are 3 kinds of people:
1. Those with money
2. Those with ideas
3. Those with both money and ideas

The last is very rare indeed, which means that by and large those with ideas have to get together with those who have the money – period. Now – you say you have nobody in your life that you can turn to for money. Whose fault is this Keith? Sorry to say, but you’re hanging with the wrong crowd. Put differently, you are neither seeking nor attracting money to you. Why not? The money that would be interested in financing a 6-plex wants nothing to do with wholesaling, which is where you are buried all day every day. You are very good at wholesaling, but this is not what this money wants you to be good at – get it?

“If you hang out with chickens, you’re going to cluck and if you hang out with eagles, you’re going to fly.”
Steve Maraboli

You say you don’t have anyone you can ask for anything more than $100,000 for – why do you need more. 100k is a 25% on a 400k property. You can’t get a commercial loan at the bank for the rest? Take on a partner who can. Still no? How about looking for owner-financed deals; master lease with option; sub2; etc. This is not rocket science Keith, you just need to learn to SEE what you are looking at. Vision is the key man.

I have to tell you that it was very difficult to get going for me. I just didn’t have the intellectual worth so people readily jumped on my bandwagon. They do now, but it took years, and this is applicable to both institutional as well as private lenders and partners. I’ll say it again, while you’ve spent time building up your cell phone directory with people who want to by your wholesale deals, I’ve focused on different kind of telephone numbers. Makes sense?

At the end of the day, I believe that the biggest problem you have is a lacking capacity to see that which needs to be seen. You’ve obviously accomplished a lot so I have no doubt that you can widen your horizons if you choose to do so. As to resources, school of hard knocks works very well. Short of that, CFFU will get you thinking in the right direction if you want to go that route. Visit my website sometime when you are bored – it’s in my forum signature and profile.

It’s been a pleasure Keith. Good luck and keep in touch!

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melodee lucido December 13, 2013 at 7:19 pm

This has turned into quite the saga! I relate so strongly to Keith’s posts above. My scenario has been very similar. Before I started wholesaling I was unemployed with some serious health issues and my credit went down the toilet.

For a New Year’s gift I am going to learn more from you Ben through your course. I’ve studied some versions of creative financing but it all sounded like pie in the sky, needle in the haystack, financial brainiack (what I wish I was) stuff. Little by little I can learn more about it though.

I’m different than you though Ben. I love the thrill of the chase and the fulfillment of everyone leaving the game with a smile on their face. I am a life learner though and will probably do many new things next year. The main temptation calling to me right now is apartments. Anything can happen—after the past 2.5 yrs I know that for sure!

Thank you Ben & Keith for your contributions to my journey.

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Ben Leybovich December 13, 2013 at 8:07 pm

Melodee – please look right above at my response to Keith. Creative finance is not so much a thing, a tool , or a technique. It’s all of the above, but mostly it is our capacity to see that which others can not see. Why should we be able to see what others cant? Is it because we look at things a different way? Is it because we have more tools in the bag? Is it because we understand principals of finance and negotiation better than most? It is all of the above Melodee.

I am excited at the thought of you jumping on board – I love thinkers, and I love doers even more.

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Geoff December 17, 2013 at 6:31 am

Ben,
Thank you, thank you, thank you for this article. I am mainly a buy and hold guy for about the last 7 years. I have attempted numerous times to purchase from wholesalers but I have never, I’ll repeat, never found a good one with real deals. They have given me a very bad taste for the unethical behavior, the crazy high ARV’s and the crazy low repair estimates (many agents fall into this category as well). Funny thing is not one that I have met actually owns rental property which in my mind, pretty much disqualifies their opinion because they just flat out don’t know what it takes to attract and more importantly keep good tenants. Of course there are exceptions but I haven’t met them. I see lots of properties advertised on my local REI website and I frankly don’t even look at them cause they are never good deals. Like you mentioned, it also seems no one know a thing about construction and the associated costs. I can’t tell you how many times I heard that I should do the work my self to make the numbers work. What? The numbers also never include refi costs, holding costs, vacancy reserves, repair reserves, or management. I’m in St. Louis so if there are any GOOD wholesalers out there, let met know!

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Ben Leybovich December 17, 2013 at 7:20 am

Wow – I think you might have just said that better than me. There are very, very few good wholesalers out there – most are wannabees…

Thanks so much for your comment!

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Gerald Harris December 19, 2013 at 9:16 pm

SMH!!!
Great Article Ben!

I recently attended my local REIA meeting and ran into a seasoned investor. His 15 minute conversation told me alot about my wholesaling business and how I am actually operating as a Real Estate Agent. A stuggling real estate agent at that!. I deal in an area where the avg price of property is around 80k. Sad part about it is the deals i come across need so much work, so my spread is small. Having come from the Southern CA and a former real estate agent, I came from a market I was use to dealing with 300k properties. Spending Time with this seasoned investor who has multiple rentals, I would be better off owner financing fixed up properties, paying a little more for them so i can get 100% financing and renting properties for some great positive cash flow!! Happy Holidays to you!!

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Ben Leybovich December 20, 2013 at 5:14 am

Thanks so much for reading Gerald! Yes – we must always question the wisdom of the majority. I mean, in a market of 80k houses finding wholesaling deals is like looking for a needle in a haystack. Why kill yourself…

Happy Holydays Gerald!

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sandy January 2, 2014 at 8:11 pm

So Ben and everyone else on here what do you suggest for those of us who want to do Wholesaling then? Reading this made me so confused that I don’t which way to go or just say the heck with it all and forget it. I went to a Guru meeting and all they wanted was my money to help and it just seems odd to me that at my local REI meetings and on the Internet that no one is willing to help anyone just dole out what they think is right and wrong. So what advise do you have for me that could actually help me to do what I would love to do but can’t seem to find any help what so ever.

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Ben Leybovich January 2, 2014 at 8:21 pm

Sandy – you ask a very simple question which I will answer in full:

The reason most of us got into real estate is to either add to our earned income, or to substitute it with investment income all together; either to find financial comfort or financial freedom.

Now – the most effective way to achieve either is with residual income, which in real estate is a function of holding property long term. Activities such as flipping, wholesaling, and everything in between are jobs, hard jobs at that. The money is never passive, and therefore neither of the 2 ultimate goals I mentioned can be accomplished – by definition; ask anyone. Ask Sharon Vornholt and I believe she’ll tell you that if you get really good at wholesaling you can make good money; but it’s a job and you’ll still need plan B.

Therefore, if holding property long-term is how we accomplish out objectives, ten what you should be doing is focusing on studying and learning about that! Sure, you can wholesale a deal here and there, but you’ll discover that you are not likely to wholesale your way to long-term holds – you won’t make enough for down-payments nor is there enough time in the day.

What get’s long-term holds bought is creative finance – study that. I hope this helps put things in perspective :)

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Brian Gibbons January 2, 2014 at 9:33 pm

I love Prof Ben but…

Newbies need to learn the following basics…
- 1) What a Wholesale deal looks like
- 2) What a Rehab deal looks like
- 3) What a Seller Financing deal looks like

If you want to make money with #s 1 or 2, go be a finder – bird dog, go to REIA meetings, as to be an apprentice for a Rehabber or Wholesaler in your area for no money at least for a year, (read Rich Dad Poor Dad for working for no money but an education).

If you want to deal in no equity pretty houses (#3) with no work, call me or PM me.
http://www.biggerpockets.com/users/REISkills

If you want to learn about Multis, take Ben’s Multi Course.

Wholesaling, Flipping, Bird Dogging, Rehabbing, all take alot of knowledge and experience.
Get J Scott’s Rehab and Wholesaling books. http://www.amazon.com/s/ref=ntt_athr_dp_sr_1?ie=UTF8&field-author=Mr.+J+Scott&search-alias=books&text=Mr.+J+Scott&sort=relevancerank

Flipping Seller Financing Contracts are a faster easier start, IMHO.

Brian

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Fran March 11, 2014 at 1:20 am

How is flipping seller contracts done? Please give me some information

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jeni January 4, 2014 at 8:39 am

Wish I read this article before spending a lot of time and money trying to wholesale!

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Ben Leybovich January 4, 2014 at 2:24 pm

Thanks Jeni – wish I wrote it sooner :)

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Rob Break January 6, 2014 at 5:38 am

Its hard to get Canadian info on wholesaling.
My understanding when I first started out was that as soon as you decide to be a wholesaler in the US they back a money truck up to your door and start shoveling it out.
Things were very difficult for me here just East of the Toronto area.
I didnt understand why the informatikn I had been given seemed to be all wrong.
Wholesaling is very hard, but also extremely rewarding once you figure it all out.

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Brian Gibbons January 6, 2014 at 9:31 am

Rob,

Can you write 3 – 5 paragraphs about Ontario Wholesalers, what to do and what not to do?

BP Nation Canadians would appreciate that alot.

Brian

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Brad Gustafson February 8, 2014 at 7:21 pm

Hello Ben,
Thank you for this post. The comments are extensive but valuable. I was thinking that if you find the deals why not find a way to keep them “in house” instead of passing them on. The criteria for a wholesale deal vs a flip or buy and hold seem to favor many more opportunities in the latter. I am a newbie to BP and am finding my way into how to start. This post has been extremely helpful in identifying what tasks I enjoy and what I would rather not do.

Brian Gibbons has also helped me figure out how to get started. I liked his comment to me that solving people’s problems is a key to success. This seems to be at the core of Creative Financing.

I look forward to learning more from both of you.
Thanks,
Brad

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Ben Leybovich February 8, 2014 at 8:46 pm

Hey Brad!

You may be new to BP, but you seem to have the right idea. Brian knows his stuff second to none – I’m with you there. Me – I am just a dumb landlord, but I am happy that you found this article useful.

Thanks indeed and stay in touch Brad!

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Sade February 20, 2014 at 5:49 pm

I totally understand what you are saying and there is a lot of truth to your analysis but how would creative financing work for someone with no real estate experience, little money and no/bad credit?

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Ben Leybovich February 21, 2014 at 4:32 am

Sade,

Creative finance without knowledge does not exist. Extensive knowledge is what makes creative finance possible. My point is that developing this knowledge takes time and effort. If you spend time flipping houses, then you must ask yourself – am I bringing myself closer to that which I say I want. Answer – likely not. Makes sense?

Thanks so much for reading!

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Brandy Cook March 5, 2014 at 11:55 am

Thank you soooo much for the awesome article and information. Thanks to you I just changed my real estate goal of “becoming a successful wholesaler” to “becoming successful at creative financing options to build capital and knowledge to invest in building a solid real estate portfolio that consist of buy, fix, and stays and buy, fix, and sell properties to build wealth”.

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Brian Gibbons March 5, 2014 at 12:28 pm

hi Brandy,

Low equity pretty house deals can be monetized with Sub2 and lease option assignments, and there are pitfalls to avoid.
High equity pretty houses deals could be wholesaled or sub2 with note or lease option assignments.
High Equity Rehab deals are wholesaling only.

Be a transaction engineer, not a one trick pony. :)

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Brandy Cook March 5, 2014 at 1:00 pm

“Be a transaction engineer, not a one trick pony”. LOVE IT! Thank you for the info.

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