Real Estate Wholesaling

I (Almost) NEVER Wholesale Real Estate: Here’s Why

Expertise: Real Estate Investing Basics, Real Estate Deal Analysis & Advice, Mortgages & Creative Financing, Landlording & Rental Properties, Business Management, Personal Development, Flipping Houses, Commercial Real Estate
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It’s time to stir some things up here on BiggerPockets!

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I know there is a large community of wholesalers on BP, and I am coming right into the middle of that community and saying that I almost never involve wholesaling in my business. So I’m pretty much getting on BiggerPockets and picking a fight.

Crazy of me? Perhaps. Before you stop reading, though, let me plead my case!  My intent is not to pick a fight but to get some healthy conversation going. So let’s get a good debate going on here — feel free to make some counterpoints in the comments section!

2 Important Reasons I Don’t Wholesale

1. Wholesaling Does Not Build Wealth

While it can be very lucrative, wholesaling is not wealth building.

That’s probably the number one reason I don’t do it. I am in this business to make a difference and to build long term wealth for my investors, my employees and myself. Bottom line. I would rather build a business model that can actually buy the rental lead or go out and do the fix and flip, versus take that opportunity and sell it to another person to build their wealth.

Related: So You Want to Be a Wholesaler? Here’s What NOT to Do

Wholesaling creates assets — for others.

I can understand the wholesaler’s business plan of taking the money they make on one deal and buying a rental with it. I actually think that is the intent of most wholesalers, but I have met very few that actually do that. The problem is that to be an effective wholesaler who is regularly producing deals, you have to invest time and money to build a business model. That business needs to be fed, too.

I see the wholesalers I know take a percentage of the profit for themselves and roll the rest into growing their wholesaling business.

2. Wholesaling is Work

Every time you do a deal, you have to start over again and hustle for the next one. You are pretty much trading hours for dollars. It will be that way until you build a systematized business, which will take time and money.

Many wholesalers are doing deals that involve a short sale, meaning that the loan amount on the property exceeds the property value. There is a ton of back and forth that needs to be done between the owner and the bank. These deals can take quite a long time depending on how cooperative the owner is and which bank you are dealing with (some are easier than others). This process can be very time consuming — and at times the deal can fall through for a number of reasons.

Wholesaling is also taxed as “earned income,” as if you were working. On top of that, there is self-employment tax, as there is for most other business owners. Although you can write off some of your travel and office expenses, you are missing out on the great tax benefits of holding real estate assets longterm.

You could argue that fix and flips are trading hours for dollars and are taxed the same as wholesale deals, which I agree with. Still, I would take the fix and flip because it allows me to build a team of contractors — and even in-house employees if I want them. I have already built this team in my business and use the same contractors and employees on my fix and flips that I use on my rentals.

2 Reasons Wholesalers Do What They Do (With Counterpoints)

Of course, I know and respect several wholesalers, and I buy many of our properties from them. I even have one of them as a tenant here in my office complex. It’s a necessary business in the real estate investing industry, as not all the good deals are on the MLS.

Wholesalers do lots of marketing and detective work to find good deals, and I am grateful for that.

That being said, I already know some of the major reasons why wholesalers are in the business, and I have listed them below. I also listed my response to these reasons as counterpoints.

1. Wholesaling is High Velocity

The overall timeline for a wholesale deal can be very short. In some cases it can take only a month to find a deal, find a buyer and get to closing if you play your cards right. Wholesalers can make a fee north of $5,000 for run-of-the-mill deals and very large fees for slam dunk deals.

It can be very quick money. Do a few of these every month, and the earned income can really add up!

It’s also high energy. The adrenaline rush I have seen some of my wholesaling buddies get on a quick hit deal seems intoxicating. I have also heard it’s addictive. Once you hit a few deals that make a 5-figure fee in a short timeframe, you can get hooked!

My Counterpoint: It’s quick money, yes. But as I said, it’s highly taxed money, and you have to run around to earn it each time you make it.

2. It’s a Good Way to Get Started in Investing

Most “newbies” will say that they want to wholesale to get started either because of limitation of capital or because it’s a lower risk way to dip your toe in the water. It’s a good way to network and get to know the ropes without putting too much money at risk.

My Counterpoint: While I may agree that it is a low risk alternative, I think that most of those risks can be mitigated with the right strategy.

I would rather see a newbie do a brief internship with a seasoned investor to get the experience or ask someone to mentor them through their first few deals for a fee. If capital is the issue, you have two options — get out there and raise some private lenders first or bite the bullet and do a wholesale deal or two to raise money, then transition.

Related: The Real Estate Agent Nightmare: Wholesalers

But don’t invest much into building a “wholesaling” business. Focus on your longterm goal of building a rental or fix and flip business. If a wholesaler is buying every third opportunity themselves with the money they made on the first two, that’s a nice equation.

When I WOULD Do a Wholesale Deal

So I did say “almost never,” right?

It’s true; I do wholesale a property or two every year.

Most of the time it’s because we don’t have the current capacity to complete a project. We may have our team on other deals and won’t be able to get to the project in a reasonable timeframe. I also won’t do a deal if it’s outside of a 30 minute radius from my office (more to come on that rule in a future blog post!).

There have been times when a great deal has come up outside of our trading area, and we sold the deal off to another investor who was willing to do it. I’m an opportunist also, so if a chance comes up to make a few dollars on a deal I can’t do myself, I will take it.

Closing Argument

I can’t preach wealth building enough. I am in this business to accomplish my longterm goals and live in the WHY I am doing this. With that goal in mind, Liz and I committed very early on to build a sustainable business that can process large and small opportunities — both buy and holds and fix and flips.

Even though we may be passing on making the quick dollar on some deals, we are investing in the longterm gain for ourselves and our partners. It’s not hard to build a business that can actually do these types of deals; it just takes a long range plan and baby steps in place to take us there.

So who agrees with me? Who disagrees?

I hope to have spurred a bit of a debate here! I want to hear your arguments — please comment below!

Matt Faircloth, co-founder and president of the DeRosa Group, is a seasoned real estate investor. The DeRosa Group, based in historic Trenton, New Jersey, is a developer and owner of commercial and residential property with a mission to “transform lives through real estate." Matt, along with his wife Liz, started investing in real estate in 2004 with the purchase of a duplex outside of Philadelphia with a $30,000 private loan. They founded DeRosa Group in 2005 and have since grown the company to owning and managing over 370 units of residential and commercial assets throughout the east coast. DeRosa has completed over $30 million in real estate transactions involving private capital including fix and flips, single family home rentals, mixed use buildings, apartment buildings, office buildings, and tax lien investments. Matt Faircloth is the author of Raising Private Capital, has been featured on the BiggerPockets Podcast, and regularly contributes to BiggerPockets’s Facebook Live sessions and educational webinars.

    Jeff Jenkins
    Replied about 5 years ago
    Completely agree. Wholesaling is a job that does not create real wealth with passive income. However, I can understand if someone has no money, or poor credit, and needs time to build both.
    Matt Faircloth
    Replied about 5 years ago
    Hey Jeff! Thanks for reading and for “agreeing” with me… I also think that if it’s the only viable option to get into the game for a new investor, it should be a short lived experience while they build their network, cash, and credit. Take care! Matt
    Hattie Dizmond
    Replied about 5 years ago
    Completely agree with you, and I’m currently in the “wholesaling phase” of our plan. We plan to wholesale just enough to be able to buy a property and execute the best exit strategy on that particular property, either Fix & Flip or Buy & Hold. Once we have built enough cash reserves, we will move into the same business model you are currently in, being that we will only wholesale, if we can’t or don’t want to take the deal ourselves. I personally believe, if at least a portion of your business doesn’t involve Buy & Hold, then you are not a Real Estate Investor. You are in the Real Estate Business. Our model is to be investors, building wealth for ourselves, our families and our partners.
    Matt Faircloth
    Replied about 5 years ago
    Hi Hattie – thanks for reading and for leaving a comment. I’m glad you are viewing Wholesaling as a stepping stone and not a long term plan. You can even start to lay the groundwork for your rental business. Get a solid lease in place, know your market rents, get in touch with some contractors that can work that fix and flip for you, etc… and most importantly VIEW yourself as an investor. Also, if you get some private money lined up you can do the deals without having to save up wholesaling profits. Take care! Matt
    Matt Faircloth
    Replied about 5 years ago
    Hi Hattie – thanks for reading and for leaving a comment. I’m glad you are viewing Wholesaling as a stepping stone and not a long term plan. You can even start to lay the groundwork for your rental business. Get a solid lease in place, know your market rents, get in touch with some contractors that can work that fix and flip for you, etc… and most importantly VIEW yourself as an investor. Also, if you get some private money lined up you can do the deals without having to save up wholesaling profits. Take care! Matt
    Matt Faircloth
    Replied about 5 years ago
    Hi Hattie – thanks for reading and for leaving a comment. I’m glad you are viewing Wholesaling as a stepping stone and not a long term plan. You can even start to lay the groundwork for your rental business. Get a solid lease in place, know your market rents, get in touch with some contractors that can work that fix and flip for you, etc… and most importantly VIEW yourself as an investor. Also, if you get some private money lined up you can do the deals without having to save up wholesaling profits. Take care! Matt Reply Report comment
    Matt Faircloth
    Replied about 5 years ago
    Hi Hattie – thanks for reading and for leaving a comment. I’m glad you are viewing Wholesaling as a stepping stone and not a long term plan. You can even start to lay the groundwork for your rental business. Get a solid lease in place, know your market rents, get in touch with some contractors that can work that fix and flip for you, etc… and most importantly VIEW yourself as an investor. Also, if you get some private money lined up you can do the deals without having to save up wholesaling profits. Take care! Matt Reply Report comment
    Al
    Replied about 5 years ago
    I’m a newbie Wholesaler. “Buying every third opportunity with the money they made is a nice equation.” I totally agree with this quote. That’s actually my plan as I begin my wholesaling business. Wholesaling will allow me to develope a skill, that is to be able to find, identify, analyze deals for buyers. Once I’ve develop these special skills I can then go out and build wealth by buying and holding or fixing and flipping. Thanks for sharing.
    Laxmi Sabei investor from Astoria, New York
    Replied over 4 years ago
    Hello AL, it’s nearly a year since your post. How is it working out? Are you on your plan to transition to fix and flip OR buy and hold? I’m just curious. I’m new to real estate investing too and I was thinking to start with wholesaling with the intention to move on to buy and hold.
    Matt Faircloth
    Replied about 5 years ago
    Hey Al, You are right, Wholesaling is a skill, it’s sales and marketing 101. Those skills can be honed and taken into the buy and hold or fix and flip field too… Stay focused on building wealth! And if you can line up some private money you can do some of those deals on your own sooner than you would think. Best of luck! Matt
    Cierra Seay
    Replied about 5 years ago
    This was a great article and it’s actually help me decide to stay away from wholesaling. I thought about doing it to raise money but since I’m a licensed agent there’s a fine line between whether it’s legal for me to do it or not. I’m a new agent but I’ve been networking with a lot of BP members and I’m hoping to gain a few as clients and help them buy properties and hopefully get a chance to learn more so that I can become a more experienced investor as well. As an investor would you consider working with an agent who helps you find deals as well as teach them the ropes ? Some people have been open to it and some haven’t just curious what your thoughts on it are.
    Matt Faircloth
    Replied about 5 years ago
    Hi Cierra – thanks for leaving a comment! I think your intuition is correct on staying away from wholesalong all together since you are a licensed agent. You are held to a higher standard as a licenced agent number one, and making a fee on a real estate transaction outside of a real estate commission sounds like some thing that would get you in trouble. I will work with any agent or wholesaler that can produce good deals. I only invest in a 30 mile radius from our office in Trenton NJ though. If that is in your trading area let me know! Matt
    Aaron
    Replied about 5 years ago
    I have to disagree on so many points; > Wholesaling Does Not Build Wealth I just wholesaled a house I bought for $90K and sold for $160K. Sounds like there is some, maybe just a little bit, of wealth in there somewhere. > 2. Wholesaling is Work The above mentioned house I went to one (1) time. It took 3 phone calls to buy and sell – total. Yes, there is a marketing matching behind it, but regardless of how you’re buying, it still takes a similar amount of effort. > it’s highly taxed money Depends on how you run your business. I run a corporation. It is regular income to my company, which I am allowed to spend on business expenses, and then I pay tax on the net. I would never wholesale personally. Then, of course, if you’re operating as a person, you’re not really in business are you? > It’s a Good Way to Get Started in Investing It’s a horrible way to get started in investing. Wholesaling takes deal flow. Deal flow is accomplished by becoming a marketing expert. If one is getting into business to become a wholesaler, one must study lots of marketing, negotiation, contracts, appraisal and estimation first. That sounds like a long journey to a check and why so many newbie caught in the idea of wholesaling ask absurd questions such as “I want to be a wholesaler. What’s the first step I should take?”
    Aaron
    Replied about 5 years ago
    OK, I recently started using an Office Pro 3 and can’t figure out how to turn auto correct off. Please excuse the many typos in the previous post. I assure you it is this new machine thinking it knows what I want to write.
    Matt Faircloth
    Replied about 5 years ago
    Hey Aaron. Finally someone disagrees with me! I appreciate you speaking up. I dont profess to be right the time and wanted to get some chatter going on about this topic. ok so here are my thoughts on your points… Sounds like you made some big cash on a wholesale deal. Congrats! I dont define cash as an asset or as wealth though. Cash doesnt put more cash into your pocket or expand in value over time by itself. I define wealth as an accumulation of assets that put money in yoir pocket regularly, wheather you work for it or not. What did you decide to do with the cash by the way? With regards to time, even though you didnt invest much time you did put in time to earn that cash, and I bet there are many other wholesale deals you have worked on that required much more of your time for a smaller reward. And as sweet as that one deal was for you, it only cut you a check once. You still need to go back out and work again for the next deal. With regards to taxes, yes you do get to take deductions on your income but so does any other business owner with a smart CPA in his corner. You are still subject to self employment tax and short term gains tax. Whether you are an LLC, S corp, or C corp, gains on a wholesale will never show up as the least taxed income – passive income. I actually agree that wholesaling should not be the first move for a new investor. It is perceived as a quick way to get a few bucks and get your feet wet but that is far from the truth actually. It does take lots of work and marketing to be successful at it. What I was saying is I choose to put that work into building a business that creates long term wealth and assets. That being said, it sounds like you have had success in your business and I am glad to hear that. Heres to your success! And I write most of my stuff on BP with my cell phone so forgive me also for type errors! Matt
    Aaron
    Replied about 5 years ago
    “I don’t define cash as an asset or as wealth though. Cash doesn’t put more cash into your pocket or expand in value over time by itself. I define wealth as an accumulation of assets that put money in your pocket regularly, whether you work for it or not.” Cash can certainly collect interest. Nobody talks about someone as being wealthy because he/she has 100 houses. One can own 100 houses and be upside down. Wealth, from a business sense, is defined as net worth. Net worth in one’s assets. What is an asset? Anything you can readily turn into cash! So, of course cash is an asset. If someone walked up to me on the street and offered me a pile of cash or a rental house, I’ll take the cash. (There’s no such thing as a free house!) I can lend my cash TODAY and start collecting interest by the 1st. I can leverage my cash and acquire many assets. Can you buy a rental TODAY and do the same? Possibly, but not likely and definitely not without any cash. “What did you decide to do with the cash by the way?” Paid down debt and some of it will go towards more marketing to bring in more wholesale fees.
    Matt Faircloth
    Replied about 5 years ago
    Aaron – thanks for the continued conversation! I am glad to get some debate going on this topic. Cash is the possibility of wealth, not wealth itself. Although you could lend that money out and get interest on the 1st as you said, you could also blow it on a doodad like a new car or an expensive vacation. Cash gives you the chance to invest in assets, but is not an asset. These assets could be anything from a private loan to a rental to stocks to anything else that holds its value and has the potential to put some cash in your pocket. Cash doesn’t go up in value, it actually does down in value over time due to inflation. And without you doing something with it, cash doesn’t put more cash in your pocket. Matt
    TJ
    Replied about 5 years ago
    Cash is the ultimate form of wealth. If someone offered you 10 million cash or 10 mil in free and clear SFR which would you take. Sure you have to do something with cash for it to produce more, but the same with real estate. You have to rent, lease option, re-sale, etc. real estate for it to produce also. An empty 50k SFR actually COST you money while 50k cash under the matress doesn’t. Cash can be used to buy assets that work best for your situation, which may or may not be real estate. There is a reason they say CASH IS KING.
    karen rittenhouse
    Replied about 5 years ago
    Great article, Matt! You give some wonderful, spot on info regarding wholesaling. No, it does not create wealth – temporary riches, yes it can. But your question, “what do you do with that cash?” is fabulous. Cash from a wholesale deal puts money in your pocket but does not create long term passive income. Holds do that. My husband and I are on the “other side” of our wealth building career. We spent most of 10 years acquiring buy and holds (while doing all the other stuff as well!). Now that we have all the properties we need to create tremendous, long term wealth, we’re focusing 100% on wholesaling to pay them off. Because we have so many holds which give us TONS of tax write offs, we pay almost nothing in taxes on our profits. I agree with your warning about short term capital gains for the newbie – without write offs, as much as 50% of your profits can go to Uncle Sam. That’s a lot of work to cut your reward in half. We buy 8-10 wholesale deals per month, and work our butts off to sell as many! Buying, no matter what your focus, is always the easy part if you’re doing enough marketing. Thanks for your post. Here’s wishing you and Elizabeth tremendous success in growing your long term wealth.
    Matt Faircloth
    Replied about 5 years ago
    Hi Karen – thanks for reading. I love your story! You are absolutely building wealth with the cash you are making. I also am impressed with the fact that the carry forward losses from your rentals are offsetting the income from the wholesales. When Liz and I read your comment we were both inspired by it! Take care, Matt
    Matt Faircloth
    Replied about 5 years ago
    And Karen I forgot to ask – I would love to hear more about how your are doing 6 to 8 deals per month! Send me a message on BP! Matt
    karen rittenhouse
    Replied about 5 years ago
    Actually, closer to 10 buys per month. 2 full time buyers, receptionist and bookkeeper. $10,000 per month marketing.
    Matt Faircloth
    Replied about 5 years ago
    And Karen I forgot to ask – I would love to hear more about how your are doing 6 to 8 deals per month! Send me a message on BP! Matt
    Lamar
    Replied about 5 years ago
    Great post! I agree that buying rentals is the way to wealth. BUT fix & flips vs wholesales: Do you NEED to do fix and flips to build a team of contractors for your rentals? Or can that be accomplished through networking? Is fix and flip more risky than wholesale? Both are taxed high. Both require always hunting for the next deal.
    Matt Faircloth
    Replied about 5 years ago
    Hey Lamar, All in all you and I agree that the best investment is a long term hold with good cash flow. That being said, not all houses make good rentals and we as investors need to decide whether to do something with that good deal that comes up in a non rental neighborhood. For me, it works to do fix and flips too. I have several full time employees that I use to rehab rentals and also to do about 50% of the work on my fix and flips. That being said, I do see your point and think that my wife would be a bit easier without the employees! Ha Ha. I would say that in most cases we make more money on a fix and flip than we would if we would have wholesaled the deal. That being said, you are correct that it is higher risk. It’s only because done enough of them that we know how to mitigate that risk. With regards to the taxes, you are correct the tax rate is the same. We get to apply some of the paper losses from our rentals to our flips, which drags it down a bit. Take care, Matt
    Jesus C. Rosario
    Replied 8 months ago
    The tax thing.. Isn’t there a way to make monetary transactions, tax free, through a self directed IRA? Just something I heard around the block.
    Vince
    Replied about 5 years ago
    Your argument isn’t against wholesaling, it’s against those wholesaling with the wrong result in mind. You can start wholesaling and scale it and ad fix and flips and rentals to your business as it grows. Wholesaling is a viable, excellent way to build a real estate business.
    Matt Faircloth
    Replied about 5 years ago
    Hey Vince, I agree – having it as a stepping stone is ok as long as you quickly move past it and into things that build long term wealth. Take care, Matt
    Matt Faircloth
    Replied about 5 years ago
    Hey Vince, I agree – having it as a stepping stone is ok as long as you quickly move past it and into things that build long term wealth. Take care, Matt Reply Report comment
    Kingsley
    Replied about 5 years ago
    Hey Matt, I agree on both the pros and cons except why do you put fix and flip under the wealth category since, just as wholesaling, it is not a passive income as buy and hold?. Great topic by the way.
    Matt Faircloth
    Replied about 5 years ago
    Hey Kingsley, You are correct, fix and flips are also a capital gain and taxed as such. I am a buy and hold investor at heart but use fix and flips as a tool when I can too, mostly because I have the team for it and to capitalize on the opportunities when they come up. Thanks! Matt
    Justin Hales
    Replied about 5 years ago
    Thanks for the great article and for the follow up conversations Matt. According to your reply here would you not say that wholesaling is in the same category as fix and flip? Although the title for this particular post is focusing on why you don’t wholesale you could have just as easily made it about why you prefer not to fix and flip. Seems like both of these strategies are less of a priority for you and are equally non desirable according to your goals. It’s not that wholesaling is a specifically distasteful enterprise it’s just that it fits into the non-wealth category… just as say a fix and flip would. Do I have that right?
    Matt Faircloth
    Replied about 5 years ago
    Hi Justin, In essence you are right, but I do have fix and flips in my strategy. That’s because I have an in house construction team and some strategic partnerships so I can execute a fix and flip fairly easily. Plus it helps us to keep our team moving and fill in gaps if we always have a fix and flip in the works. That being said, it’s still not wealth building and is taxed unfavorably. It’s not wrong, just know what you are getting into. If you do perform a capital gains deal (fix and flip or a wholesale) be sure to reinvest at least a part of the proceeds into something that builds long term wealth. Thanks for reading! Matt
    Matt Faircloth
    Replied about 5 years ago
    Hey Kingsley, You are correct, fix and flips are also a capital gain and taxed as such. I am a buy and hold investor at heart but use fix and flips as a tool when I can too, mostly because I have the team for it and to capitalize on the opportunities when they come up. Thanks! Matt
    Matt Faircloth
    Replied about 5 years ago
    Hey Kingsley, You are correct, fix and flips are also a capital gain and taxed as such. I am a buy and hold investor at heart but use fix and flips as a tool when I can too, mostly because I have the team for it and to capitalize on the opportunities when they come up. Thanks! Matt
    Matt Faircloth
    Replied about 5 years ago
    Hey Kingsley, You are correct, fix and flips are also a capital gain and taxed as such. I am a buy and hold investor at heart but use fix and flips as a tool when I can too, mostly because I have the team for it and to capitalize on the opportunities when they come up. Thanks! Matt Reply Report comment
    Rick Grubbs
    Replied about 5 years ago
    What distinguishes a successful real estate investor from his neighbor with a “job” is passive income. Passive income is what allows you to do what you want to with your time, which is a definition of freedom. There is nothing wrong with having a job. But one must never confuse “working” in real estate, with “investing” in real estate. They are two totally different things, both legitimate, but with different outcomes. You may need to get a “job” in real estate first in order to get seed money to become an investor. It could be becoming an agent, broker, or drywall hanger or wholesaler. They are all respectable jobs, (Read Proverbs 10:4) but they are still jobs which require you to go to work each day or stop getting paid. That is the essence of the discussion here.
    Matt Faircloth
    Replied about 5 years ago
    Hey Rick, I love the way you worded this – it’s ok to have a job in this business, just know that’s what you have – a job. Many successful people have jobs and also take some of the money from their job and invest it for the long term… Thanks for your input. Have a great week! Matt
    Nick Fletcher
    Replied about 5 years ago
    Matt, You do make good points about wholesaling not building wealth, and I agree its not a long term position. But starting out there is no better way to get the knowledge than by looking at deal upon deal. My situation differs based on the fact that I source for specific clients in the multifamily market. Yet to get to the point of having clients, you need to establish a track record. Diversification is as old as time, but unless you have cash reserves, or a wealthy donor to bankroll you, wholesaling gives you a jump start. The other positive about wholesaling is establishing a network. A lot of business happens from people that work with you, and those people know other investors as well. So if you do a good and honest job for them, they tell their friends.
    Matt Faircloth
    Replied about 5 years ago
    Hi Nick, You are a very specific wholesaler – finding multi families for specific clients is a nice niche, I’ve actually never heard of that before. I wish you were in NJ, LOL! I am curious if you are an owner of multi family properties also? To your comment, I will agree that if a new investor has absolutely zero cash to invest in real estate wholesaling may be the easiest path. The other option would be to try and raise investors out of the gate, which is hard without a track record. I think the difference I was trying to illustrate in the article is that between building an investing business versus building a wholesaling business. Thanks, Matt
    Don Clark
    Replied about 5 years ago
    What a great discussion, which comes at a time when I am becoming very aware of the pros and cons to each type of real estate endeavor. It seems to me each one has a role and can round out your business well by using all aspects. It has opened my eyes to just look for good deals. Here’s what I mean. I restarted (I tried real estate years ago) my business last month with the intent to only wholesale for a while and with the idea I had to originate my own leads from home sellers. What I am quickly realizing is that I probably don’t need to originate my own leads right away. I can use wholesalers and even the MLS to find me leads, which I can buy and hold, or fix and flip. Yes, I need quick income, which can come from wholesaling, but it also takes time to generate those leads and deals. So until that happens, if I come across a good buy and hold property and can raise the capital, why not do it? A deal is a deal, and doing one is good motivation to do more. Karen, I am curious- what is your marketing approach for wholesaling? Do you use direct mail? Whom do you target and what pieces do you use?
    karen rittenhouse
    Replied about 5 years ago
    Hi Don: We are huge fans of direct mail marketing. That is our number one lead generating source though we do tons of other stuff, layered marketing. Direct mail, however, gets to the homes you’re interested in purchasing. Everything else brings in more generic leads. And we target properties that are free and clear or with tons of equity to find our wholesales. We send letters and post cards. A mix of looks and messages. Thanks for asking!
    Matt Faircloth
    Replied about 5 years ago
    Hi Don, Thanks for jumping in. I’m glad to hear that you gave real estate another shot! I’m also glad to hear you are not trying to do it all yourself, as in finding the deal, financing it, etc… all yourself. Wholesalers are an integral part of my business – I buy most of my deals from them every year and have great relations with them. When you come across that next deal and have the capitial, do it! Take care, Matt
    Nick C.
    Replied about 5 years ago
    Thanks for this article Matt. It really enjoyed it. I am as green as green can be in Real Estate investing, but am looking to get started. I have been doing research on the best way to do that, and there are so many options. Of course, wholesaling was the first avenue I looked at because I do have little to no capital and it has pretty much been flooded on the internet and books as the way to get started. My question is, how would you (or did you) get started with no money, aside from wholesaling? Everything you said about wealth vs cash is completely spot on and what my goals are.
    Liz Faircloth
    Replied about 5 years ago
    Hi Nick, I am Matt’s wife, Liz and thought I would send a comment to you on your question since I just wrote a blog that might help you (4 Essential Steps to take Before Seeking Private Money). I think a strategy could be to raise private money. This is how we got started. However, since you are new, I would take a look at this blog and it will give you some ideas before seeking those private money partners! Message me know if you have any questions. Happy to help! Liz
    Ben Grise
    Replied about 5 years ago
    This is all well and good, but how does a wholesaler find financing for these rental properties when they are considered self-employed by the banks. Banks don’t like to give mortgages to self-employed wholesalers or I haven’t found one yet regardless of my credit score and reserves. I keep hearing about private lenders, but I have yet to find any private lenders that want to loan money at 5% to a wholesaler who wants a rental property. Maybe I should read Brandon Turners new book? I am working on finding buy and hold opportunities because I see the long term value in buy and hold investing.
    Ben Grise
    Replied about 5 years ago
    This is all well and good, but how does a wholesaler find financing for these rental properties when they are considered self-employed by the banks. Banks don’t like to give mortgages to self-employed wholesalers or I haven’t found one yet regardless of my credit score and reserves. I keep hearing about private lenders, but I have yet to find any private lenders that want to loan money at 5% to a wholesaler who wants a rental property. Maybe I should read Brandon Turners new book? I am working on finding buy and hold opportunities because I see the long term value in buy and hold investing.
    Don Clark
    Replied about 5 years ago
    I heard your interview on the podcast and then saw your post here. Nice job on your first year! You are in a similar situation to me. I don’t know all your specifics, but like you, I am self employed and newer to this business. I tried this years ago, basically wholesaling. I have been drawn to real estate for a long time and know it is a great opportunity. Starting over again, I am figuring things out twice and fast. I realize, now, that each part of the business is valuable. We need cash to pay bills and we want to build wealth and have passive income. Ben, you have a lead generating system. And your producing results with it. That’s great! Don’t stop that ever! It is providing you cash and can provide wealth building. The next part can be difficult for some of us, getting the money for deals. In this business we have to be creative. That includes finding the money, if we need it for a deal. Here are my suggestions for finding the money. 1. If you have equity in your house and qualify for a line credit, you can use those funds. I don’t like using money against my house, but temporarily it can serve a good purpose, just make sure the deal is good and pay it off asap. 2. Talk to other investors in your area that can recommend “local” lenders whom might work with new investors who want to buy rentals. 3. It sounds like you already have private lenders, use them and pay the higher interest rate. As long as the numbers work, which usually means paying less for the property, it doesn’t matter if you have to pay a higher interest. They are worth it, if you have no other other options. And once you get established and have some good rentals with cash flow and equity, I bet the banks will start lending you money. Then you can refinance those higher interest loans. Also, you should then be able to qualify for loans or even put lines of credit against your rentals to buy more. As mentioned earlier in this post, use your proceeds from your other wholesale deals and fix and flips, to pay those loans down as your building your portfolio. You might even get to a point where you have enough cash to not need loans. What I mentioned above has become my plan. I want to build fast, but smart and as a safe as possible. I believe this can be done by constant effort, research, and evaluation. I am sure other seasoned investors will have their opinion on approaches and theirs may work too. The point is I believe this approach will work fundamentally. Don
    Ben Grise
    Replied about 5 years ago
    Thank You for the Kind words Don. I am in no hurry to acquire rentals and will practice patient until a good deal comes along. Hopefully I can start to apply some no money down strategies such as owner financing.
    Rich
    Replied about 5 years ago
    Sounds like this was written by a guy who doesn’t know how to negotiate great deals. In addition, you contradict yourself numerous times throughout the article.
    Matt Faircloth
    Replied about 5 years ago
    Hi Rich, Thanks for your “positive feedback”, LOL! I think I may have touched a nerve there. Good. It was my intent to do that and generate some healthy debate on the topic. Unfortunately you didn’t give me much to go on in your comment, so we really can’t have a much of a conversation, can we? With regards to negotiating deals, I have been investing for 12 years and have purchased over 115 unit and done over 20 fix and flips. Some were with wholesalers, some were from Realtors, and others were with direct owners. All of them involved negotiating a great deal for my company. If I was striking bad deals on all of these I wouldn’t be in business for this long, right? 🙂 I tried my best to see both sides of things in the article, which may have sounded like contradictions. You also may have read the article wrong as I made some arguments as to why wholesaling is a good idea, with a counter point to that. I do have fix and flips in my portfolio, which is NOT wealth building and I agree that seems strange. I even got called out about that from a few other posters on this blog! Fix and flips work for my business model as I have an in house crew. Wholesales however don’t work for my model (most of the time). Have a great week, Matt
    Matt Faircloth
    Replied about 5 years ago
    Hi Rich, Thanks for your “positive feedback”, LOL! I think I may have touched a nerve there. Good. It was my intent to do that and generate some healthy debate on the topic. Unfortunately you didn’t give me much to go on in your comment, so we really can’t have a much of a conversation, can we? With regards to negotiating deals, I have been investing for 12 years and have purchased over 115 unit and done over 20 fix and flips. Some were with wholesalers, some were from Realtors, and others were with direct owners. All of them involved negotiating a great deal for my company. If I was striking bad deals on all of these I wouldn’t be in business for this long, right? 🙂 I tried my best to see both sides of things in the article, which may have sounded like contradictions. You also may have read the article wrong as I made some arguments as to why wholesaling is a good idea, with a counter point to that. I do have fix and flips in my portfolio, which is NOT wealth building and I agree that seems strange. I even got called out about that from a few other posters on this blog! Fix and flips work for my business model as I have an in house crew. Wholesales however don’t work for my model (most of the time). Have a great week, Matt
    Pauline
    Replied about 5 years ago
    ~ “I would rather see a newbie do a brief internship with a seasoned investor to get the experience or ask someone to mentor them through their first few deals for a fee. If capital is the issue, you have two options — get out there and raise some private lenders first or bite the bullet and do a wholesale deal or two to raise money, then transition.” ~ As a newbie, I would relish the opportunity to be allowed to intern with someone and be more than HAPPY to share profits from my first few deals to gain this knowledge! Just to have the ability to talk with someone in my area, someone that I could build a lasting, trusting, relationship with is exactly what I’m looking for. But how, exactly, to find these mentors and how do you approach them?
    Matt Faircloth
    Replied about 5 years ago
    Hey Pauline, Thanks for reaching out. First, you need to get connected to your goals from investing, and also to what assets you have to bring to the table. Your assets don’t have to be monetary – they can be your time and skills you have (sales, financial analysis, construction background, etc…) Bottom line, write down your assets and your goals BEFORE you start seeking a mentor. Then start looking for someone in your area that is doing the type of investing you want to get into. I think you have two avenues to find yourself a mentor… one is to post something on the forums here on BP. Be specific on your desired geography and the assets you bring. The second way is to attend your local Real Estate Investors Association (you can find them at http://www.nationalreia.com/). Go to the meetings and network like crazy till you find someone to mentor you. Good luck!! Matt
    Pauline
    Replied about 5 years ago
    ~ “I would rather see a newbie do a brief internship with a seasoned investor to get the experience or ask someone to mentor them through their first few deals for a fee. If capital is the issue, you have two options — get out there and raise some private lenders first or bite the bullet and do a wholesale deal or two to raise money, then transition.” ~ As a newbie, I would relish the opportunity to be allowed to intern with someone and be more than HAPPY to share profits from my first few deals to gain this knowledge! Just to have the ability to talk with someone in my area, someone that I could build a lasting, trusting, relationship with is exactly what I’m looking for. But how, exactly, to find these mentors and how do you approach them?
    Don Clark
    Replied about 5 years ago
    I would like to know what types of areas/neighborhoods those who are purchasing their buy and holds are targeting with a possible 2nd bubble popping. Are you staying away from low income areas, because they may not pay their rent when their affected? What is your real estate investing approach with this possibility? I would like to know where to focus building my portfolio with this looming in the near future. Don
    Matt Faircloth
    Replied about 5 years ago
    Hey Don, Thanks for reading and for leaving a comment. We do most of our investment in blue collar areas as I have always found them to be more stable regardless of the economy. We avoid war zones of course but there are decent cities in NJ and PA (our target investment areas) that have a stable tenant base and affordable prices per unit. If you are concerned with a change in the economy I would stay away from luxury rentals and higher end properties as those will be affected the most. I hope that helps! Matt
    Matt Faircloth
    Replied about 5 years ago
    Hey Don, Thanks for reading and for leaving a comment. We do most of our investment in blue collar areas as I have always found them to be more stable regardless of the economy. We avoid war zones of course but there are decent cities in NJ and PA (our target investment areas) that have a stable tenant base and affordable prices per unit. If you are concerned with a change in the economy I would stay away from luxury rentals and higher end properties as those will be affected the most. I hope that helps! Matt Reply Report comment
    Matt Faircloth
    Replied about 5 years ago
    Hey Don, Thanks for reading and for leaving a comment. We do most of our investment in blue collar areas as I have always found them to be more stable regardless of the economy. We avoid war zones of course but there are decent cities in NJ and PA (our target investment areas) that have a stable tenant base and affordable prices per unit. If you are concerned with a change in the economy I would stay away from luxury rentals and higher end properties as those will be affected the most. I hope that helps! Matt Reply Report comment
    Teresa
    Replied about 5 years ago
    Hello! Matt, This was an interesting topic to me. I read many of the comments and it seems to me that wholesaling is not the be all end all that the Real Estate Gurus talk it up to be. I know from experiences that wholesaling is not always the way to go. I was told to put up some bandit signs and wait for the calls to come in. No one told me I had to be a salesperson. If they had I would have run like the wind to get out of there. So after spending a lot of time trying this and that. I found out there is a lot of competition out there. That don’t help someone with little experience like me. So I have turned my efforts on other things. Like finding investors (cash buyers) to network with. I have the knowledge and I have the crews to work on fix and flips and that is where I am putting all my energy right now. I’m looking for people that want to invest there money and I invest my time and we slip the profits. I think that wholesaling should be part of real estate investing but it’s not for me at this time. Thanks, Teresa
    John Hamilton from Jacksonville, Florida
    Replied about 4 years ago
    Hi Matt, Great article. I agree with your two points, however, I believe it may be short-sighted to say wholesaling can’t be lucrative. Passive vs. working the business. Wealth building is why we do what we do. Eventually, to be investors and have the properties, or assets, work for us, and not the other way around. Wholesale is a stepping stone to bigger REI opportunities. However, it may not be suited to “newbie” investors. I think that most don’t know what it takes to actually make it a thriving business that leads to wealth building. This is subjective. It depends on where you are starting out from. Money heavy with lots of built relations and experience (directly or indirectly) or money poor with no experience or network. One does not simply walk up to a bank, lender, or mentor and say, “OK, I want to be an investor, give me . And by the way, how do I get started?”. It’s funny how most FnF and BnH investors have such a negative connotation to wholesalers, yet in the same breath, wholesale themselves or deal with and rely mostly on wholesalers to bring them the good deals. I see a good wholesale business (one should be operating as a business -as I do – and not a personal venture) as necessary and part of the REI world and a viable vehicle towards wealth building and passive investing. Sure, if I had the means right now, I would take on all BnH I could handle. That way, I could just sit on the nearest beach and drink rum and cokes all day sitting next to the latest plus-sized model smoking the fattest cigar I can find. It’s all about a plan and strategy to a goal. Once that goal is achieved, you should already have the next planned goal waiting in the wings. I feel that if I know what it means to be a wholesaler, I can mentor and train others do perform likewise. Then, when I’m ready to go to the next exit strategy (FnF/BnH), I can choose to keep that wholesale business running (hands-off), while I focus on the more passive side of REI. In actuality, the reason I started really being a wholesaler was I couldn’t find enough good deals.