Log In Sign Up
Home Blog Real Estate Rookie Podcast

Rookie Reply: How to Spot Scam Wholesale Deals

Real Estate Rookie Podcast
7 min read
Rookie Reply: How to Spot Scam Wholesale Deals

This week’s question comes from Rob on the Real Estate Rookie Facebook Group. Rob is asking: How do I make sure a wholesaler that is sending me deals is not a scam?

With wholesaling, as with any other sector of real estate, you’re always going to have your good and bad actors. Many wholesalers are running professional businesses, but some are simply inexperienced, while others have malicious intent.

Here are some suggestions on weeding out wholesalers:

  • Have your attorney look over the assignment contract to ensure it’s legal
  • If a wholesaler ever asks you to send funds directly to them, they’re probably not legit
  • Know your numbers, so any suspiciously good (or bad) deals can be written off
  • Contact wholesalers on your own so you can do due diligence upfront 
  • And more in the episode…

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

This is Real Estate Rookie, episode 130.

What’s up guys. So welcome to the Real Estate Rookie, where we break down the basics. That way, all of you all as new investors can understand the concepts and really take action and start building financial freedom through real estate investing and where there is no dumb question to be asked. So, Ashley Kehr, I’m so excited to be sitting here with you today. What is going on with you? What’s new, what’s up?

It is great to see you as always, Tony Robinson, and such a great introduction to our new listeners. And we always love our loyal listeners who are here with us every single week to learn more about real estate investing. And you guys have come to the right place. Today is a rookie reply, where we take a question that you guys have asked us and we do our best to answer it for you and break down how to invest in real estate. So, Tony, what is today’s question?

Awesome. So today’s question comes from the Real Estate Rookie Facebook group, which if you guys are not in there, you got to get in there. It’s one of the most active, one of the most engaged real estate investing groups for beginners on the planet, 30,000 plus members strong. Also, if you’re not following Ash and I on Instagram, make sure you’re doing that. She’s @wealthfromrentals. I’m @tonyjrobinson. If we find some of your questions from our own social, sometimes we’ll bring it into the Rookie, reply here as well. But today’s question comes from, I almost said Kevin Bacon, but his name is Rob Bacon, who may or may not be related to Kevin Bacon, but Rob’s question is, “How do I make sure a wholesaler that is sending me deals is not a scam? Ashley, what are your thoughts?

Well, first of all, if anybody can feel that person’s pain of you calling him Kevin Bacon, it’s you, when you say everybody calls you Tony Robbins.

Tony Robbins, all the time.

Yeah. So with a wholesaler, I think the biggest thing is to know your own numbers and not to rely on them. As far as looking into scams further, like if they actually own the house and can actually sell the house, that’s where you want to do your due diligence and look up county records, talk to an attorney, the title company, and find out as much information as you can about the property. And then to make sure the contract you’re looking at is actually a legit contract if they are assigning it to you. And you can have an attorney look that over and also do a little digging. So, whose name is on the contract? Does that person actually own the property? And I think that will be a good start for you guys. But knowing your numbers, don’t rely on a wholesaler to tell you what the rehab cost is going to be, what the ARV is.
You need to know those numbers. They are just there to bring you the deal. We often talk about a real estate agent too, as to figure out what you need from a real estate agent and pick your agent based on that. So if you just need an agent to show you houses, it doesn’t matter if they’re investor friendly because you just need them to get you into the door. But if you need help analyzing the market, then find an investor that knows that market and knows what an investor is looking for. So with a wholesaler are going to be using them to be a lead flow for you and to send you properties to look at. But as far as running the numbers, you should be able to take it from there.

Yeah. And I guess I just want to also define for some of our Rookie listeners what a wholesaler is and why Rob might be concerned about them sending him scams in the first place. So, in the world of real estate investing, there are multiple ways to get your deal flow, right? To find potential ways to purchase the deal. You can find it on the MLS, sites like Zillow, Redfin, et cetera. You can work with the realtor. You can go direct to seller, which means you see a house that you want to buy. You go knock on that person’s door or send them a letter, or you can use what’s called wholesaler, who leverages a lot of direct to seller marketing tactics like direct mail, cold calling, voicemail, text blasting, all these different ways. And they find people who are motivated to sell their property at a discount.
The wholesaler then takes those motivated sellers and connects them with real estate investors. And they get a fee for connecting the seller and the buyer together. So, for example, a wholesaler might find a house that’s worth, I don’t know, $200,000 after it’s all fixed up, but they’re able to get it under contract for say, $70,000. They then take that $70,000 contract and they reassign it to a real estate investor for maybe $80,000. And then the wholesaler gets that $10,000 spread the difference between 70,000 and 80,000. So, that’s a wholesaler. Unfortunately, wholesalers in some markets have gotten just kind of a bad rap. There are lots and lots and lots of good wholesalers out there, but there are also some that are new that don’t really know what they’re doing or that are just not good people. So, Rob, very legitimate question to ask how you don’t get burned.
I think you hit so many good things, Ashley. Probably the only thing that I would add, and Ryan Dossy actually mentioned this in the Facebook group. So I wanted to highlight it was that, you do not send any funds directly to the wholesaler. So if the wholesaler sends you a deal and they’re like, “Hey, Venmo meets $10,000 for your earnest money deposit, run in the opposite direction, because that is not someone you want to work with. All of your funds and the entire transaction should be handled through title in escrow. All of your money should be sent into title in escrow. They should be doing a preliminary title report to make sure that that title on that property is clean. There’s no encumbrances or anything that would stop you from legally owning the property or having a clean title once you close. So I think as long as you go through the right channels, you should be protected against any potential scams, because title is going to find if something is wrong with that property. That’s the whole reason that they’re there in the first place.

Tony, that was gold right there. I think we should have just started with that answer right there. That was great. I think just to wrap it up, is for somebody who is just learning what a wholesaler is today and thinking maybe that’s something they need on their team, how do you find a wholesaler? So you can go to meetups in your area and talk to other investors and see what wholesalers they’re using. You can probably meet some wholesalers there too. Give them your criteria. The best way that I find wholesalers is that when I get a text or an email or a letter of someone saying they want to buy one of my ex properties that I have now, I respond to that text message with “No, I’m not looking to sell, but I would like to be added to your buyer’s list please.” And I’ve gotten on to several lists because of that. Because why wouldn’t they want to add you on? Why wouldn’t they want to have you as a buyer rather than somebody that just doesn’t respond to their messages at all.

Another way that you can find good wholesalers is through Facebook groups. So like if you go, Facebook, real estate, plus your city, there’s usually some kind of wholesalers that are active in that group. If you’re driving around your town and you see those banded signs, those little signs near the freeway entrances and stuff that say, “we buy ugly houses,” that’s most likely wholesalers, you can call them up, let them know that you’re a buyer as well. So, there’s definitely some creative ways to get on those lists.

Yeah. And you can even Google that too. Buy houses or sell houses cheap in whatever your market is too. And probably find some that way. And then also look for referrals too, ask them about other properties they have recently sold and maybe look up those properties and see, “Okay, how has the rehab gone and those contact to the new owner is? If it’s still being flipped or they’re doing a bar or whatever,” and try to find some references that aren’t just references of people they’re telling you. Well, thank you guys so much for joining us today for this week’s Rookie Reply, talking about wholesaling and what to watch out for. You guys have more questions for us. You can leave a question in the Real Estate Rookie Facebook group, or leave us a voicemail at 18885 rookie. And we would love to play it on the show. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson. And we’ll see you guys on Wednesday for another Real Estate Rookie podcast.


Watch the Podcast Here

Links from the Show

Connect with Ashley and Tony:

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.