Wholesaling through assignments is stupid. I hate to break it to you.
I know, most people say wholesaling is the best way to get started in real estate. And they present it like wholesaling is synonymous with assignments—you can’t do one without the other.
The fact is, though, this is 100 percent false.
There are actually three ways to wholesale:
- Through assignments
- Through a double close
- Through purchasing a property outright (and then selling it later)
I’m not convinced any of them are the best route to go if you’re just getting started in real estate investing.
There is an alternative that not many people talk about. It’s one that gives you all the benefits of wholesaling through assignments with none of the drawbacks.
I’m going to share that alternative with you here. But first…
Why Should You Take My Wholesaling Advice?
This is my first blog post on BiggerPockets in several years. You are wise not to trust what I’m sharing without some kind of qualifier.
I’m Jaren—nice to meet you! A few years ago, I helped scale a wholesale company from averaging eight to 12 deals per month to averaging over 25. We purchased all of these properties in-house, closed on them, and then turned around and sold them to investors.
I was head of the dispositions team, which means it was my job to make sure we sold those 25-plus properties every month. While at this company, I also helped start an interview-based podcast all about wholesaling and got just shy of 100 episodes under my belt. We interviewed some of the best wholesalers in the country.
Needless to say, I’ve learned a lot on the subject over the years. So, when I tell you that wholesaling through assignments is stupid, it’s not because I’m trying to discredit wholesaling.
I just know there is something better out there, and I would be doing a disservice to our industry if I didn’t tell you about it.
Major Drawbacks to Assignments in Wholesaling
When you wholesale through assignments, there are a lot of limitations. Let’s quickly run through the major ones below.
1. You Have to Disclose How Much You Make to Your Buyer
Due to the nature of assignments, your end buyer will always know how much you’re making. You have to spell out how much your fee is in the assignment agreement, and if the buyer has a problem with how much you’re making, they can refuse to do the deal.
This gives them the upper hand in the negotiation, and there is nothing you can do about it.
2. Your Ability to Advertise the Property Is Extremely Limited
A lot of wholesalers feel like it’s not a good idea to disclose to the seller that their goal is to sell the property to another buyer. They feel that this would scare the seller away from doing the deal.
(This is TERRIBLE business, by the way, and you should always operate with 100 percent transparency.)
But if you don’t disclose this, how do you list the property for sale? How do you advertise it online without the risk of them seeing the listing on Craigslist or Facebook Marketplace? If the property is owner-occupied, how do potential buyers conduct walk-throughs in order to run due diligence?
It’s an uphill battle from the start… (Are you beginning to see why I said it was stupid?)
3. You’re at the Mercy of the Seller
The reality is, whenever you assign contracts, you never really know if you’re going to be able to close successfully until it actually happens.
If the seller changes their mind, it could ruin the deal and your reputation—especially if it happens within a few days of closing. There is nothing worse for investor-buyers than a deal falling through last minute.
If it happens frequently, pretty soon people are going to brand you as a flake that can’t close. Even though the fault may lie with the seller, it’s your reputation on the line, and it’s not something you should risk.
4. Assignments Are a Gray Area Legally
The last drawback to mention is how, in certain markets, wholesaling through assignments may be perceived as practicing real estate without a license. Assignments have a designed purpose, and using them to wholesale is a loophole that a lot of real estate professionals don’t like.
Here’s an example of how an assignment is meant to work:
Say you’re a real estate investor who always avoids houses with basements. You have a lead that comes in that’s a killer deal.
At first, the seller tells you that the property doesn’t have a basement. You’re so convinced that this is a great deal that you submit a strong offer, which the seller accepts. Both of you sign a purchase agreement.
After conducting your due diligence, however, you find out that the property does in fact have a basement—the seller misinformed you.
Instead of walking away with nothing, something you could do is assign this property to a fellow investor in your network who you know doesn’t mind basements. That way, the seller still gets to sell their property, the buyer gets an amazing deal, and you get to walk away with a little money for your troubles.
It’s a win-win for all parties involved.
This is how assignments were designed to be used: as a solution to a one-off deal falling though—not as a primary acquisition strategy!
Someone could make a strong case that when a wholesaler assigns contracts, they’re functioning as a listing agent without a license. In practice, what a wholesaler is doing is locating a seller and then going out to find a buyer for that seller and making a small “fee” for their services.
This is EXACTLY what a listing agent does for their clients!
Sure, the assignment agreement does provide a loophole that can be exploited. But would it really hold up in court?
Practically speaking, there is very little difference between what a wholesaler does through an assignment versus that of an agent representing a seller.
Why People Assign in the First Place
One of the main reasons why so many people are attracted to wholesaling through assignments is that it provides a way for them to get started in real estate with little to no initial cash investment. And though this is technically true, it’s a lot easier said than done.
Again, there is a much easier alternative that gives you all of the benefits of wholesaling through assignments with none of the drawbacks…
Are you ready for the big reveal?
Simply Become a Real Estate Agent
Remember earlier when I said that, in practice, there is very little difference between what a wholesaler does through an assignment and what a listing agent does for a seller?
What if you simply become a licensed real estate agent, who markets to motivated sellers, builds a network of investor-buyers, and then just structures it so the buyer paid you commission?
You’d never run into any legal issues, you’d get direct access to the property for showings, and the seller would expect you to take pictures and have listings all over the internet! In addition, you’d have even more resources, support, and exposure, because you’d have access to the local MLS and Realtor association.
If you structure it so the buyer pays the commission, the seller has nothing but upside. Especially in instances where the property is distressed, it would be a no-brainer.
You’d be getting started in real estate, making great money, wouldn’t need a lot of capital to get started… You really can’t argue with what I’m saying! It’s a WAY better option!
Conclusion: Wholesaling Through Assignments Is Stupid
My goal in writing this post was to try and help at least one aspiring real estate investor avoid the swamp that is wholesaling through assignments.
I hope I’ve made my point. I’ll see you in the comments section.
Do you agree or disagree with my opinion about assignments?
Weigh in with a comment below.