Using Wholesaling & Other Strategties in Real Estate Investing

9 Replies

Hi everyone! I hear posting on Biggerpockets is a great way to get some very insightful thoughts on the real estate world. I hope you prove those folks right! So, in a nut-shell, I am very interested in using wholesaling to enter the real estate investing market, eventually tapering off into rental properties for the passive income, and I would love your input on this!

Allow me to lay the economic landscape of my area. I currently reside in the 77379 Spring/Houston Texas area where the market is cooling off as a whole due to the downturn in the oil and gas market. Houses are continuing to rise in value, and inventory levels are starting to rise. New leases on rental homes are starting to rise rapidly, and unemployment is starting to rise as well (up 4.8 to 5.7% Sept year over year). This leads me to believe that, coupled with having one of the fastest growing housing markets in the country over the past few years, we are on the cusp of an economic/real estate slowdown (and a potential downturn). The signs are appearing to become more and more obvious as each month's economic/real estate reports are being published, but it is not clear if we will see just a slowdown or a downturn. At this point, it is safe to say there will definitely be some incremental downside risk in this market. This will more than likely present unique opportunities, but I do not yet have the real estate experience to confidently navigate and capitalize on such a situation (I have a few ideas though).

With that being said, I've been researching the incredible world of real estate investing, and I am ready to take that first step, developing a strategy to enter the market. I've crunched the numbers, analyzed many different strategies, and I've decided on a few of the 1000's of approaches, yet I am still trapped in the "beginner's fog' and conflicted between a couple strategies. 

After listening to a ton of Brandon Turner and Joshua Dorkin's Podcasts, here are a couple strategies I have come up with so far:

1. Start with only a few thousand dollars, and use wholesaling to develop a deep discount business model to build cash and locate the best properties to flip or become rentals at the best possible price,

2. Network with a good wholesaler, and use a bit more money to begin purchasing homes to either flip or turn into rentals, or

3. Forgo the wholesaling aspect of the business, use even more money, and buy properties ready to rent from a flipper.

Now, in order to avoid as much of the "it depends" responses as possible, allow me to explain a bit more about myself. I am an incredibly driven individual, who has a great career already in place. I do work slightly more hours than your average Joe (50-65/week), so time is not a huge luxury, but I definitely have spare time. I will not be giving up my career for real estate until I have far outpaced my current career growth. I have a love/hate relationship with risk. Basically, I hate risk, but I also don't mind living a little on the edge if my business sense/instincts feel right. My background is finance and accounting coupled with business strategy. Hope's this helps!

Alright, I've ranted for a while and probably typed way too much, but if you have read through all of this, and are not bored to death with my rhetoric, I would love to hear everyone's opinions and thoughts on this given the economic status of this area. I am very open to strategies other than what I have mentioned thus far too, so feel free to tweak or introduce new ideas to what I have come up with.

Thank you bigger pockets community.

Hi Dustin, I invest in zip codes nearby but live inside 610 loop and work 50-60 hrs/wk like you. Based on my last 2 years doing wholesale to build cash to buy rentals it is not my preferred method and I don't recommend it if you don't need it to build cash in Houston without putting in tons of work and hours. That being said, cash buyers are currently buying 90% of ARV - repairs in many cases and sellers have been seeing pretty high prices in the last year so it's hard to get a good deal on both wholesale and wholesale buyer if you're trying to use no money down BRRRR. I'd recommend talking to Donny Gothard at Security National Mortgage for their temp to perm financing program. We used them on our rental purchase and the rates and costs are pretty good. Ultimately the easiest route is to buy cash or 20% rent ready on MLS, not necessarily from a flipper because as you said inventory is high in your zip. fewer headaches and easy to get.

I will be out of pocket for a while now besides any forum stuff because of a family emergency - I'm sitting here in an ICU with nothing to do - but otherwise I'd be happy to help. Good luck. 

Hey Dustin!

BP is an awesome place to bounce ideas off other investors.

Regardless of the strategy you decide to take action on, taking action will be the key component.  Since you are posting, I congratulate you on taking action.  Aside from what the market is doing (which is a very important piece), I believe that simply understanding the mechanics of your goals will yield you better results.  Here is why I say that: I'm wholesaling and decided a while back to change my strategy and am still doing deals because I'm focusing on relationships.  Wholesaling can be cost-prohibitive and can feel like you are spinning your wheels when you are doing direct-mail marketing and getting lots of calls from people looking for retail. How do I know?  I scaled from 1K pieces to just over 11K pieces of mail monthly in the Harris and Montgomery counties. In order to get to that, you need systems in place.  Give me a call sometime if you wanna chat.  

@Tim Shin , buy a house from me bro!  Donny Gothard is the man and he has earned every bit of that great reputation.  He will not lead you astray my friend.

Originally posted by @Juan Cristales :

Hey Dustin!

BP is an awesome place to bounce ideas off other investors.

Regardless of the strategy you decide to take action on, taking action will be the key component.  Since you are posting, I congratulate you on taking action.  Aside from what the market is doing (which is a very important piece), I believe that simply understanding the mechanics of your goals will yield you better results.  Here is why I say that: I'm wholesaling and decided a while back to change my strategy and am still doing deals because I'm focusing on relationships.  Wholesaling can be cost-prohibitive and can feel like you are spinning your wheels when you are doing direct-mail marketing and getting lots of calls from people looking for retail. How do I know?  I scaled from 1K pieces to just over 11K pieces of mail monthly in the Harris and Montgomery counties. In order to get to that, you need systems in place.  Give me a call sometime if you wanna chat.  

@Tim Shin, buy a house from me bro!  Donny Gothard is the man and he has earned every bit of that great reputation.  He will not lead you astray my friend.

 All great points, Juan. Keep sending me stuff like you do. I liked the look of that last house and you know I'll be using Donny on the 7 and 1. I'm open to getting also Pasadena houses if I can get it where I'm net 0 out of pocket on the 7-1. Spring, Magnolia too. You know my thing about the Elementaries. 

Being from SE Texas I know that area. I spend 30 years in Beaumont but frequently found my way to Houston and surrounding areas. I lived there during the 70's and 80's when oil got hit bad and there were tremendous amounts of foreclosures. I don't know if things will get that bad again. However, I am a firm believer in investing in any market. No matter when you buy, you MUST get a decent discount off market value. This builds in profit and also helps shield from downturns. I don't like or play the assignment game. From postings on BP, it is apparent many enter that arena with no money, no ability to close, and no ethics demonstrated by putting properties under contract with BS clauses to walk if they cannot assign. If you want to build wealth, buy and hold is the key. It isn't necessarily fast or easy, but is PROVEN to be the key to ongoing income and wealth. Flipping is a JOB and you must continue to keep an income stream The same is true of acting as an unlicensed broker and assigning contracts. Owning rentals will pay you till you sell or the day you die if you choose never to sell. 

Easy @John Thedford ... LOL! 

A little over-generalization on the entering with "no ethics" and "BS" clauses but hey, you are entitled to your own opinion.  Therefore, I will not defend it.

Passive income is fantastic and there are also many methods to that.  BP'ers love rentals and I can respect that.  When the market tanks again, I'll very likely jump right back into the rental game.

Dustin, there is a legal way to do this business so consult with your attorney. 

@Juan Cristales

There are many...many posts on BP from frauds and scammers recommending BS clauses to get out of contracts. There are many posts from people with no money willing to sign contracts. I highly doubt they informed the seller that they have no money..in fact, I would wager they don't operate in that manner. I have run into quite a few of those here locally feeding outrageously high ARV figures. One BP member contacted me offering a property under 60K claiming 160K ARV and 40K rehab. If it was such a great deal why didn't he buy it? BTW, I saw it drop to 140K ARV, and then, the scammer walked from the deal. Another fraud has been posting on BP a Marco Island property they didn't have a contract on. Another scammer called me trying to markup a deal 13K he had no contract on. Like it or not, that arena is filled with lots of dishonest operators. One of them got pretty upset last week when I pointed out FL law. She was stating she is offering bank REOs...LOL! There is NO barrier to entry into unlicensed brokering. One even bragged they only needed a driver license. That frankly, isn't much of an accomplishment to garner any faith in that person:) Dealing with a license has some guarantee of honesty and ethics. At least that person CAN be reported and could be fined and lose their license. Operating as an unlicensed broker there is not any real possible consequences for dishonesty, etc except possibly through the courts.

Frauds and scammers? Check out this guy telling people to use the "subject to my partners approval" to get out of a contract. In one of his posts he claims to be "transparent" and in the same thread suggests lies and deceit! What a guy! Sooner or later they expose themselves.

https://www.biggerpockets.com/forums/93/topics/350...

p.s.---legal does NOT mean honest or ethical

Thanks for your extensive research into that John. It really is very impressive and sad to hear of it.

However, I would be remiss if I didn't ask if you have deeply discounted deals I can buy through you... Before they hit the market... errrr wait... would you consider that to be unethical or somehow illegal or immoral? Please, really... No need to answer.

I should get back to finding them myself.

PS. I didn't click the link as I fear getting scammed. I'm kicking myself in the rear right now for wasting my time with this but either way... Good luck to you guys and see you at the closing table!

@Dustin Cavalier

Risk, albeit mitigated risk, is an essential part of being a successful entrepreneur so with little time, little money and a disdain for risk, you will have a long row to hoe.  

Trying to time the next market correction is like trying to time the next stock market crash... everything in the economy is so manipulated that it is next to impossible. Remember, our politicians and most well respected economists told us everything was fine in 2006...right up to the time it became clear it wasn't in 2007.  I sold off our investments in 2007 because I knew the fundamentals were being ignored by the gurus and it was only a matter of time before something caused people to see the emperor had no clothes.  I am feeling very strongly we are at the cusp of another correction.  Depending on the outcome of the federal election, it could come as soon as the first quarter of 2017.  Does it bother me? No...I"m preparing and looking very forward to the opportunities because I recognize risk is an essential component of entrepreneurship.  

This business, like any business, is built on relationships. With relationships, you can find everything else you need...money, knowledge, etc.  If you're planning to buy/hold, you should factor in a "correction" factor in your purchase price. I know folks who had lots of properties which were negative on cash flow in 2009 because they falsely believed that the rents will come in no matter what.  They won't...corrections will impact the entire market, including the margins for buy/hold investors. 

IMO, you would do better househacking, have less risk and soon have a hard asset to work with.

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