Exactly what is a wholesaler?

Question

I have had RE investments for longer than I care to admit but don't really understand what a "wholesaler" is or does.  Could someone please explain this to me? I understand the term wholesaler but not how it can apply to RE. No one I have asked seems to be able to answer. Thanks!

David D Painter · Answer

@Mike Cumbie  Thanks. Just trying to figure this out. I am in a small market with wholesalers suddenly popping up.  I have no intention of doing this, I am a landlord not a salesman.  I have been getting calls and mailings about buying my properties. None of these properties have been vacant in years and no late taxes so I am not sure why they target my properties.  I did return one call and frankly nothing about it made sense.  Not even sure why they are contacting me as I have never expressed an interest in selling.  I am usually more interested in buying. Yalls answers have cleared up a lot for me.

Michael Lee · Answer

Hello and I am glad you are here!  That first answer is pretty good but I will try to explain in a different way.  A wholesaler typically does that is you do not need any money to do that but wants a quick money (or guick profit).  To do that successfully you need to a good salesperson and a list of cash buyers will allow you to make some money.  Buying way below market value and selling at a discount below market is typically the way it is done.  You either need to be honest with the seller or have 2 closings.  You have to pay more for a second closing so just budget for it.  Sometimes you can tell the owner that you are selling the contract but making money, if you feel that they will accept that.  That way you do not have to have a second closing and not having to pay for that and lessens your profit.  Sales and marketing are the key factors.  Your best bet is to find motivated sellers that have equity.

Good luck to you!

Mike Cumbie · Answer

This is a general description:

A Wholesaler is a person who finds a motivated seller, then discusses a price and terms. Once they agree the wholesaler gets a contract to purchase the property. Since they have an "equitable interest" in the property they are allowed to sell the property. The next step is finding someone who will pay more for the property than they are contracted for so that they can make a profit. They are trying to sell a "contract" not a house.

Since they are not allowed to be on the HUD-1 form, they can't work for a commission which also means they can't really deal with anyone who is going to be financed, so they are limited to cash buyers. Also since the industry is regulated they can't place signs on the property, ads in the paper etc.

Hope it helps some.

David D Painter · Answer

@Mike Cumbie Thanks! That's a pretty clear explanation. It makes sense and gives me 900 more questions!