Wholesaling

6 Replies

hello bp. I have currently been doing much research and been learning great things here about wholesaling and all types of investing. I thought I would get some input today about a few questions I had related to wholesaling. Let's say I am a buyer, and I have my own cash (say $80,000) and I am looking to do quick flips with this money by buying the property at a discount in cash, and selling it retail. Now this is what I'm curious to know, if I am a licensed agent, can I pay cash and immediately market the property as is, for full retail? It would be a double close but without the necessity of having an end buyer to cover funds since I would have it already paid in cash. Would banks have any issue lending conventionally to a buyer? There would be the quickest convenience for the seller being that I have my own money and it would also save money on the end of marketing to property if I am not mistaken? Wondering if anyone has any thoughts on this. I know people have mentioned that banks require sometimes a certain period of time for the seller to own a property before they will buy it also, is this true? Thanks!

@Jordan Freeman , most of your rhetorical question seems to revolve around "if I am a licensed agent, can I pay cash and immediately market the property as is, for full retail"?

The short answer is "yes", (provided that you DISCLOSE to the Seller your status and intention - which is every Agent's fiduciary duty). Go get that License! [Not legal advice].

As for who will be able to buy it off you, and what type of mortgage they qualify for, each potential Buyer and subsequent Lender will have their own story to tell. Others might pipe in about that. Cheers...

Updated over 2 years ago

Proviso: So long as you as a Licensed Wholesaler ensure that your Seller is at least as well off after closing as if they had arranged the property to be listed, I have no objection.

Hi @Jordan Freeman ,

The way you set up your question it doesn't matter if you're realtor or not. If you close on the purchase, you bought it (aside from a double close). If you turn around and market it to a retail buyer, you're a flipper, not a wholesaler. I mean, sure, you bought it for a wholesale price and sold it at retail, but that's not what wholesale means in the RE investment world.

Wholesalers do not close, they assign. The eventual buyer is usually a flipper who can close very quickly and will expect a substantial discount from the ARV (after repair value). If you find a good enough deal, they pay you to assign the purchase contract to them so that they can complete the sale. If you're assigning the contract, then the bank's rules are not generally your concern.

However, if you're talking about quick flipping the property and you have to use bank financing, then might want to check that you don't run afoul of the rules. FHA and HUD have rules that give an edge to owner occupants. Cheating on these rules can get you into a world of hurts, so don't do that.

However, you said would buy the property for cash, so you're not dealing with a bank on your purchase. This is NOT a double close, but rather an "arms length transaction". The retail buyer you find may come to the table with FHA financing. In that case he would be constraining from selling the property and required to live in it, but you would not. The banks never buy the property. They lend money to the buyer against the value of the property. The buyer buys the property and the seller sells it, which is normally the end of the story for the seller and the beginning for the buyer.

Finally, the requirement to have a realtor in the deal is rather overemphasized in the retail market. The realtors would like you to believe that you MUST have an agent, but that just isn't so. You may want a realtor, but you are not required to have one. You can sell property that you own without using an agent. What you must not do is sell property that you are not a principal (owner) in the transaction without a license.

On the other hand, if you have a license, but you're buying on your own account, you must disclose this to the other principals in the transaction.

This is kind of a confusing answer to a kind of confusing question, so if any part of this is anything less than perfectly clear, say something. I hope this helps.

@Tom Mole , your reply has well answered @Jordan Freeman . My only point to you would be to query your understanding of Wholesaler vs Flipper. Yes, Flippers often buy from Wholesalers before bringing those properties up to Retail ARV standard then re-selling them, but it may well be that the Wholesaler they buy them off is also the Owner (double-closer). That is to say, Wholesalers are often forced to take Title before on-selling (because of their State Regulations), but that does not make them Flippers.

Also, my understanding is that Wholesalers effectively gain their fees from the Seller rather than their Buyer (because they should have already told the Seller that they will be selling it for more than the Sellers agreed price). The Buyer/Flipper just pays whatever Wholesaler price they settle on, not that price plus PLUS extra Wholesale Fee. Cheers...

Hi @Brent Coombs ,

I see your point, but I have to stand by my explanation and I'll tell you why.

In a wholesaler-hater state like Ohio things can really complicated. Even double closes can get you into trouble with the Ohio BRE, however @Jordan Freeman is in TX. Life is often less complicated there.

Fundamentally, flippers buy low, add value then sell high. Flippers buy and sell real property. Wholesalers on the other hand sell contracts. Except for the case of a double close (aka simultaneous close), the wholesaler never ends up in the chain of title. If I have to close on the purchase before I open the sell escrow, then it's not a wholesale in the traditional sense, but rather a quick flip.

That being said, I agree this is mostly a matter of semantics. Words are the foundation of communication. Communication is the point. Why make it more complicated than it needs to be? Jordan in trying to connect the dots, not add more dots. So, I respectfully stand on my original post.

Originally posted by @Tom Mole :

Hi @Brent Coombs ,

I see your point, but I have to stand by my explanation and I'll tell you why.

In a wholesaler-hater state like Ohio things can really complicated. Even double closes can get you into trouble with the Ohio BRE, however @Jordan Freeman is in TX. Life is often less complicated there.

Fundamentally, flippers buy low, add value then sell high. Flippers buy and sell real property. Wholesalers on the other hand sell contracts. Except for the case of a double close (aka simultaneous close), the wholesaler never ends up in the chain of title. If I have to close on the purchase before I open the sell escrow, then it's not a wholesale in the traditional sense, but rather a quick flip.

That being said, I agree this is mostly a matter of semantics. Words are the foundation of communication. Communication is the point. Why make it more complicated than it needs to be? Jordan in trying to connect the dots, not add more dots. So, I respectfully stand on my original post.

 Hey guys, great discussion here. Glad to get some feedback. TX is also seeing it's share of difficulties for wholesalers. It seems people are either tired of losing money on their homes or nobody is motivated to sell. I feel a double close is a more professional approach. What do you say tom?

@Tom Mole , yes I agree that I was mainly being semantic, and I really like your summarized definition: "Fundamentally, flippers buy low, add value then sell high. Flippers buy and sell real property. Wholesalers on the other hand sell contracts". But semantically, the double-close shouldn't change the Wholesaler definition, because Wholesalers also OFTEN sell property, not just Contracts(?) They might even resent being called Flippers, being proud that their profit was attained without adding ANY value to the property. Cheers...

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