Wholesaling to Retail Buyers - Phil Pustejovsky

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Wholesaling to Retail Buyers - Phil Pustejovsky

Kyle Cabral
North Dartmouth, MA · Member since 2014 · 172 posts · 53 votes

Man, do I like this guy Phil and his videos and I'm definitely buying his integrity and the fact that he really cares about people learning and succeeding.  But obviously, he's a business man, a very successful one at that so he knows how to make his money and his 50/50 strategy really is great for people who want to go that route... Just feel like with hard work, research, and using mediums like bigger pockets I'm in control of my own real estate destiny.  That being said... there's one concept he threw around in this video, that is very interesting to me.

Basically he says people leave money on the table far too much with respect to wholesaling and don't have to reinvent the wheel. Get a property under contract and since you have equitable interest, there's nothing wrong with listing the property and basically collecting the difference as an "equitable interest" fee. By using the MLS and other sources, you can get a far greater return.

My question, how does this look from a contract perspective? Are there people actively using this strategy and if so, how is it done in a clean transaction?  My thoughts...

1. Locate motivated seller, get property under contract and gain equitable interest with your $10, $100 or whatever deposit

2. Based on region, MLS network, etc. ensure there are no restrictions and that a non-owner can post a listing on MLS. So the language on MLS is "seller" as opposed to "owner".

3. Find a buyer and .... what's next : )

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Phil Pustejovsky
Involved In Real Estate · Daytona Beach, FL · Member since 2009 · 22 posts · 28 votes
12y

DISCLAIMER: The following is NOT legal advice. Consult an attorney if you have legal questions.

With the disclaimer out of the way...

(1) Make sure your contract clearly communicates that the buyer is obtaining equitable interest and may market the property on the MLS by representing its own interests and not those of the owner of record.

(2) Make sure it is clear in the listing remarks that you are representing your own equitable interest and NOT the interests of the owner of record.

(3) Once the buyer makes you an offer, you then have to decide who is going to counter sign that contract...the original seller or you? Or do you assign your original agreement? Those are the three options and each deal is different and the best choice depends on the particulars of the deal. It can get a bit complicated here.My team and I spend considerable time helping our Apprentices decide the best course of action once the offer comes in.

If you do this technique wrong, at worst, you can get into big trouble with the real estate commission (and perhaps invite lawsuits from sellers and agents as well) and at best, you will get cut out of the deal and basically help the seller make a ton more money. 

If you do it right, it can be MUCH more profitable than traditional wholesaling and it reduces the risks of closing on it the traditional way and then re-selling. My apprentices and I have made a fortune applying this technique across the country.

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  • Phil Pustejovsky
    Involved In Real Estate · Daytona Beach, FL · Member since 2009 · 22 posts · 28 votes
    12y

    DISCLAIMER: The following is NOT legal advice. Consult an attorney if you have legal questions.

    With the disclaimer out of the way...

    (1) Make sure your contract clearly communicates that the buyer is obtaining equitable interest and may market the property on the MLS by representing its own interests and not those of the owner of record.

    (2) Make sure it is clear in the listing remarks that you are representing your own equitable interest and NOT the interests of the owner of record.

    (3) Once the buyer makes you an offer, you then have to decide who is going to counter sign that contract...the original seller or you? Or do you assign your original agreement? Those are the three options and each deal is different and the best choice depends on the particulars of the deal. It can get a bit complicated here.My team and I spend considerable time helping our Apprentices decide the best course of action once the offer comes in.

    If you do this technique wrong, at worst, you can get into big trouble with the real estate commission (and perhaps invite lawsuits from sellers and agents as well) and at best, you will get cut out of the deal and basically help the seller make a ton more money. 

    If you do it right, it can be MUCH more profitable than traditional wholesaling and it reduces the risks of closing on it the traditional way and then re-selling. My apprentices and I have made a fortune applying this technique across the country.

    1Reply
  • Kyle Cabral
    OP
    North Dartmouth, MA · Member since 2014 · 172 posts · 53 votes
    12y

    Talk about creative @Phil Pustejovsky - Thanks for the insight.  I'll get legal advice in my area but will try to get some other deals under my belt before I finagle with this type of strategy.  Definitely doesn't seem like a rookie approach.  Regardless, thanks for all the videos you put out, as you have a knack for simplifying things when needed and have a common sense approach to everything, which I appreciate.  

    P.S. love your investor intelligence IQ test, especially the question surrounding deal of the century, family, what do you do... Helps put in perspective your integrity.

    Best of the luck in the future.

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  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    12y

    Something to consider, How are you going to list the property in the MLS? Here the real estate commission has weighed in on equity skimming and they have made it clear that agents risk their license by participating in deals like this. Now they (the real estate commission) may not find out if everyone leaves the deal happy and certainly you are more protected with full disclosure. That said, why would anyone (seller) give someone more than a listing fee for this type of situation? If you did sell them on it, why would they not get cold feet when they figure out how much you are making that could have been theirs?

    Just asking.

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  • Winston Spence
    Real Estate Investor · Waterbury, CT · Member since 2012 · 117 posts · 19 votes
    12y

    @Kyle Cabral 

    If you are really deciding on this strategy, you should find a realtor that accepts a flat-rate fee for listing properties on the MLS. That way you don't have to worry about paying realtor commissions.

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  • Kyle Cabral
    OP
    North Dartmouth, MA · Member since 2014 · 172 posts · 53 votes
    12y

    Thanks @Winston Spence makes sense.  @Bill S. I'm thinking that every situation is different and there are special cases/individuals that just won't care and go through it, regardless of cost differential.  Of course, there will be those cases where you have people who have wet feet or bark up a storm... maybe that's what @Phil Pustejovsky was referring to when determining step 3 and what step to use.  I'm guessing, and I'm definitely going run this by my lawyer to make sure but the following could some conditions for each approach.

    1.) Difference in price isn't that substantial, you list on MLS for a flat fee and find a relator willing to do this for you. Offer comes in, maybe it's 7k difference, you have the original seller countersign with conditions, stipulations, that originated from your first agreement with the seller that sends the original seller/new buyer to closing where in some sort of fashion have you receiving the 7k difference in the form of an equitable interest credit.

    2.) Difference in price is substantial.  Let's say 25k.  You get nervous that original seller will get wet feet and be upset with the huge profit.  You sign the counteroffer and do 2 separate closings.  One with original seller for x amount, 2nd for new buyer for x amount, maybe on the same day.  Get rid of the need for anyone to know anyone's profit?

    3.) Not sure where the assignment of the original contract can come into play with a new buyer.  Seem's like a "typical" wholesale deal to me and really, the difference between the first scenario.

    Very interesting stuff.  Just for knowledge, I'm going to pick my attorneys brain on this one and see what he says.  I'll get his insight and repost here.

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  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    12y

    @Kyle Cabral I agree with the concept and how often do you think it would happen?

    Also most buyers are using a loan. Banks have a hissy fit with seasoning etc with double closings and a big chunk of the funds going to someone not on title. Lots of wholesale properties have defects. Marketing a property with a defect makes it a real challenge to find a retail buyer.

    While it's possible, I suppose life on another planet in another solar system is also possible.

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  • Kyle Cabral
    OP
    North Dartmouth, MA · Member since 2014 · 172 posts · 53 votes
    12y
    Originally posted by @Bill S.:

    While it's possible, I suppose life on another planet in another solar system is also possible.

     Not only possible, but likely : ) lol but I guess that's a separate discussion/debate.  Thanks for the insight!

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    99% of guru sell snake oil that does not work. Have Phil Pustejovsky ever got anyone by the hand and show how his snake oil will work in real time.

    I am not blasting Phil Pustejovsky just looking a clear answer.

    Joe Gore

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  • Phil Pustejovsky
    Involved In Real Estate · Daytona Beach, FL · Member since 2009 · 22 posts · 28 votes
    12y

    Thankfully, I am not a guru :) I'm first and foremost a full time real estate investor, and secondly, I mentor and split profits with the apprentices I teach. Myself personally and my apprentices have done these types of deals all across the United States. Over the past decade, a few complaints have been filed with the real estate commissions of a few states and in each situation, we proved legally that we were within the bounds of the law and there was no punishment. So we have been in the trenches of commission investigations and won. Flipping to a retail buyer before becoming the owner of record is much more profitable and productive than how most investors do it but it is not for the beginner. Every detail has to be perfect. For most people, its better to stick to the traditional approach of buying, becoming the owner of record, perhaps renovating and then selling to a retail buyer. And good luck finding attorneys who really know what the heck they are talking about when it comes to this subject. This is very, very specialized. There is very little case law to support it but the case law does exist if the legal researcher really digs deep. It took us years to get it all dialed in.

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  • Account Closed
    Dallas, TX · Member since 2013 · 4k+ posts · 744 votes
    12y

    @Phil Pustejovsky,

    If someone who buying your books or what every if someone asks you to get them by the hand and show them in real time how everything will work are you willing to do that.


    Joe Gore

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  • Phil Pustejovsky
    Involved In Real Estate · Daytona Beach, FL · Member since 2009 · 22 posts · 28 votes
    12y

    Depends.

    When someone applies to be an apprentice, I have a very thorough qualification process because my team and I have to be very careful who we make the commitment to mentor. Many years of experience has taught me that you have to be very selective. 

    Usually we choose wisely and it is a fun and rewarding experience to transform someone into a creative real estate investing market leader.

    The ones that we determine are not going to be a good fit, we respectfully decline their application. Some of the ones we turn down get really upset. But the reality is that my team and I are small and can't possibly mentor everyone who asks us to. Nor would we. The fact is, there are far more people who want to be real estate investors than there are good investing opportunities to feed them all in this business.

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