We Buy House for Cash?

Question

Has anyone ever dealt with these companies/groups who advertise "we buy houses for cash"?  Not only dealt with them, but actually closed a deal with one of them?

I am wondering if they are truly worth the time for a distressed property.

Any insights?

Dev Horn · Answer

Wow.  What a blanket statement to make about thousands of people whom you do not know and whose individual business practices are surely unknown to you.

I've said it before, I know guys that probably buy and sell more real estate than anyone posting in this thread, and most of them are cash buyers who also list, wholesale, and do other types of transactions.  Some who wholesale use a single close and assignment and some use a double close, putting up their cash for the front side of the flip.  Whatever.  They know what they are doing and they are WELL funded.

I'm pretty sure Bill's comments are aimed at the late night infomercial crowd that shows up in BP with dreams of making money in real estate without any sort of investment.  I understand that sentiment, and honestly I share some of that sentiment.  So, I'm not arguing that Bill is not spot on about MANY so-called "wholesalers".  But I know wholesalers that did over $200K in their pocket last year.  They can buy any dang house they want to.  But they DON'T WANT TO because they have opportunities to flip the paper to their own network of cash investors.

Anyone who does rehab I bet would tell you they'd rather make $10K flipping paper than $10K buying, rehabbing, and flipping houses (which is freakin hard work and very risky).  There are so many people out there making crap loads of money finding and assigning deals, so it just rubs me wrong when blanket statements are made that imply people who assign contracts are involved in a  criminal activity.  Honestly, people who post those comments sound to me like people who may have "knowledge" about real estate but no actual experience with people who do this for a living.

Matthew Forbes · Answer

@Dev Horn Well said.

@Jimmy Campbell We are talking about the same thing.  The people who have those signs are the wholesalers.  Bottom line is this: Using a Wholesaler will save you time, realtor commissions & headache, and you may have to put some money out for repairs.  That said it will probably net you less money then just putting them on the market with an agent.  The reason we (Wholsalers) exist is because some people would rather take 60K in cash in 5 days, rather then sell on the MLS for 100K later.  To @Bill Gulley point, some wholesalers don't have any ethics and will take you for a ride - just like every other business in America.  There are always bad apples.  If you want more info check out this thread: https://www.biggerpockets.com/forums/93/topics/58383-the-truth-about-wholesaling-

Jason Roberts · Answer

Most are just getting out of guru school and thats one of the things they teach. They try and build their buyers list and then bird dog. 95% fail because it is extremely difficult to lock up a house with no money these days. Realtors know the game and won't take their offer without a real POF.

Don Konipol · Answer

My only objection is with the terminology.  Actually, in order to wholesale something one must actually take ownership of that something and then resell it.  Otherwise, that person is not a wholesaler, he is an agent (not necessarily a licensed agent).

Now, many intermediaries in the real estate field may argue that when they have a property under contract, but before they actually close, they may have equitable title, or at least an equitable interest in the property, and it is that equitable interest that they are selling, not the actual property (which they can't sell since they do not and never will own).

So, using this argument, they are wholesalers of an equitable interest in a property (right to purchase) , not a wholesaler of real property.  In fact, in some states, such as Texas, the residential real estate contract as produced by the Texas Real Estate Commission, uses an option period for the buyer to have the right to proceed with or withdraw from the purchase contract.  It is this "option" that, in most cases the "wholesaler" is buying (with the payment of the option "consideration" and selling (assignment fee).

And it is here within the controversy lies.  If the "wholesaler" is purchasing the property for resale, then he is operating in his own best interest, across the table so to speak from the seller.  He owes the seller truth, but no further duty.  If he implies , suggests, or misleads the seller into believing he himself will close the deal, and or the deal is not contingent on finding the end buyer, than the question is has he been truthful?

If on the other hand he is an agent of the seller, he then owes the seller a greater duty then just truthfulness, he owes the seller the duty of putting the seller's interests before his own. Clearly,  a position fraught with danger and subject to various interpretations.

So to be on the safe and honest side, a wholesaler of real property must actually complete the purchase of said property before selling it to another; a wholesaler of equitable interests, or options, can option the property and sell or assign the option, but can not in truth claim to be a "real property" wholesaler.

And while it may seem like a good idea, the worst thing an intermediary can do is tell the seller that they will be marketing the property for the seller, and doing it on their own dime and at an agreed upon purchase price, with the whole thing contingent on finding an end buyer.  This is an admission that one is acting as an agent, and is either acting as an unlicensed agent, unlawful in all states, or if he is licensed as a real estate agent/salesperson/broker, then probably acting in violation of the state real estate licensee statutes.

Mike Cumbie · Answer

Hi @Jimmy Campbell,

Don't worry about it. That conversation goes on daily. They really all love each other, sort of like the guys sitting around the gas station getting coffee at 6:45AM arguing. Generally about if Mrs Johnsons dog is part wolf or coyote. :)

In regards to your question. Personally (Just my opinion) I would either call an Realtor (They work for you) or go to a local REI meetup and pitch them. An agent would market it for you and give you pricing ideas. The REI group would get several people involved which would help you realize a better price than going with a single wholesaler (in my opinion of course).

Good Luck!

EDIT: Very good points above by Matthew

Bill Gulley · Answer

What they are usually taught is to contract to buy, at a low price, then get a real buyer and assign the contract to them for a fee. The real buyer can be a fix and flip guy or a landlord.

There are thousands of posts on BP about wholesaling, much of it is illegal, it's unethical and it's done without most of the newbies realizing what goes on outside their little world of the contract.

Now, I will say wholesalers who have a license or those who buy in bulk do have a different strategy and may well be compliant, but not the ones and twos bunch acting like dealers.

Now, I just simply say.....another one bites the dust!

Everyone makes a choice as to how they operate. :)

Marcus Auerbach · Answer

@Jimmy Campbell yes, actually I am one of them. It really should say "We buy houses for cash, but we expect some discount in exchange for making it really fast and easy and taking the house as is with the leaky roof and the cracked basement wall no questions asked."  I used to buy on distressed REO's MLS, but recently I shifted more focus to direct marketing: we buy houses cash. Did that answer your question?

Stephen Nicholson · Answer

Its should be worth noting that most of these companies are actually wholesalers. Im sure not too many of them are actually "buying" these homes

Edward B. · Answer

@Jimmy Campbell,

There are a lot of fly by night operations out there, but there are also legitimate operators too. The good ones have investors that are cash buyers or are cash buyers themselves. If you have a deal they can certainly close it and close it quickly. The problem is that a lot of times the distressed seller does not have a deal or is not willing to sell at a price that would be attractive to investors.

James Messa · Answer

@Dev Horn You made an interesting point about a wholesaler flipping paper for $10K instead of a making $10K buying, flipping and resale which is much more risky and can be difficult.

The way I look at this scenario is, if you are an investor and want to buy a property from a wholesaler and there is only a potential of $20K in profit to be realized from original seller to the property re-sold. Why purchase from that wholesaler who does not leave enough meat on the bone or is not a good negotiator.

Now I am marketing for my own deals so that I can find that purchase price of 70% of ARV minus repair cost. And anything that does not meet my criteria I will re-assign the contract for a fee so that I am able to monetize that lead. $10K for flipping paper is a good deal I admit, however why allow that to happen.

A small operation spends $1K/mo. marketing = $12K/yr. for his own deals and is required to monetize all leads to cover his marketing budget plus a profit, and is able to find two fix and flip and net $30K and increased your buy and hold portfolio by 5 properties.

Now if you scale that up to a bigger operation who now has to have a marketing dept, a call center, a sales force and a contract dept. You are now driving up the flipping paper cost to $10K + per deal with 20 to 25 deal per month.

The moral of the story is why pay those high fees from a wholesaler, if you wait long enough the cost will come down. I under a supply and demand curve however the I think the demand is driven by those who don't understand the number when evaluating a property or they may be given bad information. In ceteris paribus conditions this would drive down inflated paper flipping.

We Buy House for Cash?

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