This may be a really naive question but I haven't heard anyone answer this in the podcasts or the books I've read...
Why can't wholesalers just say they have a buyer and will be reassigning?
Wouldn't this be easier and more transparent?
Vana
Some cases people do just that, but other cases they wholesaler is fearful that if they tell a seller they are "reselling" the seller will want more money.
Further, if you say you are just "reselling" there is a fine line between what is really "acting as a realtor" in a transaction without a license.
I just ask this question instead, if a wholesaler can find cash buyers, why not find cash lenders and stop wholesaling and start doing deals yourself?
Vana, I believe some people do perform there operations this way. And, I'd imagine that many people on the boards here would agree that being honest and transparent about it is the best way to do things. However, I can also see why a seller may not work with a wholesaler if they were to know this information.
OMG! I wish I could vote about a THOUSAND times for that post!
The bottom line is they can't because in 99% of the cases that would be an even bigger lie than pretending to be the buyer of the property.
They absolutely can, and the really good ones often do.
Part of the reason many don't, is most homeowners aren't very knowledgeable about RE so you have to explain everything to them though that shouldn't be too hard. Then many don't do it because they are "afraid" of losing their deal, but if the seller is truly motivated they won't care as long as you fix their problem.
Personally I'm not a wholesaler, but IMO I believe that they should always be up front and honest about what it is they do. Now if it is a rehabber that wholesales his extra deals, then sure maybe they represent that they're the end buyer since they may not know what their specific exit is yet.
Plenty of wholesalers say this to their sellers, I read about it in this forum frequently and I said it to a sell that I met with this past weekend. If it doesn't come up with the seller then I don't mention it. I'm not trying to hide anything, I just don't want the transaction to be more complicated then it needs to be. They want to sell, I want to buy, pretty simple.
I think a wholesaler is only interested in selling their contract not the property which they should put that in the contract and explain that to the seller.
Joe Gore
because then the next question is "well, how do you get paid for your time?" then it could lead to "well wouldn't your buyer just give me the $5k or $10k difference?"
@Account Closed Good question Ryan! That's kind of confusing to me too.
@Luke Ward Point taken Luke. I remember when we were "stressed" with our property (before I knew about all this stuff). I would have loved at the chance for a wholesaler to get me out of it before it took a negative turn. Could it be maybe they're not that distressed about it?
@Duncan Taylor Thanks Duncan! I understand your point. Now what if you are "reverse wholesaling", would this transparent approach work better you think?
@Matt Devincenzo That's what I'm thinking Matt. Do you know any wholesalers who are using this approach with success? BTW 'IMO'?
@Brian L. Good tip Brian, I'll remember this!
@Joe Gore @Brandon McLean @Bryan L. Ok I see where it could get hairy for sure.
Thanks for the advice all!
My input is similar to what Brian and Matt stated. I won't make any guarantees to the homeowners and its written as such in all of my contracts because the Potential buyer may not be interested, simply may not buy. I'm not there to go into investors jargon of which they won't have a clue about anyway and it'll just complicate matters. Then there is walking the line of licensed agent which is not what we want to portray at all. Telling the seller we'll find a seller for them may be crossing that line. Which is against the law in many states across the country, practicing realty without a license. Its not always what you say but often its how you say it, in any industry.
I had a mixed-use commercial property that I needed to secure rent roll on. The owner had no idea what a rent roll was. He is very old school and just not well versed in the real estate transaction process particularly for commercial property which he owns. I felt bad being as though he's in a bad financial place and landlording isn't his strong suit in the least... Just so long as I am coming through with purchasing the property the seller could care less if I'm on title or not. I make it a point not to hold a deal forever if the potential buyer falls through. There's back up buyer(s) and a nice exit clause in all written agreements. Its a job, just like renting, rehabbing and brokering.
Kudos,
Mary
Vana,
I believe transparency is always the best approach.
But, be very careful because "reverse wholesaling" is just a made up term for something perilously close to agency.
If you find the buyer first, and then search for properties meeting the requirements of said buyer, you are acting as their agent. I can't think of a single state that doesn't take exception to that practice unless you are licensed.
@Mary B. and @Duncan Taylor this is fine balancing act for sure! Definitely seems like a skill perfected with practice and time.
Thanks for your insight!
I always explain to my Sellers that I work with several partners as well as other buyers who are looking for investment properties. I explain that the Seller will get their asking sales price and they do; usually the end Buyer pays all closing costs depending on how I structured the purchase. In a few cases I had agreed to pay back taxes and then explained that to my end buyers as well. It all depends on the numbers and how much room is in the deal.
And here is where a GREAT Title company can make or break you as a wholesaler. Find one that understand Assignments and can do Split or "Blind" HUDs. The Seller gets a HUD closing statement showing only their side of the transaction; their sales price and any fees they have agreed to pay. Same on the Buyer side, the HUD shows their final sales price. The Assignment Fee only shows on the Buyer side so the Seller never has time to ask "Why didn't I get the Assignment Fee?" They got their asking price so they are usually satisfied with that.
Wow! I am not a Wholesaler but if there has to be this much debate over telling the full truth about your actual role in a transaction, it sounds fishy to begin with :) I also disagree with the notion that telling a seller the full truth will somehow complicate the transaction. Complicate it for whom? Any prudent person making a major financial decision would want to know the full truth before they make a decision.
That may be your perception of what was stated and be that as it may. It doesn't matter which role in REI you portray. If you talk too much you can end up talking yourself out of the deal. I know a rehab investor that lost out on a deal just having what he considered small talk with a seller. He told of how he was going to do this and that with the living room and kitchen etc and within a week he got a notice from the seller that they were no longer selling the house. Come to find out the seller did exactly what the rehabber spoke of themself. True the seller inquired as to what the rehabber would do to the property. Instead of keeping the reply a general response (i.e. spruce up the place) he went into a bit more detail then what he should have. I'll state again its not simply what you say but how you say it. Ask your mentor or coach about the matter. Maybe you will feel best telling it all and forfeiting many deals to come. Guess you won't be quitting your day gig.
Kudos,
Mary
Thanks for your insight!
It's not much of a balancing act, you just tell the truth - always.
I expect we are going to start seeing changes to the laws to make wholesaling much harder, if not impossible, for the unlicensed masses in the near future.
The Realtors have a very strong lobby. If they can't do it at the state level they will do it at the federal level like the banking industry did with Dodd-Frank.
Wouldn't this be easier and more transparent?
Vana
Well, wouldn't that take all the fun out of it? You're really stepping on all the guru strategies here, can't be making stuff up, no razzle dazzle, no smoke, no mirrors, you trying to put gurus out of business?
Vana, that's how it should be done, get a contract and assign it or use an option. Check on the license issues as to agents and don't go there, if it's a business why not get a license?
Sellers don't give two hoots who buys it, they want it sold! Yes, just tell them, I know buyers, I can get this sold cheaper and quicker than you listing it, I contract to buy and assign my contract to investors, you don't need to fix anything. If you can take X dollars we'll get this done for you. BAM! DONE! EASY!
Don't jack owners around, have your buyers lined up first, know what they want, find those properties and do the deal. SIMPLE! Honest, upfront and do it legally.
Those that use some song and dance and have a seller tie up a property, take it off the market with any promise of buying, then flop and try to just walk away will likely get sued in my town and regardless of all the silly exits and disclosures you try to hide behind, if you breach your obligation most likely you're going to pay for it. All RE is local, just saying, that's what local is here.
Another thing, there are people in my area, Realtors, attorneys, the DA and other investors that will go out of their way to lower the hammer on wheeler dealer types that screw over some home owner, at the very least their name will be mud and run out of town here. You can cause real financial damages by holding up a property with pipe dreams and not having the ability to buy, not dealing in good faith. If you can't be upfront, don't do it. :)
I 'm not looking to stereotype wholesalers together, but the ones that have contacted me to do business with them have been huge time wasters for me. I worry that since wholesalers seem to be people just starting out or that don't yet have the skills needed to find money, they tend to give a bad name to investors because they tend to say a lot of things that they generally can't make good on, and then when I sit in front of that seller, I have to work much harder at making them believe that I will do what I say and won't waste their time. Once people get a bad taste in their mouth about something, its hard to convince them that you're different.
I used to do lots of owner financed deals in the 80's and 90's, I personally believe that newbie wholesalers out and about put a damper on that for us buy and sell guys because they've kind of gotten a bad rep. with sellers because too many of them lead sellers on and don't follow through.
Sean K
I agree with you, but we see a lot of investors here in Dallas that will mislead sellers and lie to them saying they have cash to close, but they don't and that gives a bad name to everyone.
Joe Gore
Great insight and I'm glad I read all your comments. I was hoping to break into the field of Real Estate investing as I'm unhappy with my existing career. Unfortunately, I don't have much to get started and wholesaling looked to be the way in for someone like me.
Now what? Flipping? My long term goals are to own rental and vacation properties. How did most of you get started?
As a wholesaler I think it really all depends on the lead you get. I have found that as a wholesaler you should truly be making wholesale offers to those who are truly in distressed situation. Very motivated to sell and understands that the condition of there house in not in retail condition.
The reality most wholesalers will learn is that other successful investor have evolved, used different techinics & expand there marketing instead of the same old craigslist ads and mailing campaigns.
example: I will always offer a low ball cash offer and a seller finance offer. most will just low ball & low ball and point out every little thing wrong in the house practically begging for the deals. They do not have the know who to use other strategies.
And if I feel the seller is the type to be upset by my profits that i would close using an A-B B-C transaction. So the sell will see me as the buyer on the HUD statements.
@Duncan Taylor You may be right. Yet and still there's a reason why wholesaling has become so popular. Mainly because those distressed properties weren't being moved by realtors which created the opportunity in the first place. I understand its a jealousy thing for the most part. How could those unlicensed people come along and sell dozens of properties in 6 months time(often less) while those licensed professionals couldn't find buyers to close in 2 years? How could that possibly be? How could the unlicensed person make $10K or more in 2 weeks when it takes a licensed agent 3 months on average to get that same figure? Maybe wholesaling days are numbered. Maybe people will lose the liberty to sell their own house/property off-market and be forced to hire these licensed agents. <<<There's a topic that can morph into something intense to come. Until those laws come into effect we will keep riding until the wheels fall off...
Kudos,
Mary