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
Originally posted by @Mary B.:
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
I get your point about not talking too much which I agree with but there is a very big difference from spewing random thoughts to a seller and being truthful about the service being provided to the seller and the cost for that service. As for your intended dig about me not leaving my day job (which did make me crack a smile), I am cool with keeping my day job for now :) It gives me the excess income to invest in RE. By the way, last time I checked, Wholesaling was a job. If you stopped Wholesaling and I stopped working my day job, we both loose that stream of income.
For the record, I have nothing against Wholesaling. I wish you nothing but success!
We can argue whether there is too much regulation or not but that ship sailed long ago when our Republic started to die under Teddy Roosevelt's administration.
Lots of things are now regulated under the guise of protecting the public from themselves.
Your comment about losing the liberty to sell their own house/property is a flawed analogy in the context of wholesaling. No one is challenging the right of an individual to sell something they own to another individual. The shadiness around wholesaling revolves around a borderline con of an unsuspecting seller.
Think about it this way, on the one hand you are telling the seller their home is only worth what you are offering them. But, once you have it under contract you turn around and sell your position in that contract by convincing an investor it is worth much, much more. That is the nit people debate about this over and over again. The implied question is did you lie to the seller or the buyer?
Thank you everyone for your input! I can certainly see both sides of the coin and understand what each of you is saying. I'm so glad I asked, as your responses have definitely broadened my knowledge on wholesaling much more than any book I've read thus far. All of your answers have incidentally answered many of the questions I had regarding our own ongoing personal real estate situation which has gotten kind of tricky as of recently, as follows:
HOA member calls my hubby states has an investor interested (birddog??). Then "Realtor" contacts my hubby stating represents foreign investor interested (wholesaler??). Investor willing to sign contract of sale paying full amount owed on property plus we walk w/20K (great right?). Then investor states he will definitely purchase property, 4 months later. FOUR months later. States money is in foreign national bank in a country in turmoil, and will need four months to get it out (down in these parts, it's possible I guess). Hubby doesn't sign, gives to our attorney, attorney points out "and reassigns" clause, and 15K hidden fee to the "Realtor" payable by the SELLER. So basically we would have signed this deal thinking we would get 20K but really would have walked away with 5K at closing. "Realtor" called out by hubby, states she had no idea of hidden 15K fee clause.
Had this group explained what they were doing in a professional way, we (two young professionals clearly educated) not only would have understood, but probably would have been ok walking w/5k and closed chapter. I also understand not everyone would react this way.
@Duncan Taylor I didn't know we were arguing, just having a nice conversation. To make things clear I don't lie to sellers nor buyers for that matter. Its not in my moral compass to do so. I negotiate with sellers / buyers just as every other real estate investor does. Additionally let me clarify I am not anti-agent by far. I'll be getting my license this summer no later than the fall. I saw this post and wanted to add my two cents and have. There seems to be much negativity towards wholesaling on this site particularly, so if I come off a bit defensive its not without provocation. I don't know what experience you have endured to possess such a sour thought of wholesaling and I'm not really here to change your mind. We can't please everyone all of the time. I've said my peace and bid you adieu.
@Vana G.
Thank you for starting this interesting post and many well wishes to you on your REI endeavors.
Kudos,
Mary
I was writing about the general view and perception of wholesaling, not any particular individual.
I think it is great you are getting your license. If I had to start over or was just starting out today, I certainly would.
Honestly, I do not hold most wholesalers in very high regard. The vast majority of them are the types who bought a guru package or are following some sketchy coach. They are 'wholesaling' because they don't have any money to invest and bought the guru's claptrap pitch. They come, make a few waves and then disappear.
So, I will fully admit I am ALWAYS skeptical of someone claiming to be a wholesaler. In the strictest definition of the word, none of them, absolutely NONE of them are wholesalers. But, that is for another discussion on how gurus, coaches and others misuse words in an attempt to make what they do and advocate sound better.
In reality you engage in arbitrage, not wholesaling.
Some do it the right way, you claim to be one of them and I have absolutely no reason to doubt you.
But, you have to admit, you are in a practice area with a lot of sketchy players.
The guru's sure make it sound like a great idea but the more I read, the more I see your point. Basically, a wholesaler sounds like a person trying to broker a deal without a license. Sure, there are good people that do it with the best intentions but when there is a good amount of money to be made quickly, that will attract some shady characters which gives the entire group a bad rep.
I'm looking for a way to break into Real Estate Investing. I do work full time and don't have enough disposable income to set aside for an investment. Taxes in NY are ridiculous so finding a property to buy/rent and still make a profit is difficult to say the least.
I've read articles and watched some Youtube channels describing creative financing to get started. Owner financing, Hard Money Lending, Transactional Funding, are a few I've found could be possible.
Now, I am just in the learning phase. I don't have experience with any of these so don't beat me up. I do enjoy the thrill of the hunt and look forward to making my first deal.
I look forward to your comments.
Wrong. I tell the seller what their home is worth now, in "as is" condition, and I tell them what it could be worth if they fixed it up. I tell the truth based on my analysis of the property, comps, etc, and I tell them that the end intention is to rehab the home and sell it at a much higher price. Once the property is under contract I sell it based on what it could be worth after repairs (ARV). I am honest with the end buyer about the contract and my negotiated price.
I'm not sure where the con is. There is no deception or intent of deception.
Wrong. I tell the seller what their home is worth now, in "as is" condition, and I tell them what it could be worth if they fixed it up. I tell the truth based on my analysis of the property, comps, etc, and I tell them that the end intention is to rehab the home and sell it at a much higher price. Once the property is under contract I sell it based on what it could be worth after repairs (ARV). I am honest with the end buyer about the contract and my negotiated price.
I'm not sure where the con is. There is no deception or intent of deception.
Maybe I am missing something in what you wrote above. So, let me walk through it slowly for my benefit, okay?
You tell the seller you are buying their house with the end intention of rehabbing it. Now, I was unclear as to whether you tell them you intend to rehab it, or just let them draw that conclusion. But, for the moment, let's put that to the side.
Then, based on the costs of rehab and a profit, every business is expected to turn a profit, you then tell them, "Your home is worth $X right now as it sits."
They agree to sell at $X to you.
Once you have the contract you then turn around and sell it, as is, at a higher price than what you told the seller it was worth, right now, as is.
Unless you really intended to do the rehab at the time you signed with the seller or unless you were honest about your intention of immediately selling their property for more than you told them it was worth, I'm not following you when you say my observation was wrong.
Most wholesalers will tell the seller their home is worth X without showing the seller proof in writing, and another thing wholesales will not put in the contract is they are only interested in selling their contract not the property.
Joe Gore
I'm not a wholesaler, but I have gotten a lot of deals just by being honest about my intentions. I tell them my general plans ,( " Mr seller, I would like to give you $100,000.00 for your home put $30,000.00 into it and sell it for $175,000.00.) If they don't like the fact that I'm not going to live there and that I need to make money on the deal, then I'm in the wong house anyway.
Once you lose trust, you will probably not get it back no matter what you do or say, but most importantly you have "ruined" that seller for anyone else who comes by. They may lump us all together as thieves.
You tell the seller you are buying their house with the end intention of rehabbing it. Now, I was unclear as to whether you tell them you intend to rehab it, or just let them draw that conclusion. But, for the moment, let's put that to the side.
Then, based on the costs of rehab and a profit, every business is expected to turn a profit, you then tell them, "Your home is worth $X right now as it sits."
They agree to sell at $X to you.
Once you have the contract you then turn around and sell it, as is, at a higher price than what you told the seller it was worth, right now, as is.
Unless you really intended to do the rehab at the time you signed with the seller or unless you were honest about your intention of immediately selling their property for more than you told them it was worth, I'm not following you when you say my observation was wrong.
A wholesaler does not sell the property at a higher price, they charge a fee for the service they are providing. If a wholesaler signs a contract with a seller for $50k, they assign that contract to a buyer, the buyer is paying $50k for the house, as per the contract. The buyer also pays a fee to the wholesaler for the service of providing the contract. This does not change the price that the house is being sold for. The sale price or value of the home is not misrepresented to either party.
They agree to sell at $X to you.
Once you have the contract you then turn around and sell it, as is, at a higher price than what you told the seller it was worth, right now, as is.
Unless you really intended to do the rehab at the time you signed with the seller or unless you were honest about your intention of immediately selling their property for more than you told them it was worth, I'm not following you when you say my observation was wrong.
A wholesaler does not sell the property at a higher price, they charge a fee for the service they are providing. If a wholesaler signs a contract with a seller for $50k, they assign that contract to a buyer, the buyer is paying $50k for the house, as per the contract. The buyer also pays a fee to the wholesaler for the service of providing the contract. This does not change the price that the house is being sold for. The sale price or value of the home is not misrepresented to either party.
I understand the Chinese wall setup to avoid state agency laws.
But, from the perspective of the IRS this is a single arbitrage transaction. That is why the one buying from you the wholesaler is able to claim your fee increases their basis in the property.
Have to agree with Duncan here. I know he's out of the building, but he's right.
What most non-business types don't get, is that in our society and economic system, transactions are deemed to be fair when consideration given reflects the true value and that the fees added are based on the value of the service rendered, not some figure pulled out of thin air as to what you may have someone agree to pay.
The value added by a WS straw man is long standing, it is what is generally accepted for like transactions, in RE and WS deals, that boils down to a RE commission for facilitating the transaction from a seller to a buyer.
If you are attempting to make more than 6 to 10%, varies with the type of property, and you're doing nothing more than facilitating a transaction, you'll be in the liar and cheat category, regardless of how you try to justify what you're doing, because facilitating only carries so much as a value, anything above that is overcharging.......period!
We get marketers on here, boasting of making 40K on a 100K property, doing so by flipping a contract or double closing, adding nothing more to the deal. That guy is a cheat, scammer, liar and low life type, it's not earning a fee, it's stealing from unknowing parties in the transaction, nothing to brag about. There is a difference between "making money" and "taking money". When you take money someone lost out, buyer or seller, someone was not fully informed, someone was deceived, plain and simple, otherwise, that extra amount sitting on the table wouldn't be there.
Now, let's change that a bit, you find a 100K property, you know you can get the zoning changed, you also know a rehab guy that does small commercial renovations. You also know your insurance agent would like his own building for his office. You can buy that property for what it is, not what it could be. You contract at 100K, you get authorizations for the rehab, now you're wearing the hat of an investor overseeing a rehab, you get your insurance guy to contract for the purchase at 160K, turn key, looking at plans and specs, your rehab guy finances the material and labor based on the purchase contract, 20K in rehab work. You take your contract and the GC's contract to the zoning folks and get the property rezoned, 90 0r 120 days later the project is finished and your insurance agent is ready to close. You have added value by overseeing the rehab, changing zoning and facilitating all the requirements along the way. You make 40K, good for you! No one was lied to, seller sold as is, buyer got a deal on a commercially zoned office location.
One issue is gurus, coaches, mentors or system sales types that sell the hype to new naïve types wanting to get into RE. And new could include someone who has been around RE for 10 years, newbie to this WS strategy is what these scum bugs sell to. Hype, that you can "make" big bucks, with little knowledge, no money, no credit is what sucks people in.
Another issue is that most on this site have no business experience, none, they think what ever you can grab is fair game (which isn't true in any business) but most are young and have no business experience. They have no concept of predatory dealing, lack business ethics, don't mind bending rules or skirting laws or even breaking them.
And, many newbies are naïve, they want to believe, some are desperate to make money, which goes to the above willing to do things that aren't kosher, if they are told it's easy, this is all you need to know, that it's simple, they take that hook, line and sinker.
If you lack a basic business education, you aren't really in business, you're into pulling deals, an operator, a wheeler-dealer that has a self made job. You can go to about any industry and find these types, so long as they aren't breaking any laws, that's fine, but they are jobbers, operators. A business person understands their industry, the basics of business conduct, ethical requirements, they understand accounting at least to keep their taxes straight, they understand the concept of value for consideration for their product or service and it being in line with industry norms. They understand the applicable laws of business and specifically those that pertain to their industry. Many newbies here don't have a clue about these aspects and a basic business class is offered in many high schools, I'm not suggesting you get an MBA!
80% of you are going to fail in RE because you took the guru bait, most newbies here take a very lazy approach to trying to learn some niche thinking they are getting an education.
Those that will succeed will not only work hard, but they will expand their general real estate knowledge, they will know the basics, understand financing even if they can't get a loan, they will know the math, they will know how to value a property before and after repairs, they will understand title requirements, have a good idea of surveying issues, what deeds are used in different situations, they will know material costs, insurance issues, closing requirements.....I could go on, but you get the idea.
Your attitude or how you justify what you do doesn't make you a professional, education and experience makes you a professional along with an attitude of fair dealing, ethical and legal compliance, your ego doesn't turn you into a business person nor do your attitudes of reaching in other people's pockets to gather money like a chipmunk gathering nuts. Just because you say so doesn't make it so.
Less than one out of ten wholesalers that I've seen on BP have a good grasp of RE and how to operate. Like Duncan, when I see a newbie claim to be a wholesaler I can't help but think "Oh, here we go again, no knowledge, no money, no credit, no job, no understanding of RE and another one had by some guru. Selecting that niche to claim as your specialty speaks volumes about you, sorry, but it's a bad selection to start off in.
While I'm here, if you didn't finish high school and are in your 20's you better get back to school. RE is NOT easy, it takes a mind that can take in subjective and objective details, you must be able to think in terms of conceptual thought, understand processes with restrictive guidelines. You need to use proper grammar and be able to write effectively if you want professionals to assist you. You need to learn business and real estate just as you did everything else in school, you didn't take biology in the 4th grade, you began with earth sciences. All industries, including RE, begin with some basic business education, then you specialize in an industry, you don't open a gas station without knowing the distribution of gas and understanding what plays on oil prices at your level. Same in RE, you're fooling yourself thinking that some book or some podcast is an education, they are simply ideas, some good, some or more often not so good.
I know, it's too bad that there isn't a real school for RE investors, one that begins with the industry basics and then relates those basic elements into investing strategies, that teaches applicable laws, financing options, matters dealing with liability and how dealers can be held liable for what they do. Best I can tell you is go to a real estate school for agents, become an agent or then begin selecting some niche and you'll understand that your local market defines what strategies need to be used, you don't just pick square pegs and then go look for square holes to fill.
Okay, there's my rant for the day, LOL, hope this thread gets reviewed by those starting out. :)
I believe in transparency, I am a wholesaler and rehabber. So I tell all of the people that I buy houses from that I am an investor and I am buying the house for a profit. (I even write it in my contracts) I talk to every seller and tell them all of the things I COULD do with the property depending on my financing options. I have had a couple people not continue with the sale at that time but, normally they end up calling me back when they are unable to sell to owner occupants. Normally though, people are so happy that I am getting their house off their hands, they do not care and most of them expect that I have to make a profit right off the bat.
It is always better to be honest and lose a deal up front than dishonest and lose your reputation in the aftermath. Just my thoughts.
@Vana G. , I often wonder that too. I get wholesalers trying to sell me houses all the time, and I'm always wondering why so many of them are loosey goosey with the truth and shoot themselves in the foot. Maybe I just haven't met a good one yet. My philosophy is that if a wholesaler is shady about one issue, who knows what they are shady about all the way down the line to the end of the transaction.
Sad thing is if the deal is right for me, I'll buy. I don't care if the wholesaler is making a large profit, if the numbers work, the numbers work. But once I don't get the hard truths, even is the numbers work, I can't work with the person without trust.
I've always thought wholesaling was essentially selling the option to purchase, which means they have locked down the contract with money down, signatures etc, etc. but around here, it really seems more like just pulling MLS listings and saying they have a deal.
I think you hit the nail on the head. especially with the term "loosey goosey." :)
I appreciate the fact that you'll do a deal so long as the numbers work. that's very respectable and professional of you.
don't forget that the vast majority of wholesalers will not last a year. they take a thousand-dollar course, think they're all ready to go at it and end up trying to push junk down the throats of their buyers.
not too sure what the numbers are but I would say 1 in 20 wholesalers is legit, knows what they're doing and is honest.
I think it may be "how" 'wholesalers are looking at potential deals too. and I was guilty of this BTW...they look at a property and think "how" it can make "them" money. they look at the good parts, they underestimate costs, forget about certain fees, etc. instead, I think each property should be viewed in its worst lighting. instead of finding all the good things, find all the bad things. and if the bad things aren't that bad, then you might have a deal.
put another way...if you torpedo a property again and again...and it remains afloat, you have a good deal. if one or two can sink it though, move on - don't push on to your buyers!
Being honest is the only way to handle business, if you come off even a little sketchy, you're doomed. I've found that people could care less about what you intend to do with the home at all after they're gone. I just think honesty reinforces the fact that you pull no punches and that you didn't just pull a price out of the air, you have a formula and love has no place in the formula only facts and numbers. I have had great luck explaining to homeowners that I make a very comfortable living doing what i do, and the main reason for that is that I do what i say no matter how painful it becomes and I make it as easy as pie on the homeowners. Hell I'll even move em if there's room in the deal.
At the end of the day, homeowners could care less about you or how great you think you are. They are just smiling and nodding along, waiting for you to get to the part where you talk about what you can do for them. Oblige them but know that whatever you promise at the kitchen table needs to be made good on no matter what. I believe that is the secret to a long successful business. We don't have much left to offer anyone once our word is considered no good.
Sean