What to watch out for with wholesalers

22 Replies

Just starting so to me the "wholesaler" thing is a mystery. I understand the basics of the concept but what I am missing is why the wholesalers are not retailing the homes. Can someone enlighten me?

Also if I were to use one to find my first home how should I go about it and what do I watch out for?

Give this thread a read: The Truth About Wholesaling

People who do deals like this for retail buyers go by a different title: real estate agent.

@Jon Holdman , there is a whole world of real estate investors like myself, which are "wholetailers," which wholesale to retail buyers. Deals like these include wholesaling lease options (lease option assignments), sandwich lease options (which I hate), buying homes sub2 and subsequently selling those homes to retail buyers using: mortgage assignments, land sales contracts, deed installments/installment sales, and mortgage wraps.

Hence, you're wrong. Wholetailers like myself rarely work with cash buyers, but it's an incredibly lucrative niche which most investors seem to know nothing about, and/or aren't actively working.

Case in point: I wholesaled 4 lease options last months for homes I've never seen myself, to buyers I've never met, for lease option assignment fees... and I'm NOT a broker or realtor.

99% of wholesalers work with other investors, like rehabbers or landlords. In those sorts of transactions, you need to negotiate a substantial discount to make a profit. With 99% of the homes I've sold, I've sold for full market value, no discount from asking price, and most of the times the homes I flip have little to no equity at all. And my assignment fees typically range from $3k up to $10k each (which are about on the same amount that "traditional" wholesalers would pull in even after negotiating a massive discount on the price).

Truth be told, I've actually never sold a wholesale deal to another investor... and I flip 4-7 homes a home in 9 different states.

@Casey Carroll thats not really what most folks would consider "wholesaling". You're paying retail and turn around and selling to end buyers at retail, too.

Dodd Frank comes into consideration when selling to owner occupants. I won't claim to understand it like @Bill Gulley but I suspect it has some applicability to what you're doing.

@Scott Lunn wholesaling would more typically be considered to be acquiring a property at a cheap price and flipping it quickly to an investor for a relatively small fee. Wholesalers need to be in the middle of the deal to avoid being accused of unlicensed brokering. The wholesaler's fees can be troublesome for retail buyers who are getting conventional loans. And many retail buyers are looking for move in ready properties where investors are willing to take on a rehab project.

It's all semantics. Real estate agent, wholesaler, or investor. Wholesalers have been called many things. The reason they are not selling the house retail is because many wholesalers including myself may have the time but not the money to get the house in condition to be sold on the retail market. Or they may have the money but not the time. Or they may just be happy with the income they make selling it on the wholesale market. They'd rather focus on finding deals then on rehabbing houses or managing tenants and rental properties.

If you're looking for a good wholesaler make sure you find someone that is knowledgeable. You will know if they are knowledgable about your market when they bring you a deal. If the numbers make sense and they have the house under contract then it would be to your advantage to take the wholesaler seriously. A lot of wholesalers get a bad reputation because many times they don't know their numbers or they are not honest.

Yes, if you're not willing to market for motivated sellers on your own, then it can be to your advantage to work with wholesalers.

Many extremely successful BP real estate agents, rehabbers, buy and hold investors or whatever you want to call them have wholesaled some of their deals as well.

If you listen to some of the podcasts on BP you'll learn that nearly 90% of the guests featured wholesale some of their deals or have in the past.

Including two very successful investors here:

http://www.biggerpockets.com/renewsblog/2014/04/24/bp-podcast-067-tim-gordon-wholesaling/

and,

http://www.biggerpockets.com/renewsblog/2014/04/10/bp-podcast-065-creative-investing-wendell-de-guzman/

I'll agree with @Ben G. there are a lot of variations in this business.

I was at a seminar on Saturday with several local speakers. At the end a panel discussed what was working in their business. Two were fix and flippers. But both also did some wholesaling. They did a LOT of direct marketing, to the tune of $10K a month (another person also gave that figure). They keep the best deals and wholesale the ones that don't want to do themselves.

It's all semantics. And a state-issued license. And a code of ethics. And an errors and omissions insurance policy.

In other words, it's not all semantics.

And to the OP, I honestly cannot conceive of why anyone looking for their first home would have any interest at all in dealing with them. Find a decent Realtor.

@Richard C. it depends on the state. In Indiana they all have to be Real Estate Brokers no longer can they simply be a sellers or buyers "agent."

Let's be honest with the original poster. If you find a good wholesaler they can provide a lot of value. It depends on what the OP is looking for. If he's looking for a first home that needs a lot of work and he's willing to invest the time and money needed to make it his first home then by all means he would be smart to explore his option of working with a wholesaler. What is the harm of him exploring all of the options available to him?

When I was looking for my first home last spring I was looking for something move in ready and updated. Therefore, I found a good Real Estate Broker to work with.

I seem to find two kinds of wholesalers;

Good wholesaler: property - repairs - less wholesale fee = 65-75%

Bad wholesaler: property = market price before repairs and fee

Unfortunately, there are way to many of the latter. They put up a flashy website, send out some mailers, promise the owner some pie in the sky idea and then market their "deal". Why would I buy a property at retail, from a wholesaler and pay them their fee when I could buy a retail property off the MLS and use our brokerage to save an additional 3%? Not that this appeals to me for a rehab either but I would save more than using the wholesaler.

@Scott Lunn

Welcome to BP! The public forum of real estate. The room sometimes reminds me of a bar at 10 PM, there are a few sober folks but most are intoxicated. Many don't know what they are saying and later on they won't remember. The intoxicated ones will defend their opinions by just repeating themselves in a louder voice and aren't in any mood to learn since they already know the topic.

Wholesaling is where many begin, it takes no money, no credit, no job and it's thought to require little knowledge, they drank the spiked Kool-Aid and started 4 hours ago. You're likely to hear some fantastic claims too. If you're sober you may get some good laughs.

Jon and Richard gave you some good advice, they're sober. Jon, you know enough about Dodd-Frank to point it out, I'm not going to explain it in detail to everyone in the bar, it's posted on the bathroom wall and they'll see it eventually and if they are too intoxicated to read and understand it, we can't take their keys away or force them to learn anything.

Buying your first home see a Realtor, homes ready to buy are on the MLS. The folks you deal with going through a Realtor will all be properly licensed, they'll have insurance, they will be bonded if required, they will all have experience to comply with legal requirements and common practice in your area.

I'm not saying all wholesalers are intoxicated, I have wholesaled more deals than most and will again, it's not the strategy that is bad (if done properly) it's that most don't do things properly. Yes, there are Sam Shamers in RE, but I'd think most just don't know, after all, they've been at for 4 hours now. They either need to sober up or hope they don't caught and end up in court.

BTW, in IN, it might be that everyone takes a broker's exam to get a license, but they would be broker-agents, and they certainly represent the public in an agency relationship under a managing broker to represent buyers and sellers, someone just belched at the bar. :)

If someone can please tell me how an assignment of a lease option violates Dodd Frank (since the end contract is between the seller and the buyer only), then I will gladly put my foot in my mouth. BTW @Bill Gulley , I'm assuming part of that post was directed at me. You can feel free to non-passive aggressively talk to me if you'd like (and no, this is not me yelling at you in a drunken and sloppy manner... I am calm).

Dodd Frank WILL come to play if you were to do an assignment of mortgage, land sales contract, deed installment, or mortgage wrap (because you actually hold the deed and therefore are the seller)... but there are a number of ways you can resolve this.... use a real estate attorney to structure your deals with your end buyer. They can assist with screening and ensuring you are compliant with the law.

Of course, you need to know Dodd Frank and what it does to our business... and always stay compliant. If you are creatively selling a deal you hold the title to, you need to hire an attorney. If you are merely assigning a deal, the law falls on the shoulders of the seller (but most sellers I've worked with aren't selling 2 or more homes with creative financing within a 12 month period, so Dodd Frank won't effect them either).

Nope, and I never said it was. Jon made the comment as to your selling.

I see you want to be the national rent-to-own guy, that is covered in the SAFE Act and if you have an attorney who tells you he can bless those deals, he's an idiot sitting in that bar!

There are no issues with a lease option that has no financing element.

Financing agreements include any method or scheme where any payment or part of a payment, paid over any term, that reduces the sale price. That includes rent credits, financing an option price, an agreed lower future price after rents are paid as agreed....anything.

Beyond the stated exemptions allowed there is no method to finance, including using your wife's dog in a trust, that circumvents the intent of the DF/SA laws.

No, I'm thick skinned but I don't need to address you in that manner at all.

Now, if you will excuse me, I'm headed to the bar! :)

Real Friends don't let Friends drive drunk EVER

Real Friends don't let friends use wholesalers that are incompetent EVER

@Bill Gulley , my apologies... I totally read into that wrong.

Either way, Rent to own, rent to buy, lease to buy, lease to own, etc. are more or less used interchangeably. When people call me on my rent to own ads, I make certain they understand it's not owner financing. Yes, I want to be the rent to own king, but only in the terms of assigning lease options to retail buyers. With that said, I again apologize for being defensive and interpreting your post incorrectly.

Originally posted by @Account Closed :
Real Friends don't let Friends drive drunk EVER

Real Friends don't let friends use wholesalers that are incompetent EVER

Competent? Realtors, Wholesalers? There's a group. The barrier to entry is not very high.

Originally posted by @Casey Carroll :
@Bill Gulley , my apologies... I totally read into that wrong. I feel like I have to be on the defensive ever since I've started posting just a week or so ago (it's a situation where I was trying to help a different investor by showing him a website I have, explaining "subject to," which can be used to educate sellers, but it was viewed as "advertising" and I was scolded by about 8 different people, including Joshua Dorkin himself. I still don't see how a website I have which is only used for explaining a subject to offer to owners, and was valid to share in the context of marketing tools, can possibly be used as a website to promote my company to other investors on the forum, but it's a battle I clearly won't win.) Either way, Rent to own, rent to buy, lease to buy, lease to own, etc. are more or less used interchangeably. When people call me on my rent to own ads, I make certain they understand it's not owner financing. Yes, I want to be the rent to own king, but only in the terms of assigning lease options to retail buyers. With that said, I again apologize for being defensive and interpreting your post incorrectly.

For someone new here I'd stop bragging about how many deals you've done and START helping people learn about how to get LOA deals and close LOA deals, that is what BP nation is all about.

I see you're using Joe Crump's LO sites. Why don't you talk about that? Help someone out to get LOA deals?

I wasn't talking about it to brag, I was talking about that to explain that assigning lease options really should be considered under the umbrella of a wholesale deal... and also in the context of explaining how lucrative assigning lease options can be to the OP.... last but not least, it was also used to establish credibility.

Crump's system is great, and it is something I use on a daily basis. But the last time I tried to share one of the sites as part of Crump's system, I had my hand slapped... which discouraged me quite a bit.

I have posted on other folk's posts when it comes to creative financing strategies utilized as an exit strategy, and I will continue to do so.

I don't mean to rub anyone the wrong way, and I apologize if I come off that way. I'm confident, but not trying to be cocky.

"There is only one way to avoid criticism: do nothing, say nothing, and be nothing." ~ Aristotle

Nice quote, @Dev Horn

My favorite guy to quote from..

Jim Rohn

http://thinkexist.com/quotes/jim_rohn

Some of my favorites...

@Scott Lunn Wholesaler here. I have wholesaled 5 deals this year so far for +/- 40K. I had an investor/buyer ask me the same thing. Here's the short, easy answer: risk. I make a cool 10K without putting any of my money in the deal, I don't have to deal with contractors, and I don't have to sit and wait for it to sell on the market. I also don't have to worry about any of the hidden costs that you inevitably encounter when you start rehabbing an old house. I get my money at closing and I walk away looking for the next deal. The one I'm closing next week I got in for 45K and sold it as is to an investor buyer for 60K. It needs about 15K in work and will be worth about 100K. But guess what? The next time I call this guy with a deal you better believe he's going to answer. After seeing how low I buy properties he even offered to partner with me on future deals - the first time I met him. While he toured the property he actually said, "I just don't see how I can go wrong with this one." Sure, I'm losing some of the money I could have made if I flipped it, but instead I'm making a guaranteed 15K for about 3 hours of work. I'll do that all day long if the opportunity presents itself.

@Scott Lunn To answer your second question, there are two variables when working with wholesalers. Well, three really, but the third is their fee and you'll know how much it is because they are assigning you the contract and they will have to tell you how much you are paying them. The other two are ARV and repair costs. What you need to look for is inflated ARV and underrepresented repair costs. Some wholesalers have no idea how much it costs to repair a house because they haven't ever flipped one. Also make sure you get comps from your own realtor on the house so that you have a solid idea of what the ARV really is.

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