Newbie Wholesalers - don't be THIS Guy

Newbie Wholesalers - don't be THIS Guy

Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes

During my closing today - I wholesaled a house in Zion, Illinois and made $5,309.84 - my real estate attorney approached me and introduced me to a real estate agent - let's call her Pam.  I can see a sense of skepticism in her eyes...and later, I learned why.

My real estate attorney has just talked with Frank - a newbie wholesaler. Pam was working with Frank for the past couple of months. Pam called my attorney to seek help.

Pam submitted 25 offers for Frank and got 5 offers accepted. She thought she would be cashing in but she got the surprise of her life when she found that Frank has NO EARNEST MONEY to lock up those 5 deals. Frank used a Proof of Funds provided by the "gurus". And get this: Frank does not even have a car (probably sold it so he could pay the guru). Even though Pam has been a real estate agent for a long time, Frank talked a BIG game and she was convinced Frank is the real deal.

So now...Pam had to go back to all the listing agents on all 5 properties and told them that her buyer does not have the money and cannot close. Pam hates wholesalers because of Frank. BUT, my attorney explained the process to her and assured her that wholesaling is completely legal. My attorney told her I've wholesaled enough number of times and I do lock up my deals with earnest money. I offered to help her out by being able to close on the properties that Frank couldn't. So we ended the conversation in a positive way and maybe I will buy 1 of those 5 properties that Frank messed up on.

So...to all the newbie wholesalers out there...do NOT be like Frank:

1. Before you waste the time of real estate agents who will put in all these offers for you, get your act together.  @James Wise and other agents have bad experiences with wholesalers who just graduated from the guru seminars. Realtors are people too and their time is valuable, maybe even more valuable than yours.

2. You need earnest money when tying up a property listed on the MLS. That's just the reality and there's no getting around to it regardless of what the gurus say. If you don't have any earnest money, don't try flipping a house. Find a job flipping burgers and save up $500 or $1,000 instead. 

3. You need the right contract valid in your state and don't use one these "guru contracts". It makes you look like a fool or worse, you'll end up messing a deal up because your guru contract does not work in your state.

4. Don't be "trigger happy" with regard to making offers on properties all over town. I know the gurus say make 100 offers and you buy 1 property. Well, choose a market, a farm area within that market and make intelligent offers for houses in your farm area. By doing so, you don't waste the realtor's time.

5. If you don't have any money...here's an option for you: partner with an experienced wholesaler in your town and work for him or her. Find him a great deal. He puts in the earnest money and coach you as well. You do the work, he takes the risks so he deserves to make more money than you. And last but not the least ....

6. Don't pay any guru thousands of dollars. Listen to the BP Podcast, read the BP blogs, network with BP folks...specially in your market. And keep those few thousand dollars as your earnest money and your marketing budget instead.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y

@Anson Smith   something just does not sound right that you would knowingly tie up property without any intention of putting up EM only EM if you find a buyer.

I guess I just hold Real Estate to a different standard of and code of conduct and ethics. And a basic principal that if one gets into the business at least cobble enough money together to put up EM... and be proud that you can... 

In the timber business we called those that tied up timber stands and had no money and no ability to close  Timber Pimps  they were just pimping contracts. 

See this reply in the discussion

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  • Lender · Henderson, NV · Member since 2014 · 36 posts · 16 votes
    11y

    OMG I've been fooled. The "gurus" told me that I don't need money at all!

    I am a little frightened going into my first few interviews with sellers.

  • Reynoldsburg, OH · Member since 2014 · 25 posts · 14 votes
    11y

    @Wendell De Guzman  nobody is on here because they want to flip burgers.  

  • Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @Ben Leybovich:

    Guys - this is no different across the board...

    I get a call from an attorney who says - I've got a client in Chapter 11.  Bank is forcing liquidation.  Make your offer for $xyz with no strings attached...

    What escape clauses? REI is full of risk-taking. Freaking deal with it and get some balls - are you a player or not? Do you have the infrastructure of not? Are you real or not?

     Ben, I now know why @Brandon Turner loves you.

    For those who don't have the b###s to put any EMD, read Ben's post again. :-)

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    11y
    Originally posted by @Kirk R.:

    @k. marie poe. 

    contingency escape same same in my mind

    Maybe except for an auction,  there is a period of time for buyer to do title work inspection etc.   what is difference between that and wholesaler has time line to find buyer and do inspection title etc?

    I am working toward being able to make cleaner offers. 

    Clean title contingency is different than an inspection or financing contingency.  Providing clean title is a seller responsibility, not a buyer's responsiblity.  Obtaining financing or verifying property condition is a buyer need.

    While there is nothing wrong with having an inspection and/or financing contingency, experienced cash buyers will typically write offers without any buyer-side contingencies (escape clauses).  This makes their offers more attractive, and increases their ability to lock up a deal.

    Personally, I don't consider an offer a cash offer if it's from a wholesaler who doesn't have the means to close the deal himself (if he can't find a buyer).  Again, I'm not saying there is anything wrong with a wholesaler locking up a deal and having an escape clause if he can't find a buyer, but in my opinion, the wholesaler should be upfront about his intentions and make it clear that he doesn't have the ability to close on the property if he can't find a buyer (and will be backing out of the deal if he can't find a buyer).

    Also in my opinion, a good wholesaler will use an option instead of an escape clause.  That way, if the wholeslaer doesn't come through with a buyer, the seller will be compensated to at least a small degree.  I know most wholesalers won't like this suggestion, but if you're comfortable that you can find a buyer, an option fee shoudn't be an issue.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @J Scott:

    Also in my opinion, a good wholesaler will use an option instead of an escape clause.  That way, if the wholeslaer doesn't come through with a buyer, the seller will be compensated to at least a small degree.  I know most wholesalers won't like this suggestion, but if you're comfortable that you can find a buyer, an option fee shoudn't be an issue.

    I use options periodically.  Options give the seller a different message and understanding of how the deal will go down.  I may or may not be buying the property in the time frame outlined in the option agreement.  They get a few hundred dollars for giving me the option for a few weeks.  They are not confused about what it means and know that if the option expires, they are free to sell to someone else.

  • Peoria, IL · Member since 2013 · 967 posts · 383 votes
    11y

    @bill gulley

    i was a Realtor.   i did not feel i provided all that much value except maybe working with 1st time home buyers.   most of it cookie cutter contracts. buyers can look on realtor. com.   oh wait i have the mls/database no one else can see. and buyers can research on line schools crime etc.  find house using gps.   but i am the only one that has the secret combo to this high tech lockbox that only seems to work 50% of the time.  and once a realtor gets a sellers listing into mls very little differentiates one listing from another. 

    understandably every licensed profession tries to protect its turf. doctors lawyers realtors etc. 

    and this Pam woman what does she charge for pm services? ;) 

  • Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Val Garrow 

    "OMG I've been fooled. The "gurus" told me that I don't need money at all!"

    Regarding Gurus, you should verify anything and everything you're told here and elsewhere. I'm no Guru and and you should also require verification from me if you feel I'm misleading you. There are tremendous resources at your fingertips so don't hesitate to investigate becasue you, like me, will find that many misconceptions exist across this industry.

    I will only tell you that there is no legal requirement in Texas to include earnest money in a contract. I buy the majority of my properties (non-MLS properties) without earnest money and I seldom walk away from the purchases because the deal is beneficial to both me and the seller. If I do walk away, it's because the contract affords me that right. If the seller also has a termination point, I can't complain about if he/she exercises that right. This is why knowing your contract form inside out is important.

  • Peoria, IL · Member since 2013 · 967 posts · 383 votes
    11y

    @Guy Gimenez 

    i have been trying to read the contracts available on bp.   although they make me sleepy this where the rubber meets the road imo and if i don't understand my contract how could i  be confident when dealing with a seller/buyer? i would think this should be high on my any new or.. re investors list of what to read/study

    and yes i should probably hire an attorney to review for my state. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Guy Gimenez 

      This just goes to show you how regionalized RE is and local customs. Out here in the west and I will call the west  CA OR WA.. one would not get very far if they did not include a EM cash deposit ... In CA its just called a deposit.. Earnest money is a Oregon and Washington term.

    Even the dullest bulb in the light socked in our market knows to ask for EM deposit .

    If would be enlightening to hear how you pull this off.. Are you making offers with extremely short close times like 7 days or less so EM is not really a factor?  something like that.

  • Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Jay Hinrichs 

    You're 100% correct Jay. In the last couple of years I've been learning just how widely customs do range from region to region. But we may be talking about two different types of sellers. I seek out only motivated sellers through marketing so I don't have to deal with agents. Motivated sellers in my region don't care about earnest money or option fees...they only want me to solve their problem.  Don't get me wrong Jay, I have one under contract now with $500 E/M and that's the most E/M I've had in a contract is several years and this one had a 60 day close.  The seller didn't even bat an eye.  I only extended it because I wanted to finish another rehab so I could get my contractor on the new one immediately thereafter. 

    About a year ago I met with a AZ investor who told me he would pay cash ($100K to $150K range) for deals, rehab them and hope to make $7K to $10K in profits.  I was dumbfounded.  I cannot imagine that kind of risk for such a low reward, but it was the norm in AZ he said, which is why he was seeking to put his money to work in my area so his risk/reward would be much different.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Guy Gimenez 

      Ok well since I bought 4 properties today in your market maybe we should chat  :)

    And not bought but closed all cash !!

  • Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Jay Hinrichs 

    Are you buying MLS props or off market? I have a bunch of investors looking for rehab opportunities (especially south of the river) but we're finding fewer and fewer. Looks like I know who's buying them now.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Guy Gimenez 

      Sorry guy I lumped you into Texas just like people lump Michigan into Detroit.

    the deals I closed today were Dallas and Houston ... And I got paid off one in Houston today as well. so 5 transactions before lunch  LOL.... I love my JOB ! or as many state I quit my day job to do RE... well I quit mine 40 plus years ago.. last one was bagging groceries in Cupertino CA.  Food Villa to be exact.

  • Lender · Henderson, NV · Member since 2014 · 36 posts · 16 votes
    11y

    @Guy Gimenez Thank you for your insight. I find BP very resourceful, therefore there are too many different opinions when you are trying to self educate in a specific topic. I spent the day dedicated to reading all blogs and posts related to Wholesaling on BP. I've only got a few straight answers to what I was looking for. Either way, I've come to a conclusion that it might exist a guru that will give you the road map to success. 

  • Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Jay Hinrichs  Doesn't get any better than that. 

    @Val Garrow   This site is chocked full of valuable information...my only point is trust, but verify.  If you go to a seminar or read a book, make sure you investigate the strategies and processes discussed.  Each state has it's own set of rules regarding property transfer and making a mistake based on old information or outdated practices can ruin you financially. 

    You need to join local investment clubs, continue monitoring BP and asking questions, and scouring the internet for information to your questions.  I highly recommend you learn how to properly market for deals, learn how to communicate with sellers so you can win their trust, and find an active investor who will partner with you on deals.  This will better your chances of knowing when you have a deal and give you a chance to learn solid practices and strategies from a pro.  You have to give up much of your profits when partnering but you'll shorten the learning curve.  Education is expensive but ignorance can be financially devastating.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Account Closed 

      the reality is bumpable offers just never get shown... agents don't want to waste time and don't want to risk buyer falling in love with that particular home only to have the person in first position close on deal.

  • Austin, TX · Member since 2014 · 139 posts · 89 votes
    11y

     Coincidently, Timber Pimps happens to be the name of my new Grunge/Funk band.

  • Architect · Edmonton, alberta · Member since 2014 · 40 posts · 9 votes
    11y

    Great topic and discussion.  Being a "Newbie" who wants to try wholesaling, this is exactly what I need to read and gauge the path that works best.  I believe in a 'win-win' scenario, so putting money down should not be an issue if I see a great deal... I need to know that I can follow through and make it happen.

    I'll keep reading to learn more.

    Thanks to all of you who have participated so far.

  • Architect · Edmonton, alberta · Member since 2014 · 40 posts · 9 votes
    11y

    One question I missed asking... Those who would not put down EMD, would you be willing to sell your property on that basis? I know I wouldn't, and I'm just a "newbie"

  • Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    11y
    Originally posted by @Kelvin Hamilton:

    One question I missed asking... Those who would not put down EMD, would you be willing to sell your property on that basis? I know I wouldn't, and I'm just a "newbie"

    Kelvin, you got it right!

    This is called the Golden Rule - do unto others what you want others to do unto you. If you're not willing to sell a property with no EMD, why will you want the seller to sell to you without an EMD (and tie up his property)?

    Of course in real estate, everything is negotiable. One way around the EMD problem (and this applies only to properties that are NOT listed on the MLS) is to do a non-exclusive option to purchase. You put down minimal option consideration ($1, $10, $100 - I tried all 3). Then you market the property but if the seller finds a buyer first before you do, the seller does not owe you anything. If you find a buyer first, you exercise your option, you sign a purchase & sale agreement, put down a sizable EMD which could come from your buyer and you close the deal when your buyer closes the deal. Win-win-win.

  • Realtor · Columbia , SC · Member since 2014 · 7 posts · 0 votes
    11y

    Educate yourself, I personally don't think the rule of thumb, just do it! and learn in the process is a good ideal because 9 out of 10 times you leave room for error. Learn your craft it makes you a credible person and the probability of repeat partnerships is greater, again learn ask questions, volunteer time ask more question and continue to educate yourselves. 

    Happy New Years Everyone.  

  • Architect · Edmonton, alberta · Member since 2014 · 40 posts · 9 votes
    11y
    Originally posted by @Wendell De Guzman:
    Originally posted by @Kelvin Hamilton:

    One question I missed asking... Those who would not put down EMD, would you be willing to sell your property on that basis? I know I wouldn't, and I'm just a "newbie"

    Kelvin, you got it right!

    This is called the Golden Rule - do unto others what you want others to do unto you. If you're not willing to sell a property with no EMD, why will you want the seller to sell to you without an EMD (and tie up his property)?

    Of course in real estate, everything is negotiable. One way around the EMD problem (and this applies only to properties that are NOT listed on the MLS) is to do a non-exclusive option to purchase. You put down minimal option consideration ($1, $10, $100 - I tried all 3). Then you market the property but if the seller finds a buyer first before you do, the seller does not owe you anything. If you find a buyer first, you exercise your option, you sign a purchase & sale agreement, put down a sizable EMD which could come from your buyer and you close the deal when your buyer closes the deal. Win-win-win.

     Wendell,

    I like this way of thinking... I will look to try this on my first wholesale deal, unless someone comes up with a better plan :).

    Appreciated.Kelvin

  • Real Estate Investor · Waldorf, MD · Member since 2014 · 592 posts · 320 votes
    11y

    This was a good story!! My favorite part "Don't pay any guru thousands of dollars". Those guru are primarily out for themselves. Find a real Mentor, one that cares. My mentor, Big Paul, is great. I found him at a REIA meeting in Waldorf Maryland.

  • Real Estate Investor · Waldorf, MD · Member since 2014 · 592 posts · 320 votes
    11y

    Great post!!  Thumbs up!!

  • Real Estate Broker · Kensington, MD · Member since 2014 · 84 posts · 16 votes
    11y

    @Account Closed

      You know of any meetings closer to Moco. area? 

    Great thread!

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