whats the point of wholesaling?

12 Replies

I still don't get it. I understand that you grab the deal before anyone else can get it. Get it under contract then sell the contract to a buyer at a mark up price. But how do you get it under contract? Where I am from you need POF meaning pre qual letter and bank statements showing you have enough money for the down. If its such a good deal and you already have the funds to acquire the property, why not just buy it yourself, flip it or just buy and hold to cash flow, not to mention tax deductions and appreciation. If you wholesale you only make a few hundred/thousand bucks out of the deal.

for those of you who say that you can start off wholesaling with no money please explain this to me.  

@Royce Talbo , people who are doing wholesaling right are finding off market deals by marketing directly to potential sellers. In that case, there are no requirements for POF or pre qualification. You sign a purchase agreement and can then assign that to someone who has the experience/resources/money to do a full flip.

@Brett Russell   ok thanks that makes a lot more sense.  How many sellers actually go along with this? normal folk i think would be hesitant without the guidance of a realtor.  If I didnt know the process of buying and selling I know I would be hesitant. Sure I could hire a lawyer to look over the contract, but thats only one part of the process.  

I now see how this is possible and to me it seems like the money that the seller would pay their agent in commission goes to to the wholesaler instead.  The big problem I think of, is the trust issue.  

Originally posted by @Royce Talbo :

I still don't get it. I understand that you grab the deal before anyone else can get it. Get it under contract then sell the contract to a buyer at a mark up price. But how do you get it under contract? Where I am from you need POF meaning pre qual letter and bank statements showing you have enough money for the down. If its such a good deal and you already have the funds to acquire the property, why not just buy it yourself, flip it or just buy and hold to cash flow, not to mention tax deductions and appreciation. If you wholesale you only make a few hundred/thousand bucks out of the deal.

for those of you who say that you can start off wholesaling with no money please explain this to me.  

POF normally means "Proof of Funds" and is what you submit when you make a cash offer.

If you are broke but have a hard money lender who will will give you a proof of funds letter you can buy HUD's ( www.hudhomestore.com )

You can always try to buy an Option for a property then sell the home before you own it (In Indiana legally an option must cost $10 or more so hypothetically you could control a home for $10 without any other funds in the bank)

You could pick up a house at public auction but then you would probably risk 10% of the bid price.  Or even www.auction.com I think they require $2,500 in escrow before they accept a bid but I think they give you 30 - 45 days before closing 

I have a fair number of rentals and I can always find the cash to put together a deal if the numbers are right HOWEVER Im not always buying.  Right now I have 3 vacancies so they get 99% of my attention however last week someone called me and said they had a deal (see below video) they wanted to sell.  I looked at the house, shot this video, then contacted two other investors and invited them to view the video with the hopes of getting a finders fee or a partial partnership (one that would require no money or time commitment) so basically I became a wholesaler for the day..  I am still working the deal and if it goes through I could easily see getting $1,500-$2,000 (possibly more) for picking up my phone, looking at a house for 20 minutes and contacting a competitor with the opportunity...  If it works out thats one heck of an hourly fee.

Why wholesale?  Why wouldn't you?  Regardless of your financial position it only makes you money and makes you friends.

The houses we want are typically in ROUGH SHAPE and therefore they won't sell easily in the "retail" world of real estate agents.  If a house is in disrepair, it generally will not qualify for a consumer mortgage.  With these properties, the only way that the seller can turn them into cash is to find a CASH buyer, one that is not dependent upon a bank for funds.

While we can always purchase a nice house at a discount if the seller is in big hurry, in most cases the big discount we get is not in lieu of the agent commission - it's because the house needs many $$$ in REPAIRS.

This business is NOT about low-balling houses on the MLS. It's about finding distressed properties (and homeowners with financial issues) OFF the market. We do this by marketing directly to homeowners with the "We pay FAST CASH for houses in AS-IS CONDITION" message...

I'm new to wholesaling as well. How would you go about starting and what kinds of information or stuff would I need to start I'm located in washington state as well. 

@Nicholas Miller Just to clarify I do know that POF means proof of funds but it entails that you provide at least a pre-qual letter and bank statements or stocks or some sort of liquid funds, where I am from anyway. As far as all cash offers that you get from hard money lenders they also need POF to show that you can repay their high interest rates and here they ask for you to put down around 20% "to have some skin in the game." not sure how it is in the mainland but I tried getting financed from mainland companies and hard lenders before, but they wouldn't finance because it was too much risk because they didn't know hawaii's market.

I've heard about options a long time ago but none here in hawaii, maybe thats why I stopped looking into them, but maybe I need a refresher course hahaha.

Yes indeed that is a good paycheck for 20 mins hahaha one day I hope to build my network and have opportunities like that, BP seems like a good place to start hehe, thanks for the reply Nicholas.

@Dev Horn   thanks for the more in-depth explanation, this is making even more sense now.  I was thinking these houses were just in bad shape, but livable.  Not like how @Nicholas Miller   video was.  

When I talked about the in lieu of agent commission I was assuming for example the property market value worth 275,000 after renovations,  current condition seller can get 200,000  less 6% commission so 188,000, without realtor we explain to them that its not worth what market is because of the repairs blah blah blah and get it for 188,000 then sell the contract to buyer for 195,000 they put in 50,000 renovations. we profit 7,000 buyer profits 30,000.  that is how i thought it was done.  

now that I am learning more I think I research more about this topic now that it seems feasible.  
 

You might argue that some of our discount is in lieu of the agent commission; we say "No commissions / No closing costs" in our marketing.  My main point is our discount is a bigger percentage than the 6% they might pay in agent/broker commissions, so you may not want to draw attention to that point.  Remember, our target seller is (usually) not considering a real estate agent because they are (often) aware that their property is in less than great condition.  Most of our sellers don't care about fees and percentages and all that - they just want to know "How much can I get for this house IN CASH, RIGHT NOW, without having to make a bunch of costly REPAIRS?".

Great selling points to them are things like:
- No need to make ANY repairs; keep that $ in your pocket
- We pay off any mortgages, late taxes, judgments or penalties
- We can close in 7 to 14 days
- Get a no obligation CASH offer... etc.

Don't sell against an agent - sell against the cost of doing NOTHING with a property that needs some serious TLC:
- Payments continue
- Taxes will come due
- Insurance needs to be paid
- Utilities, maintenance & other holding costs add up... etc.
- And, are they ever going to make all those repairs?  If not, they should cash out sooner rather than later because of the above....

Originally posted by @Aaron Sal :

I'm new to wholesaling as well. How would you go about starting and what kinds of information or stuff would I need to start I'm located in washington state as well. 

 Search for Sean Terry & flip2freedom academy.  He has a ton of free pod casts that go into great detail.

What's the point of wholesaling? Let's say you have $100K cash in the bank. How many properties can you rehab and flip? Maybe 1 or 2 every few months. What do you do with all the 'extra' leads that come in? Throw them away? Give them away? Pass on them and tell them you'll get back to them when you get some more money?

Here's a challenge for you; let's each start with $100K. You go find your rehab and flip properties, borrow hard money to close them, fix them up and sell them and I will focus only on wholesaling. Who do you think will have more money in 12 months?

As for starting off wholesaling with no money, how do you expect to find any leads if you have no money? The point of telling people they can wholesale with no money is so that they take what little money they do have and use it to buy the course that teaches them nothing about wholesaling, but is an upsell for the other course that will teach them more about nothing related to real estate, but a lot more about getting that other course where they can learn about that other course.

Thanks @Shawn Holsapple . Thanks everyone and anyone who could lead me toward furthering my knowledge. This board is the best place I have found. Thanks for all the info and help. :)

Originally posted by @Dev Horn :

You might argue that some of our discount is in lieu of the agent commission; we say "No commissions / No closing costs" in our marketing.  My main point is our discount is a bigger percentage than the 6% they might pay in agent/broker commissions, so you may not want to draw attention to that point.  Remember, our target seller is (usually) not considering a real estate agent because they are (often) aware that their property is in less than great condition.  Most of our sellers don't care about fees and percentages and all that - they just want to know "How much can I get for this house IN CASH, RIGHT NOW, without having to make a bunch of costly REPAIRS?".

Great selling points to them are things like:
- No need to make ANY repairs; keep that $ in your pocket
- We pay off any mortgages, late taxes, judgments or penalties
- We can close in 7 to 14 days
- Get a no obligation CASH offer... etc.

Don't sell against an agent - sell against the cost of doing NOTHING with a property that needs some serious TLC:
- Payments continue
- Taxes will come due
- Insurance needs to be paid
- Utilities, maintenance & other holding costs add up... etc.
- And, are they ever going to make all those repairs?  If not, they should cash out sooner rather than later because of the above....

 @Dev Horn  this is great information for a wholesaler when your talking to a seller. I hope you all know that this is golden information as a wholesaler/marketer. It's a lot about how you speak to people and address their needs. Try and make it about how you can help them, but make sure you do this from a power standpoint.