If the job of the wholesaler is to broker the deal between seller and buyer, couldn't the buyer find the same deal and save the assignment fee?
- What special skill does wholesalers have?
- Is there rule of thumb for wholesalers to make the deal? A formula?
- Wouldn't wholesalers be in the category of loan sharks; preying on the "motivated".
- I assume they have some special skill that does provide a service to the motivated? No disrespect from honest wholesalers; just trying to understand.
- Why chose assignment form over double close/escrow (hiding the profit of the wholesale)?
- What happens if the wholesaler doesn't find a buyer? Just lose ernest money?
I know some of these are basic. Please help me understand. Thank you!
From my understanding a wholesaler has a list of buyers (investors) with a criteria list. A wholesaler will do the leg work that maybe an investor does not have time to do. If the investor can make $30,000 or more on a deal then he doesn't mind paying the wholesaler an assignment fee.
Of course you could do the same. I bought properties that I found myself, and negotiated directly with the owner of the property to buy. It can be done, but it is a lot of work. I did it myself because I live in an expensive area, and a property here that is considered wholesale is in the $300,000's. It gets risky financially if I don't choose the right property that I can rehab quickly and sell fast.
Hope that helps.
1) A good wholesaler has great marketing and sales skill - particularly negotiation and closing. Amongst other traits.
2) Each wholesaler will have their own particular criteria, sometimes based on their investors needs, sometimes based on a general formula.
3) No. Wholesalers are not giving "loans" of any sort, they are simply securing a property, then selling their rights to a contract or home for a fee.
Assignment over double close because it is less moving parts. Also, if a wholesaler does not find a buyer, their contract better cover their butt. Meaning you should not have to "perform" on the contract in anyway that will leave you owning a large debt. So, contingencies are key here. These are inspection periods, and some situations even will call for you to simple ask the owner "hey, I am going to find you a buyer. We agree anything over 50k is my fee?"
Search 70% rule for general guidelines on purchase criteria, this is a general rule. If you live and die by this rule, you will buy 2 properties per year and make about 0 dollars. At least in NJ :)
Anybody feel free to correct me.
They are in the game of deal quantity, while us rehabbers are in the game of deal quality. If you find a good wholesaler they will take all the leg work out of finding deals that you know will work. Keep in mind, I said good wholesaler. That tends to be an oxymoron in most areas, especially mine, but there are a few around. 90% of them just lock stuff up off of the MLS, mark it up $5,000, throw a few comps in an email and then send it out to buyers. I am able to do that all day long but what I don't have the time to do is proper marketing and negotiating of deals, the job of good wholesalers.
Thanks @Melissa W. for your reply.
@Dennis Pressey Jr - I realize that wholesalers don't deal with loaning anything. I was using that analogy because loan sharks typically prey on the needy or desperate. Correct me if I'm wrong but it seems that part a wholesalers job is to look for motivated (aka desperate) sellers. Payday loan industry exists because people are desperate for money now but are charged >600%APR to get that easy money. I guess there is more to it than the predatorial aspect? (for the 'bad' wholesalers)
My question about Assignment over double close had to do with why have the option at all to hide the wholesalers profits if its ethical (why go through the extra money and hassle)?
Thanks everyone for the responses!
@Zach Mitchell - Thanks! I see. That seems like it can be very frustrating!
Chad, assigning a contract does not mean you are "hiding" anything. I think there are many misconceptions here. The seller of the home can and should know how much your fee is, you are assisting the home owner solve an issue they have.
So, you are not "preying". A good wholesaler will clearly explain and stand on their position because their benefit is their service. Quick closing, cash, no fees...
So, if a homeowner is inevitably going to have their house taken, lose their credit and the whole deal - why would it be preying to buy their home for a fair price to that covers their expenses and allows the homeowner to save their credit, get needed funds, and avoid a long drawn out process.
Does this make sense?
A good wholesaler is basically in the business of marketing. You have to sort through tons and tons of leads before you find one that is worth holding or rehabbing, and many rehabbers don't want the hassle. They want to be in the rehab business, not the marketing business. All a wholesaler is doing is connecting A to B.
Besides, nobody is making those people sell their houses to a wholesaler. The wholesaler is making an offer. If the homeowner doesn't like it they don't have to take it. Of course there are unethical people out there that take advantage, but thats the same in any industry.
I am a buy and hold investor. I have contacted several wholesalers to bring me properties, because I don't think I have the skills or staying power to market for distressed properties. So, I am hoping they will bring them to me. If a wholesaler can negotiate the price down to where their 5-10K fee leaves enough meat on the bone for me, I'll buy it in an instant.
Unfortunately the only "wholesale" deals I have been presented so far are FSBO's that they marked up, or cheap properties they found on the MLS, got under contract, and marked up.
Still looking for the right wholesaler to bring me the right deal.
My opinion: Wholesalers are usually non-value-add middlemen. I've found that, as a buyer/investor, having several good realtors on your side provides the same benefit and it's free.
I'm new to REI and will start a Direct Mail campaign in the near future. we got into the game for the sole purpose of acquiring a multi family for rentals. fast forward 3 months there are no deals on the MLS i actually came across one property with negative cashflow (that's with real numbers i.e. no pro forma) so i'm starting this DM campaign for the purpose of finding something to buy and hold ie. flip it to ourselves while i wholesale others
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