Investor · Wood Dale, IL · Member since 2014 · 65 posts · 3 votes
My subject is not direct, but a legitimate question.
I recently got a prime follow up call for a prospect that could absolutely be wholesaled. Upon making an offer and coming to negotiating terms with the seller, I needed to find an attorney who is familiar with how wholesaling works. After reading a response to a forum posted by @Tyler O'Malley, apparently all RE attorneys are familiar with wholesaling or are able/willing to work with you. This is not the case at all. After several phone calls with attorneys, I have not gotten one single attorney who wants to deal with wholesaling because it is a "dishonest" thing to have the seller under the impression that YOU are going to close on the property and/or it is a waste of their time because "most of the time these assignments of contracts never work out". After giving it some serious thought, it does seem pretty dishonest to mislead the seller into believing YOU are going to close on the property and then worst case scenario ending up voiding it all together through a "weasel clause" and wasting everyones time. My question is can anyone convince me this is not a dishonest business and also is it possible to find an attorney willing to work with you without actually being dishonest with him too.
These bash the wholesaler threads get pretty old. May not be your intention but I guarantee 9/10 people reading your title will come here to do that. There is a difference between tying up a property for months hoping you find a buyer and being a wholesaler.
As a wholesaler (a term I don't mind calling myself) I provide a service. The property closes one way or another. I have private investors, a portfolio lender, HML, and cash. I make offers that are a great deal for me to PERSONALLY close on. If however I can make cash and not have to do anything.... Why wouldn't I?
Seller receives FULL upfront disclosure. I am buying your house for X because it needs Y. I work with other investors as well. I'm sure you don't care who's name is on the check as long as it clears right?
I have NEVER used a "weasel" clause to "get out" of a contract. I have several buyers that come back to me for repeat deals, sellers send me referrals, and my clients love me.
I have moved trap houses, homes with flooded basements, foundations that look like tectonic plates shifting, even one with mold/bug issues. Could the seller have sold the property without me???
Maybe. A solid majority of the sellers I talk to tried with no success.
I may transition into "wholetaling" actually closing on everything and listing on MLS. I typically double close. I don't like assignments.
Most people have issues with people "marketing the property" using "equitable interest". If your contract gives you permission to market the property as an "owner by contract" I have no morale issues with it.
Promising to close yourself and doing an assignment. I see the morale qualm. Being upfront and honest... I sleep great at night.
My mentor told me the grocery store model is best:
"You don't want to sell a seller in the grocery store and have to duck around a corner. You want to walk right up to them and ask how the kids are." -Jerry Puckett
Final part of my rant.... A seller who knows I wholesaled her property (saw it marketed online for CONSIDERABLY more) has came to me and asked me to help them potentially invest the profits they got from selling to me. That says something.
1. To do it properly and safely, wholesalers do a double closing. So in a sense they do become owners of record for a minute :)
2. Do not tell sellers you are going to close and then wholesale. Be honest - tell them you have no intention of closing. You just want to find a buyer. Some people hate realtors - they'll work with you. No lying, but this does require considerable negotiation skills, since the truth complicated things...:)
3. Don't put weasel clauses in the contract. You are signing your name - your name is all you've got in this world. Have money in the bank to close the deal yourself if you can't wholesale it. Be a pro, or get the hell out - you're just giving real wholesalers a bad rap. The notion that you can wholesale without money is precisely the thing that encourages dishonest behavior.
Wholesaling is for the Pros. If you are not one, then become one, or go get a job working for the man :)
I stop posting here often out of frustration of the "holier than thou" attitude towards wholesalers and the discouraging remarks made to them when trying to start out. You're likely not going to convince anyone to quit or take on a new career path of your choice. Why not offer some encouraging advice or just find another forum to participate in.
I agree with most of what Tim has stated in this thread. In addition, I recommend that both existing and "want to be wholesalers" read my thread on this subject which is one of the largest and most visited and voted for threads on BP: http://www.biggerpockets.com/forums/93/topics/5838...
Even in my thread a few people thought it was a "bash" on wholesalers and to the contrary I pointed out many instances of what NOT to do so that one can be a viable and profitable wholesaler. yes, there are many nasayers and bashers here, typical of any large public site with many opinions, however, let the record be set straight that wholesaling is NOT illegal, immoral, corrupt, or any other negative word. I have used this analogy before and will again here: Driving your car down the road is NOT illegal, however, if you speed or run a red light, it is. Just the same, wholesaling is not illegal until the operator performs in an illegal manner.
Another distinction that really needs to be made here is this, there are wholesalers out there, there are those "wanting" to be wholesaler, and then there are the dishonest scumbuckets. The question is, which are you?
With bigger pockets newest book having the phrase "no money down" in its title Id say get used to newbies appearing asking such questions.
The " no money down" guys have been around since the beginning of time. Some actually made (or make) some deals work. They do exist but are not common. The "wholesaling" gurus are trying to make a buck promoting assignments, etc. The only real issue with some of these "wholesalers" is the fact they operate in a dishonest manner, mislead sellers, and fail to see (or admit) they are acting in a dishonest manner. Their only concern is making a buck, and they don't care how they do it.
The most valid question I have seen is "why not get a licence?" The reason is that to keep a license you have to maintain a level of legal and ethical standards or else you get in big trouble. As a "wholesaler" you are effectively doing the same function without a license and can sidestep the ethical and legal issues. Maybe there are enough legal loopholes to let this happen but ethically it still smells bad to me.
@Ben Leybovich Wholesaling is the strategy of assigning a contract (without closing). Wholesalers don't close and then sell the property. That would be called flipping. These are 2 different strategies. Therefore, wholesalers give themselves a bad rep just by having the title.
Robert I respectfully disagree with your definition as would my buyers. I've assigned 2 deals. I don't view them as black marks on my integrity by any means.
Also your tag line is "wholesaler from IL" if that's a bad rap just by title you should probably change that....
My comment of wholesalers giving themselves a bad rep through their title alone was directly to Ben lebovich as a theoretical counter argument to his claim that I, specifically, was giving wholesalers a bad rep by using an assignment contract.
@Ben Leybovich Wholesaling is the strategy of assigning a contract (without closing). Wholesalers don't close and then sell the property. That would be called flipping. These are 2 different strategies. Therefore, wholesalers give themselves a bad rep just by having the title.
Robert - there are 2 ways to wholesale property. One - assignment of contract. Two - simultaneous closing, also called double closing, whereby the wholesaler's buyer's money facilitates the transaction. You, the wholesaler, end up being owner of record on paper and in the courthouse records for a few minutes.
Number 2 is likely the safest way to practice, since a contract is a security, and if you don't get busted for practicing sales without a license, you might get busted for securities fraud. The realtors are trying hard to see to it that you do :)
Wholesaling activities are very much under attack in many States, as is evident from many threads on BP. Do some looking around...
remember this is not all guru talk BP is a HUGE promulgator of slimy wholesaler's as you call them. But they are a fact of life... I closed 6 transaction this week... 2 had wholesaler fee's on the hud.. one was 3k the other 5k. But I see plenty of others were the deal dies not sure if the wholesaler stills closes I suspect not.. that's my major beef with these guys is not closing and hurting sellers especially desperate sellers..
I don't mean to be a d-bag So if that's how I'm coming across please give me some grace. It's hard for tone and inflection to come across clearly via text.
With a double close you can still wholesale. You pay more in closing costs. The only time I do an assignment is if I'm making less than 5k or the seller requests it.
From what I've gathered about Ben his issue is the weasel clauses. Which I agree with. If you get the property cheap enough you don't need them. Don't offer more than you're comfortable with. Stick to your metrics especially starting out. My first several deals were literally 65%-repairs-fee. Till I got a better grasp on my market and new what areas I can go as high as 75%
My comment of wholesalers giving themselves a bad rep through their title alone was directly to Ben lebovich as a theoretical counter argument to his claim that I, specifically, was giving wholesalers a bad rep by using an assignment contract.
That's not what I mean, Robert. What I did mean was that you are giving wholesalers bad name if you think that in order to convince sellers to sign a contract, you must be untruthful about you intentions. You are giving wholesalers bad rap if you stuff your contract with out clauses. Realtors sign a listing agreement in which the only promise they make is that they will "try" to find a buyer. You, my friend, are signing a purchase and sale contract - in a free market economy it hardly gets any more serious than that! Via your signature on this contract you are obligated to do your best to perform - to "buy the asset". If your intention is anything other, than disclose it to seller up-front and let the chips fall as they may...
Now - if you know how to negotiate, this shouldn't be very difficult. Try it :)
If I was a RE broker in a state were wholesaling is illegal ( like Ohio) and I spend my money and time and effort to be a RE professional IE a RE broker or if I had a business of buying and selling properties again I close then resell. I for one would file complaints against any persons I suspected of illegal activity as a RE broker you have a duty to do this.
I have done some whole selling , but this is not my focus. Some deals just fit whole selling. I walked from many deals early on because I couldn't see myself closing on it.( My bad) Is a realtor muck for locking up a property for 6-12 moths? Many whole sellers close/ or assign with a closing in 60 days or less. If its over 30 days it's usually because of title issues on the sellers part. I wished I could go back and lock up some of the deals I walked from because I took the so called high road.
@Ben Leybovich Thanks for the clarification, Ben. I completely agree that being untruthful is immoral and gives wholesaling a bad name. For future purposes, what would be the legal and proper way to go about a deal? Inform the seller that I have 0 intentions of closing on the property personally and that I am just helping them sell the property for a finders fee (essentially) ? Wouldn't this being practice real estate without a license? Going back to my initial question, even if my seller was aware of my intentions real estate attorneys still seem to want nothing to do with wholesaling.
Thanks for the clarification, Ben. I completely agree that being untruthful is immoral and gives wholesaling a bad name. For future purposes, what would be the legal and proper way to go about a deal? Inform the seller that I have 0 intentions of closing on the property personally and that I am just helping them sell the property for a finders fee (essentially) ? Wouldn't this being practice real estate without a license? Going back to my initial question, even if my seller was aware of my intentions real estate attorneys still seem to want nothing to do with wholesaling.
Now we are getting somewhere :)
My attorney told me a long time ago - "Banks and insurance companies always win." I would add realtors to that, as one of the most powerful lobbies in DC.
Robert - if attorneys want nothing to do with you, shouldn't this tell you something? They know more than you do... You are in IL...one of the most liberal States as much about consumer protection as any place on earth. Think about it...
And why do you bother with wholesaling anyway? If you want cash flow, how the hell is wholesaling gonna get you there? It's the polar opposite!
Robert - at the most common denominator, something is either truth or it's not. If you are a good wholesaler, then you go to the people who have been disappointed with realtors, who are only trained to appease the seller. But you - you walk in and because you have much deeper level of understanding of negotiation, you are able to explain to them that the reason the house didn't sell is because it was priced too high. You put it under contract for a price that makes sense, and you find a buyer. And you tell them the truth about why you are using a P&S contract, and since they hate realtors by now, they don't care - as long as you get this thing out of their lives. And, you tell them, that since you are truly there to help solve their problem, you will exercise the contract yourself if you can't find a buyer!
Why wouldn't you? The price you are tying this thing up is fantastic. If it's good enough to wholesale, it's certainly good enough to close. This does mean that you need to either be in possession of capital, or have access to capital...do you?
There are pros, and there are a lot of BS playas - don't be one of them. Your word is all you've got. Imagine, if you can't find a cash buyer, you go and close on this thing yourself. Imagine what these people will tell their friends - they had to sell, and you got them out. No bull - no games... That's the kind of stuff careers are made out of, though I'd still think twice about doing it in IL.
Sure, there is a lot on the line for you if you aim to do things right. Are you the real deal, or are you a nobody?
@Tim G.@Ryan Dossey, I in no way was intending to "bash" wholesalers. The last part of my post said clearly that I have no problem with wholesalers. I didn't mean to come across that wholesalers never close and rehabbers always do. I wholesale properties as well as rehab and flip. I was not trying to be one sided, but rather answer a question as to why wholesalers come across as immoral and lying individuals. I was simply pointing out why wholesalers were given this stigma. Newbies coming out of guru school trying to wholesale deals off of the MLS, with no means of closing the deal. Not disclosing to the seller what is going on. Walking at closing with no buyers. It doesn't take long to get a bad name conducting business this way. These same stories come up over and over. As far as walking on a deal because the numbers don't work, I know what will work before I make my offer. There is no reason to back out at that point. At least not for me. Both of you seem very professional and are successful for a reason. The reason is that you are doing things the correct way. To me, there is nothing immoral about wholesaling and it is an important piece of the pie as it is the only way some rehabbers find properties.
Trust yourself, if you truly believe you're helping people with their problem, and that you are making a difference for yourself, your family and your community, there is no reason to listen anybody else's opinion, and those opinions speak more about a person saying, then about you.
You need to work with a investor attorney, asked the questions up front like "are you an investor in real estate" "do you understand investing" if the answer is yes, then, that's someone you want working for you
A lot of good points on this thread. It seems that many people are hung up on the fact that there are a lot of slimy people wholesaling. I get that. However, there are a lot of slimy people in every industry, even non profits where the whole point is to help people.
Let's assume for a second that we're in a state where wholesaling is legal. What would an honest, ethical wholesaling transaction look like? Maybe someone could present a step by step explanation of how that would unfold?
@Michael Hicks I honestly wasn't referring to you so I apologize if I was coming off snide/combative. I actually agreed with your post. Colleague request coming your way.
Hmmmm....why do you have to be dishonest with a seller? That's where I am stuck.
"I find investors who have the cash to buy houses." Clearly, not everyone has a pile of cash they're sitting on....not even the wholesaler!
"I match folks who need a quick close on a house in need of repair with investors who have contractors on their team." Again, quite a blessing.
"I help sellers who can't sell with traditional loans find investors who don't need to use conventional loans." Check.
"I have to tell you that I have to match your home to an investor in order to close but I don't think it will be a problem. I do need three days to ensure that, however." Again, a good thing.
"Let me show you the comps, repair estimates, etc and explain to you how I get paid and why I can only offer you $xxx on your home." I can see this conversation happening.
I'm a novice so this could be complete naïveté....am I missing something?
@Ben Leybovich Thanks for the clarification, Ben. I completely agree that being untruthful is immoral and gives wholesaling a bad name. For future purposes, what would be the legal and proper way to go about a deal? Inform the seller that I have 0 intentions of closing on the property personally and that I am just helping them sell the property for a finders fee (essentially) ? Wouldn't this being practice real estate without a license? Going back to my initial question, even if my seller was aware of my intentions real estate attorneys still seem to want nothing to do with wholesaling.
I think you did an excellent job of defining what most "wholesalers" do. They tie up a property with NO intention of buying it and then try and market it for a fee. These are, in many instances, practicing RE without a license. Slip in a couple lf lies about being a "buyer" and wanting an "inspection period" and poof: they are not practicing RE--they are "wholesalers".
Hmmmm....why do you have to be dishonest with a seller? That's where I am stuck.
"I find investors who have the cash to buy houses." Clearly, not everyone has a pile of cash they're sitting on....not even the wholesaler!
"I match folks who need a quick close on a house in need of repair with investors who have contractors on their team." Again, quite a blessing.
"I help sellers who can't sell with traditional loans find investors who don't need to use conventional loans." Check.
"I have to tell you that I have to match your home to an investor in order to close but I don't think it will be a problem. I do need three days to ensure that, however." Again, a good thing.
"Let me show you the comps, repair estimates, etc and explain to you how I get paid and why I can only offer you $xxx on your home." I can see this conversation happening.
I'm a novice so this could be complete naïveté....am I missing something?
First, Hi to a fellow Wise County person.
Second, all those statements veer way close to the definitions of acting as a Broker for me to be comfortable with. Texas doesn't seem to be as anti-wholesaler as some states but still it that is pretty far into the grey area. Anyway, wholesaling always seemed more like a pretty hard job than an investment strategy to me.
My subject is not direct, but a legitimate question.
After giving it some serious thought, it does seem pretty dishonest to mislead the seller into believing YOU are going to close on the property and then worst case scenario ending up voiding it all together through a "weasel clause" and wasting everyones time.
If you simply tell them you work with a group of investors in the area that should easily sum up what you are about.
If you tell them you are buying the house then that is dishonest.
My subject is not direct, but a legitimate question.
After giving it some serious thought, it does seem pretty dishonest to mislead the seller into believing YOU are going to close on the property and then worst case scenario ending up voiding it all together through a "weasel clause" and wasting everyones time.
If you simply tell them you work with a group of investors in the area that should easily sum up what you are about.
If you tell them you are buying the house then that is dishonest.
Manny
Manny - it's not about tell or don't tell. A purchase and sale contract speaks for itself, or it wouldn't be called a "Purchase and Sale" contract - purchase being the operative word.
Write it up as "or assigns" all day long, it's still a P&S. I've got no problem with that so long as full disclosure takes place and weasel clauses are not there, and folks are well capitalized to close on the thing if need be.
But, this thread, as much as anything else, does indeed showcase how many amateurs are in this space. As much as I want to tell myself that fundamentals support current prices of investment property, I must acknowledge that when everyone seems to be a wholesaler, property has become a hot potato...
