Full disclosure: I am a licensed real estate broker in Ohio. I am also an investor. I have done lots of research on the practice of wholesaling. I must say in my opinion this practice (in most forms) is at a minimum shady, and at a maximum an illegal way to screw over an un-educated home owner. I am putting this information out there because I don't think most wholesalers understand that they are breaking the law. Though most of them are profiting, very few are ever getting caught. Now that I have your attention, let me explain.
I just read this article that was put out by the Ohio Association of Realtors (so consider the source). It has really made me re-think the wholesaling practice that I see lots of investors doing. Though most unlicensed investors probably hate the licensing laws, they are LAWS, and practicing real estate without a license is illegal. In Ohio it is illegal for an individual to Sell, exchange, purchase, or negotiate the sale, exchange, purchase, of any real estate for another, for a fee, without first obtaining a real estate license. That means if you are not a principal in the transaction, you can not negotiate, sell, or market real estate and collect a fee. So signing a contract to purchase real estate from someone, and then marketing that contract to another person for more money is illegal unless you have a license. If you have a license, it is also illegal, because you are not acting in the clients best interest, you are acting in your own. If you know you can sell the property for more money to someone else, then you are acting outside of the cannons of ethics for licensed real estate agents or brokers.
From what I see in my market in Columbus Ohio, most wholesalers work outside the laws, and run the risk of being caught, though unfortunately most don't actually get caught. It is my stance that you should obtain a license, and or practice your investing business within the laws. If you must operate outside the laws to profit, there is a problem with your business model. Not to mention, I hope you can sleep at night knowing that the only reason you profited was because you took advantage of some poor seller that does not know what is actually happening.
If you tell someone "I will buy your house fast, for cash" then actually buy their house. If you are actually going to re-sell that contract to buy that house to someone else for a higher price, then do it above the table and disclose that to everyone involved in the deal. I started this article with a full disclosure, because in my opinion that is the only ethical way of doing things. Wholesalers that operate outside the laws in my opinion are worse than used car salesmen selling lemons. When I see bandit signs, and yellow letters that say "We buy houses fast, for cash" I want to take a marker and write on them "But only if you agree to sell it for less than what it is actually worth" because that is full disclosure.
Ok, now that I have probably upset most wholesalers, tell me why I am wrong. Thanks!