How we benefit from Wholesalers

27 Replies

I have yet to do any business with any wholesaler, wholesalers, wholesaling because I usually had purchase my deals from auctions or RE agents.

My question: when a wholesaler brings a deal to an investors, do those deals favor flipping investors or buy and holds investors?

I'm currently under the impression wholesalers are complete goof balls. What is their purpose again, to act like realtors for cash transactions? They find people who are motivated to sell - then put a contract in from of them saying I can help the seller sell it? They then shop it around to other people? While charging a % of the deal? Essentially acting like a middleman...

@Mary Smith lol I always ask wholesalers why not just get your real estate license since your doing their jobs anyways, one wholesaler told me they didn't want to disclose like agents do and others told me they could get away by not paying income tax on it and you know what really bothers me the most is when they try to sell me a home from the MLS? really? I could save by contacting the listing agent myself so now I'm questioning wholesalers that I found in the New Jersey market. I see deals but I'm trying to buy and hold properties and don't see much deals for those kinds of investments.

Account Closed I completely agree on the MLS thing haha.

In theory it would be great if a wholesaler was someone in the industry that has the ability to connect you with a seller who doesn't know/or is willing to settle for less than the true value of the property...for example someone who needs the cash fast, doesn't want to lose the 7% commission for a realtor, etc. However the majority of those who call themselves wholesalers don't seem to have that ability...because it is a rarity for a seller to be completely unaware or not willing to deal with a traditional sale process. Anyway - props to the wholesalers who are good at finding them - but if I were them I'd be buying them ha instead of shopping them around 

It all depends on the buyer. I am an investor/wholesaler with over 50 off-market properties and each property is different. Some have very little equity because they are completely rehabbed and already with a tenant, and others need lots of work and completely vacant. So depending on what the buyers wants is the deals they like better. 

Account Closed Being a wholesaler, you should be really good at marketing, so you can find properties under market value, then you will be able to wholesale the properties to other investors so both of you can make a profit on the deal. Therefore, getting deals from "real wholesalers" should always benefit investors, at least the deals should be better than those on MLS. Hope that can help.

Sean

@Mary Smith  @Account Closed As Kinyat mentioned, wholesaler needs to be good at marketing. You just need to find the right wholesaler. There are good wholesalers that sends thousands of direct mail monthly but I don't think all Realtor, Real Estate Agent, or Buy and hold investor do. That's the benefit wholesaler bring to the table. But as I said not all wholesalers does this since some are also doing driving for dollar and other ways to find motivated sellers. MLS is not the only source of property. It is a marketing game that you need to be able to reach a lot of people and funnel it out which are motivated into which are good deal. I hope that gives some light what wholesalers "ideally" do and benefits of having them in your team.

Instead of rehabbers worrying about finding deals especially the new ones they can depend on wholesalers to do the marketing for them. I know rehabbers also try to network themselves with Real Estate Agent to give them deals, but those off MLS will not be coming from Real Estate Agents/Realtor.

If it is in MLS, it is a matter now of who reaches out first to the seller and able to discuss a good deal that benefits everyone in the transaction (seller, agent, etc..)

Stephen Anderson @KinYat Lam @Jefferson Gan when a wholesaler sells the deal to an investor, do you feel that most deals where good for flips or for buy and hold aka brrrr?

Account Closed It depends on your plan. Flips are relatively short-term to buy and hold. If you want to make some quick money, then you should do flips. If you want cash flows, then buy and hold. But if you want good deals from wholesalers, you should have enough fund to buy the whole properties by cash. That way you can attract wholesalers to sell their deals to you first.

Sean

Account Closed again it depends on the buyer if they are a buy and hold investor or a flipper. 

@KinYat Lam Stephen Anderson let's take the buyer out of the equation, let's say your a wholesaler (or maybe you are already) and you wholesale bunch of properties for the year, which percentage was higher on buyers who wanted it for flips or renting it out?

For example, if I had wholesale 50 properties and 20 buyers said they was flipping it then that means 20 were flips.

I'm sorry if the question wasn't very clear, I just want to know the wholesalers stats you could say. If I was a wholesaler I would be curious and ask the buyer "so are you going to flip it or rent it out?"

This has nothing to do what I want and etc.

We've wholesaled 60 houses this year. We close on the majority of our houses, clean them out, and resell. The answer to your question depends on so many factors. Location- is the property in an area better suited for rentals or flips or both? Purchase price: anything low enough can be flipped but in today's market which is a sellers market in my area, it's getting tougher to find really good flip properties. The final factor is condition. I don't have my numbers in front of my buy I would say 30% of our properties go to cash retail buyers 40-45% go to rental buyers and 25% go to flippers. 

Account Closed It depends on the buyers that you have on your buyer list. But I believe for investors that are getting deals from wholesalers continuously, they would do flips more than rental as flips are relatively short-term to rentals. And investors would try to profit from the deal, then get the money back and move on to another deal. For rentals, that is a long-term investment and you would not be able to get the money out again in a short period of time (the fastest way may be the BRRR method). So you cannot get another deal from the wholesalers as your money is tied up in the rental. So wholesalers would be more likely to work with investors that do flips. Hope you can understand my poor English lol.

Sean

@Adrien S. Thank you that was the answer I was looking for, the stats just to get an idea. NYC is a flipping market but New Jersey is more buy and hold in urban areas which is where I'm trying to focus on.

You will find wholesalers that sell both kinds of properties.

Why don't you just tell the wholesaler what kinds of properties you want. That way they'll come to you with what you want.

That's what I do. You can't sell a rug to a horse. They don't need one, but a saddle.

@Mike Watkins wholesaler in this market area are not exactly looking for your best interest, maybe your market is different in such aspect.

Unlicensed brokers work against the seller trying to drive the price down so they can middle man the deal shaving off some profit in their pocket, and walk.  An agents job is to get the MOST for the seller.  So they beat the seller down, slice off equity, and pass it on.  What value is that to an owner? None. Many of these unlicensed brokers operate illegally. Many of them use lies and deception. What seller would knowingly sign a contract if the unlicensed broker admitted he didn't have any cash to close on the deal? Many of these people don't want to get licensed for reasons such as the one stated above: income tax fraud. Add to that no licensing, no education, and no accountability you get what? According to one of them, their "qualification" for the job is a driver license. YUP...posted here on BP! I do know some LICENSED agents that wholesale properties. Personally, I haven't dealt with them but have been offered some of their "deals". Most of them have -0- profit so why bother. Is there a benefit to these guys? In most cases, no! I often post the following suggestions to avoid getting scammed by them: 

1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
6. Demand a copy of the contract to prove they have an equitable interest.

Unlicensed brokers generally have no insurance. From personal experience most just pull their ARVout of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.

If you want an education in frauds and scammers, you will get it reading the threads on BP. This is the new get rich quick with no money and no education. Sadly, no ethics and honesty are often the case as well. One of the funniest threads I saw on BP was an unlicensed broker with NO money posting how to find qualified buyers WITH money. So, he didn't want to get screwed by his own kind:) It is OK if I scam YOU,,,,,,but DONT try that on ME! LOL!

Originally posted by @John Thedford :

Unlicensed brokers work against the seller trying to drive the price down so they can middle man the deal shaving off some profit in their pocket, and walk.  An agents job is to get the MOST for the seller.  So they beat the seller down, slice off equity, and pass it on.  What value is that to an owner? None. Many of these unlicensed brokers operate illegally. Many of them use lies and deception. What seller would knowingly sign a contract if the unlicensed broker admitted he didn't have any cash to close on the deal? Many of these people don't want to get licensed for reasons such as the one stated above: income tax fraud. Add to that no licensing, no education, and no accountability you get what? According to one of them, their "qualification" for the job is a driver license. YUP...posted here on BP! I do know some LICENSED agents that wholesale properties. Personally, I haven't dealt with them but have been offered some of their "deals". Most of them have -0- profit so why bother. Is there a benefit to these guys? In most cases, no! I often post the following suggestions to avoid getting scammed by them: 

1. Always require WRITTEN comps that can be substantiated
2. Always require WRITTEN bids from LICENSED contractors
3, Always require WRITTEN comps to substantiate ARV
4. NEVER pay a non-refundable fee
5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.
6. Demand a copy of the contract to prove they have an equitable interest.

Unlicensed brokers generally have no insurance. From personal experience most just pull their ARVout of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.

If you want an education in frauds and scammers, you will get it reading the threads on BP. This is the new get rich quick with no money and no education. Sadly, no ethics and honesty are often the case as well. One of the funniest threads I saw on BP was an unlicensed broker with NO money posting how to find qualified buyers WITH money. So, he didn't want to get screwed by his own kind:) It is OK if I scam YOU,,,,,,but DONT try that on ME! LOL!

Just like with any business, There are people that do it the right way, and people who are scammers. I have seen some wholesalers help people that agents wouldn't go near, especially in low dollar areas. I see a lot of agents supposedly working to get their client top dollar with nothing else but a bare bones MLS Listing. Lets face it, 6% on 20k properties is not too motivating, especially if another agent gets involved and you only make 3%. That being said there are a lot of people getting into wholesaling with no idea of what they are doing, and promising the world to a seller when they have no way of delivering.

As far as your points above.  I need to Disagree with you on a few, as I put on my Wholesaler Hat.

1)  Always require written comps that can be substantiated.  

Why would a buyer trust anyone comps but their own? I never tell people what the ARV is. A buyer needs to be confident in the ARV that they use for their own numbers. How do I know what that buyer is going to do to the property to even guess at what type of ARV they might get.

2)  Always require written bids from licensed contractors.

What value is a BID on a property from a contractor the buyer doesn't know like and trust.  What value is a BID on what I think needs to get done vs what the buyer thinks needs to get done.  There are a lot of choices that can  dramatically affect the BID.  ALSO.  There are a lot of contractors that will UNDER Bid Jobs just to get started, and then request all sorts of change orders.

3) Always require WRITTEN comps to substantiate ARV

See number 1

4) NEVER pay a non-refundable fee

Your not buying a deal from me unless I get NON-Refundable Fee....   Well Actually it is refundable if the deal doesn't close because of something on the Seller's Side.  Its Non-Refundable if the BUYER chooses not to close.  Makes Sense right?  If I take the contract off the market, then yes you need to close.  

All that being said, DO NOT give the wholesaler a CASH Deposit, And make sure it is payable to a neutral third party (Escrow company, attorney, ETC).  Also make sure you have an escrow agreement with that 3rd party that spells out what happens to that money in case things go "sideways"

5) Always correspond via email so there is written record to bring suit in the event of misrepresentation. 

This is always a good way to make sure that everyone is on the same page.  Get it in writing, and whatever is said needs to match what is in writing. 

6) Demand a copy of the contract to prove they have an equitable interest.

Absolutely, the wholesaler needs to show a copy of the contract they are selling.  Remember...  a wholesaler is usually selling a contract and not a house.  Legally, They can only sell a house that they OWN (Unless Licensed).  But they can sell a contract.  

Happy Investing! 

:)

-Steve


Originally posted by Account Closed:

Adrien S. Thank you that was the answer I was looking for, the stats just to get an idea. NYC is a flipping market but New Jersey is more buy and hold in urban areas which is where I'm trying to focus on.

 I deal mostly with rental properties in Trenton NJ.  If that's a market your interested in, I would be more than happy to answer any questions that you may have!

-Steve

@Stephen Chatto

Most unlicensed brokers DO give ARV figures. Look at their ads on BP. They should be held accountable for their representations. Licensed agents are held accountable. Like it or not, they are basically brokering real estate without a license. Some state they do so to avoid paying income taxes. Others do so because why bother getting a license when they can cut corners and avoid all the red tape. Others probably cannot get licensed do to criminal records. Others have bragged they ONLY thing they need is a drivers license LOL. Pretty low barrier for being an agent! Out of curiousity, do you offer sellers a non-refundable deposit for taking THEIR property off the market? It would seem a seller should be entitled to that same courtesy. Right..mr unlicensed broker?

BTW_-you mention agents and what they do or won't do. WHY would that be relevant UNLESS you are talking about BROKERING real estate. The old "I am selling a contract" is a slight of hand to broker real estate without a license. Everybody knows that!

When I buy a contract from another investor, they get non refundable deposit.  I expect the same when selling a contract.  

When I sell a house the EMD is not a big deal and minimal. In fact the last house I sold I didn't even get a deposit from the buyer.

When someone buys a contract from me, I need to ensure they will close.   If not I need to close the deal myself.  I have stepped in a closed on many deals.  In fact we did that last month when the buyer could not close.  And guess what.   he didnt lose his Non-refundable deposit.  Because he let us know what was going on with plenty of time for us to step in and make the purchase and we were able to work everything out.

The difference is simple.  

If I sell a contract and the end buyer doesnt close or trys to delay, that hurts the seller and is a big deal in my book. Non-refundable EMD solves that in most situations.

If I sell a house, and the buyer falls through it only affects me.   

Non-refundable deposit is not an avenue to make money.   It's an avenue to ensure the deal closes.

Originally posted by @John Thedford :

BTW_-you mention agents and what they do or won't do. WHY would that be relevant UNLESS you are talking about BROKERING real estate. The old "I am selling a contract" is a slight of hand to broker real estate without a license. Everybody knows that!

There is a place for a "wholesaler" to step in and help homeowners in a different way then agents.   

I step in as a "wholesaler" (and assuming clear title) close on x date at x price as is.   I buy it or sell the contract.  The seller has a buyer.   

With an agent the seller has someone looking  for a buyer.  

Now...   that being said if the "wholesaler' getting the house under contract has no other option to close the deal except selling the contract.  Thats not how ya do it.  

adrien. @ sign not working on my phone since you close. I consider you an investor.  Wholesaler as it relates to Bp to me is middleman real estate agent activity

Wholesalers should just get their real estates license, I don't know why they wont since they are working like one and the annual cost is low.

Sellers profit more having thier property posted online on the MLS by an agent then having offline by a wholesaler trying to find buyers.

I'm just using my common sense here and wondering.

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