Attention Wholesalers: Beware!!!

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@John Thedford I would if I had the time. Literally every single day while calling on FSBO ads I stumble across licensed agents pretending to be the owner. They have their ad under "owner" but have zero principal interest in the property and do not identify themselves as agents. Turning these operators in would be a full time job in itself.

@Jay Hinrichs Honestly? I'd probably hire one to show a property that was too far away. Come to think of it... I just got a house under contract for $1 EM in Portland. Wanna do a deal together? ;)

Originally posted by @Mark Sewell :
Originally posted by @Ned Carey:

This should not be Realtors vs Wholesalers it should be bad guys vs good guys.

@Andy Rumple this is perhaps the best comment of the thread. 

Sadly many people can't differentiate the difference between their own prejudices vs good and bad.

I have to agree with Ned.  Great post.  

There are bad apples out there, and they aren't limited to broke people trying to get assign house contracts.

Recently in another post I told the story of the lady that was renting a nice house right across the street here in West Houston.  She got some bad renters, lost money, then more bad renters, and out of money.  Barely gets it back into a condition where it could sell (maybe). 

Now here she is at a cross roads.  She's behind a couple months on her mortgage at this point, and the house is borderline and she is clearly in distress.  Some investor (not me) offers her $125K for it, which is more than I would have offered.  So I just advised her to take it.  Instead she decided to list it, at $165K... Fixed up right it would have sold for $195K quickly, and maybe more.

The agent did his level best, and he did get a buyer!  Oh, but it doesn't pass inspection.  Hmmm.

But the agent, a good guy really, was able to find a second buyer!  By now she is up for foreclosures.  The buyer comes through, but not as fast as she needed.  Thankfully the bank agreed to stave off foreclosure a bit -- but they didn't hesitate piling on fees.

So in the end, counting all the RE agent commissions and bank fees she lost, she came out only slightly ahead of what that investor would have offered.  And it very nearly fell through again, and she took a big risk.

There are a ton of agents that are willing to list a shabby beat-up house but not a ton that are willing to put in the time showing with them and marketing them.  I mean, realtors work on commission, and they understand that pretty houses sell and that pays the bills, so no blame, no shame there.  And there are fewer that are actually able to deliver the goods and find good buyers for a 'scratch & dent' listing like this.

Wholesaling can add value, but this practice of entering into contacts that the wholesaler himself cannot complete is not a solid business practice and here is where we could see some 'regulation' introduced in some places.

However...

Don't underestimate this consideration -- city government (and maybe even county) by now has certainly recognized the additional tax revenues that local investors are bringing in.  This is especially true in those areas that depend heavily on property tax for the tax base (no income tax states).  They are unlikely to do something that would inhibit this free gift that keeps on giving, in my most humble opinion.

But wholesalers are the guys that don't have any money, you say.  Hmmm, not all of them!  A lot of buy & hold guys and flippers run in herds, and assign properties to each other, or wholesale for cash flow to keep them going full time.  And I suspect these are the voices that will get heard in city hall all across the fruited plain.

Last comment -- it costs $1000 here to take a course and then pass some test. They find some investor friendly realty and bam, now our enterprising (but broke) wholesaler buddy now has a realtors license, AND access to all the cool MLS reports that other realtors have. A little CE here and there isn't going to kill them. Now instead of 11,000 realtors running around in your city, you will have double or triple that number. Is that really what brokers/realtors want?

it all boils down to sales and market half or more of real estate agents cant make a go of it over time and I would say wholesaler its far more.. simply because they are working in a narrower niche with less inventory to chase and sell.. 

some of the wholesaling threads you have guys on here that are getting licensed simply because if they cant buy it right they don't want to waste the lead and then they list it and get some revenue that way as well.. not mention not every real estate transaction is a beat up fixer.. what happens when a friend refers you to a friend and you list a 500k home that sells in 25 days and no monkey business and you make 10k.. and so on and so forth.. but no matter the cream will rise to the top both in wholesaling and with real estate agents.. In every brokerage I have owned and I owned three of them over the years so probably 250 agents have worked for me at some time. I would say 50 made a good living 10 to 15 made better than average and probably 5 or six made the Million bucks a year.. and most morphed like I did into building lending development bigger money plays.   Or what your seeing now were the herd is going is syndicating apartments.. and being a broker for a few years gives you some good learning tools to allow that to happen.

Originally posted by @Jason Palmer :

Let's call it what it is. Most licensing laws are only in existence because big players in an industry get together and bribe  lobby their politicians to help suppress their competition through the use of the government's monopoly on force. No real estate investor puts a gun to someone's head and forces them to sign an agreement - seller or buyer. It's nothing more than consenting adults engaging in commerce. 

Absolutely not true. Most licensing laws are in existence because many, many people have been ripped off and lied to by someone trying to steal their house or the equity in their home. License laws protect the public and what is typically their largest personal asset. There are many honest and ethical wholesalers but there are certainly many people who are not. 

Originally posted by @Doug Pretorius :

@John Thedford I would if I had the time. Literally every single day while calling on FSBO ads I stumble across licensed agents pretending to be the owner. They have their ad under "owner" but have zero principal interest in the property and do not identify themselves as agents. Turning these operators in would be a full time job in itself.

@Jay Hinrichs Honestly? I'd probably hire one to show a property that was too far away. Come to think of it... I just got a house under contract for $1 EM in Portland. Wanna do a deal together? ;)

Doug you don't have to break the bank on EM  you can work in INDY no EM required there.. 

But you know what just dawned on me on this topic and I think maybe the folks that think RE agents are out to get all wholesalers it kind of reminds me of  Union busting.. you have a union and you have Scabs...  I think agents see people doing their exact job but with no licensed and no over site other than state laws that preclude selling real estate without a license ( they see these as scabs)

This also led me this morning to ruminate on a conversation I had with a good friend of mine when we were skiing at Jackson Hole a few years back..  He had just retired from United after a long career working his way up from engineer to co pilot to capitan on ( at the time state of the art 747 400 )  and we were talking about the strikes that would happen in the airlines.. so the pilots who are totally pro union ( most of them anyway)  ALPA is super strong ..  when he would get to work first thing he did was check out on his list to see if the co pilot was busting the union or being a scab.. he was..  he would just tell him to sit there and work the radios and don't talk unless I need you :)

So this got me to thinking there went CRM right out the window  ( crew resource management) created after some very publicized accidents with Asian airlines were all crew members differed to the Capitan as he flew the plane into trouble. their culture was never talk back to most senior guy..   But anyway I kind of see that sentiment with the real estate agents  and wholesalers banting this subject around.

But at its base unfortunately many are taught you need no money to do this.. they have no money. yet they represent to the sellers they do.. and this is just to me a moral and ethical issue and fraud straight up full stop.

@Jay Hinrichs You could be right. This should be a simple matter. Wholesaling vs brokering should come down to who you're working for. A wholesaler is working on his own behalf, while a broker is working on behalf of his client. The difference has already been clearly outlined in existing laws.

Personally I would rather discourage a seller who's on the fence about doing a deal with me. Since I primarily do longer term deals (lease options, wraps, sub2 etc.) the last thing I want is to be tied into a deal with a seller who thinks I lied to them to get the deal. Even when I assign the deal, I still don't want the seller to be unhappy, or they might be inclined to try to screw my assignee over. So if the seller isn't 100% on board from the get go I just tell them that they should keep trying to sell on their own or with their agent, they have my number if they run out of other options.

Today I met with a seller, beautiful custom home couple years old, looks like a staged model. Nobody else showed up to their open house. The market isn't bad but it's not moving as fast as it was in the spring. Anyway, we talk about doing a rent to own and the conversation goes roughly like this:

Seller: "A rental with an option...so what's preventing you from walking away?"
Me: "Nothing, other than I won't make any money."
Seller: "I don't know. I think I just want to sell and be done with it."
Me: "You would definitely be better off continuing to try to sell than doing a rent to own with me then. Look...you have my number, if you can't sell you can always call me later, I've been doing this around here for 18 years, I'm not going anywhere."

Wait, did I just talk the seller out of doing a deal with me? Yup. I'm officially the worst salesman in the world LOL!

Bottom line is that I've learned over the years that it's just not worth it to try to do a deal with someone who's anything less than: "Yes absolutely let's do this thing!"

Originally posted by @Doug Pretorius :

@Jay Hinrichs You could be right. This should be a simple matter. Wholesaling vs brokering should come down to who you're working for. A wholesaler is working on his own behalf, while a broker is working on behalf of his client. The difference has already been clearly outlined in existing laws.

Personally I would rather discourage a seller who's on the fence about doing a deal with me. Since I primarily do longer term deals (lease options, wraps, sub2 etc.) the last thing I want is to be tied into a deal with a seller who thinks I lied to them to get the deal. Even when I assign the deal, I still don't want the seller to be unhappy, or they might be inclined to try to screw my assignee over. So if the seller isn't 100% on board from the get go I just tell them that they should keep trying to sell on their own or with their agent, they have my number if they run out of other options.

Today I met with a seller, beautiful custom home couple years old, looks like a staged model. Nobody else showed up to their open house. The market isn't bad but it's not moving as fast as it was in the spring. Anyway, we talk about doing a rent to own and the conversation goes roughly like this:

Seller: "A rental with an option...so what's preventing you from walking away?"
Me: "Nothing, other than I won't make any money."
Seller: "I don't know. I think I just want to sell and be done with it."
Me: "You would definitely be better off continuing to try to sell than doing a rent to own with me then. Look...you have my number, if you can't sell you can always call me later, I've been doing this around here for 18 years, I'm not going anywhere."

Wait, did I just talk the seller out of doing a deal with me? Yup. I'm officially the worst salesman in the world LOL!

Bottom line is that I've learned over the years that it's just not worth it to try to do a deal with someone who's anything less than: "Yes absolutely let's do this thing!"

 Your comment: "Personally I would rather discourage a seller who's on the fence about doing a deal with me. Since I primarily do longer term deals (lease options, wraps, sub2 etc.) the last thing I want is to be tied into a deal with a seller who thinks I lied to them to get the deal"

Agreed. All I do are sub to, wraps, land contracts, lease options and then sell to tenant buyers. I don't want my investors or myself to have to deal with what some wholesaler told the seller that isn't true. It just isn't right to do things that way and it would take too much time to unravel things. Not a professional way to do business. I stay away from wholesalers because I don't know what they told or didn't tell the seller.

Last week I got calls from two different parties that "thought" they had sold their houses. Turned out to be they "sold" to wholesalers who couldn't complete the deals. Bummer. The sellers were in a bind because they had made plans accordingly. Fortunately, I was able to help each of them out. Happiness.

Now I have two houses in inventory waiting for the owners to vacate at their convenience, and that I can offer to investors and get some people happily involved in positive cash flow.

I like wholesalers for what they do for me, they create a problem which causes urgency in a seller who calls me trying to find a solution. However, I don't like what they often do to the sellers.

@Mike M. Cleaning up other people's messes is where a lot of money is made. There are very few wholesalers here but the group that creates most of my business for me is realtors. They lie about the price they can sell it for just to get the listing then the seller gets desperate and tries to sell it or rent it themselves and gets a call from me.

What do your investors do? Are you assigning these over as turnkey deals or are they bringing in financing and splitting the profit with you?

@Jason Palmer Wholesaling, in the state of Florida and many other states is ILLEGAL for many reasons. According to Florida Statues, one cannot market a property unless he/ she has the intent to purchase. I refer you to the following Florida Statues and URLs, to make your own determination. In addition, I invite all others to research their respective State Statues and State Regulatory Agencies to determine what is legal and what is not legal. Florida Statues 475.42 and 475.43. https://www.richardhornsby.com/crimes/regulatory/unlicensed-practice-of-real-estate.html https://swflreia.com/2016/01/19/unlicensed-real-estate-activity-florida/
Originally posted by @Thomas Franklin :
@Jason Palmer Wholesaling, in the state of Florida and many other states is ILLEGAL for many reasons. According to Florida Statues, one cannot market a property unless he/ she has the intent to purchase. I refer you to the following Florida Statues and URLs, to make your own determination. In addition, I invite all others to research their respective State Statues and State Regulatory Agencies to determine what is legal and what is not legal.

Florida Statues 475.42 and 475.43.

https://www.richardhornsby.com/crimes/regulatory/unlicensed-practice-of-real-estate.html

https://swflreia.com/2016/01/19/unlicensed-real-estate-activity-florida/

 I have met lots of VICTIMS of these FRAUDS AND SCAMMERS and do not hesitate to report them. Look at all the threads on BP suggesting some form of FRAUD being necessary in the "wholesaling" space. Now we have these new guys that could not care less about the laws and will stop at nothing to make a buck. One person I turned in got a citation from the state. They told me their actions were "legal" and to get lost:) Looks like THEY lost on this one!  I will continue to stand up for the public against these operators. As to the OP, I quoted him the statute several weeks ago. 

@Thomas Franklin , I have a question.  It's only a question.  I have my brokers license so I don't fall into the illegal area of wholesaling.  

My question is this:  Is it legal to market and assign the contract that a wholesaler has?  I'm not talking about advertising the house, only the contract.  Again, I am licensed.  However, I'm curious about this point.............Thanks

Originally posted by @Thomas Franklin :
@Jason Palmer Wholesaling, in the state of Florida and many other states is ILLEGAL for many reasons. According to Florida Statues, one cannot market a property unless he/ she has the intent to purchase. I refer you to the following Florida Statues and URLs, to make your own determination. In addition, I invite all others to research their respective State Statues and State Regulatory Agencies to determine what is legal and what is not legal.

Florida Statues 475.42 and 475.43.

https://www.richardhornsby.com/crimes/regulatory/u...

https://swflreia.com/2016/01/19/unlicensed-real-es...

ya we all know this but then a lot of people have paid 20 or 30k to learn how to sell real estate without a license.. were it only cost maybe 3k to get a license..  funny how that goes.. the heart of it.. is that the guru's or those that wholesale kind of want their cake and eat it to they want to be investors and make investor profits without putting up any money LOL..  when I sat with my state regulator she was clear assigning simply wont fly the way people do it.. even the gentlemen who started this thread he is advertising a property he does not own with the disclaimer he is assigning the contract kind of slam dunk for the state if they wanted to do something about it.. 

But either way not going to change unless the states really start enforcing the laws of the land.. so to that end this practice will continue un abated and some who get turned in will get fined and cease and desist kind of like getting a drunk driving.. many get them and still drink and drive ..  

i'm a newbi in wholesaling. Here is what I do. I researched tax liens in CA. 5 years in the rear only. A owner has up to the day of the auction to pay the taxes. I do my due delingences with (titles, liens, occupied, comps, etc..) the necessities of a investor. If I have the current owners address I contact them about cash buyers who will pay their tax lein if they QD the home to them. Several Attorney agreements later, the owner know longer has a tax lien, the buyer has a home or property most time with equity, and I have cash as well. I see nothing wrong with that, and as far as I can see, its not against the law.  

The last sentence of Statute 475.43 says that it does not apply to unconditional contracts to purchase. So it would seem you can assign your contract before closing. Also options based on substantial consideration. The question is, what is 'substantial'? Don't you just love it when laws aren't clear.

Originally posted by @Doug Pretorius :

The last sentence of Statute 475.43 says that it does not apply to unconditional contracts to purchase. So it would seem you can assign your contract before closing. Also options based on substantial consideration. The question is, what is 'substantial'? Don't you just love it when laws aren't clear.

I would argue inspection, review, and mortgage contingencies make a contract "conditional". But if all contingencies are removed, IE the wholesaler is obligated/ready to close, then they can assign. Which makes sense, it allows the wholesaler to do what they want to do, and the public (IE the seller) isn't harmed because the deal is going to close, be it with the wholesaler or their assignee. However that's not how 99% of wholesalers work.

@Matthew Olszak That's fine. If this law was followed it would eliminate most of the crappy 'deals' a lot of wholesalers try to pass off. If they're willing to risk their own cash or have a partner willing to do so or have financing lined up. Then there's a good chance it's an actual deal and they won't have any trouble assigning it if that's what they want to do.

@Doug Pretorius

Your question: "What do your investors do? Are you assigning these over as turnkey deals or are they bringing in financing and splitting the profit with you?"

Some I hang on to.

Some I offer to investors. I actually offer two scenarios to my investors. They fund an LLC with $50K and I locate a property using Subject To, Lease Options, Wraps and Land Contracts or Seller Financing. No new bank lending is involved for the investor. The investor isn't limited by bank requirements. These properties are found "off market" and usually come with substantial equity to us because of the way I buy off market. Everything goes through Escrow with Title and Attorney. I keep substantial $$$ in reserves for contingencies. The Attorney takes care of disclosures.

The investors are invited to come and see the properties first or I can send the investor a video “walk through” if that is important to them. My motto is “if bullets are flyin’ I ain’t buyin”. By that I mean, if my wife doesn’t feel comfortable walking the neighborhood, I pass on the deal. So, no C- or D neighborhoods.

I don’t assign. I sell the properties to Tenant Buyers on Lease Option, who qualify by income, job history and down payment. I don’t care about their credit. When they are putting $20k down, they don’t walk away and they don’t hassle me. They take care of all maintenance and repairs. I then cash flow the properties for $500 to $600 per month above cost.

So the two Options that an investor can choose from:

1) Turnkey: They can choose 100% ownership, get the full Option deposit, usually $20k from the new tenant buyer to keep, get the $500 to $600 a month cash flow, get all of the built in equity, get all of the appreciation, get all of the tax write offs, get all of the principal pay down and get all of the back end equity when the tenant buyer cashes out. I get to keep the original money put into the LLC as my fee and I am out of the deal. The typical 10 year return is somewhere around $250K

2) Joint Venture: They can choose 50% ownership, get half of the Option deposit from the new tenant buyer, get half of the $500 to $600 a month cash flow, get half of the built in equity, get half of the appreciation, get half of the tax write offs, get half of the principal pay down and get half of the back end equity when the tenant buyer cashes out. Any unused funds of the original money put into the LLC reverts back to the investor and we split the deal 50% / 50% .

It's just a matter of what meets the goals of the investor. Some of my Joint Ventures have active investors and some are passive investors. My investors come from California, Washington, Texas and Arizona mostly.

The wholesaler comes into the picture when they can’t close, I can and do, with cash, quickly.

I’m new to BP, and I have a question that I have been trying to find an answer to. Here’s the question, sorry that it’s so long. My mother just recently added me and my brother to the deed of her house which is worth roughly 950k. My brother is buying myself and my mom out. Quick back story. She wanted to give the home to us before she died. Question 1 : how much should I get? I know it’s stupid. Question 2 : what should I do with it?
Originally posted by @Roland Paicely :

@Thomas Franklin , I have a question.  It's only a question.  I have my brokers license so I don't fall into the illegal area of wholesaling.  

My question is this:  Is it legal to market and assign the contract that a wholesaler has?  I'm not talking about advertising the house, only the contract.  Again, I am licensed.  However, I'm curious about this point.............Thanks

 I would certainly check with you state. . when I met with the ORegon investigator on the Oregon case. that was one thing she delved into how can these brokers be listing properties for people that don't own them. the only way I know is the original owner has to sign the listing contract. and I suppose some will do that.. but then why let the middle man make fees when you could just list it. the state investigator was asking me this.. I said you will have to ask them..  they opened a case on this broker in Oregon I suspect she is about to have some issues.

Originally posted by @Doug Pretorius :

The last sentence of Statute 475.43 says that it does not apply to unconditional contracts to purchase. So it would seem you can assign your contract before closing. Also options based on substantial consideration. The question is, what is 'substantial'? Don't you just love it when laws aren't clear.

 25   50 a  100 dollar EM which is common seems like the cost of lunch or break fast and hardly equitable interest.  when I have paid assignment fees and I paid one last sept. it was 125k.. but the guy worked on the project for 2 years and spent about 75k on preliminary engineering and such with the city..  so I guess that is substantial .

I think were this argument falls down is when your entire scheme is to never close or rarely only put up minute amounts of EM and basically work as a middleman.. is that so hard to understand.

Originally posted by @Mike M. :

@Doug Pretorius

Your question: "What do your investors do? Are you assigning these over as turnkey deals or are they bringing in financing and splitting the profit with you?"

Some I hang on to.

Some I offer to investors. I actually offer two scenarios to my investors. They fund an LLC with $50K and I locate a property using Subject To, Lease Options, Wraps and Land Contracts or Seller Financing. No new bank lending is involved for the investor. The investor isn't limited by bank requirements. These properties are found "off market" and usually come with substantial equity to us because of the way I buy off market. Everything goes through Escrow with Title and Attorney. I keep substantial $$$ in reserves for contingencies. The Attorney takes care of disclosures.

The investors are invited to come and see the properties first or I can send the investor a video “walk through” if that is important to them. My motto is “if bullets are flyin’ I ain’t buyin”. By that I mean, if my wife doesn’t feel comfortable walking the neighborhood, I pass on the deal. So, no C- or D neighborhoods.

I don’t assign. I sell the properties to Tenant Buyers on Lease Option, who qualify by income, job history and down payment. I don’t care about their credit. When they are putting $20k down, they don’t walk away and they don’t hassle me. They take care of all maintenance and repairs. I then cash flow the properties for $500 to $600 per month above cost.

So the two Options that an investor can choose from:

1) Turnkey: They can choose 100% ownership, get the full Option deposit, usually $20k from the new tenant buyer to keep, get the $500 to $600 a month cash flow, get all of the built in equity, get all of the appreciation, get all of the tax write offs, get all of the principal pay down and get all of the back end equity when the tenant buyer cashes out. I get to keep the original money put into the LLC as my fee and I am out of the deal. The typical 10 year return is somewhere around $250K

2) Joint Venture: They can choose 50% ownership, get half of the Option deposit from the new tenant buyer, get half of the $500 to $600 a month cash flow, get half of the built in equity, get half of the appreciation, get half of the tax write offs, get half of the principal pay down and get half of the back end equity when the tenant buyer cashes out. Any unused funds of the original money put into the LLC reverts back to the investor and we split the deal 50% / 50% .

It's just a matter of what meets the goals of the investor. Some of my Joint Ventures have active investors and some are passive investors. My investors come from California, Washington, Texas and Arizona mostly.

The wholesaler comes into the picture when they can’t close, I can and do, with cash, quickly.

 its amazing that there are still sub too deals out there in any volume I certainly can see this 2010 or so. but today in most markets I think it would be pretty tough and far and few between unless your picking up next to zero equity deals.. And for me and the few hundred sub too deals I did I wanted at least 30 to 40% equity of that as is value at the time other wise to me its a fools errand 

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