Full time wholesalers

216 Replies

Who here is a full time wholesaler? If you could go back to the past and talk to the ‘you’ that was JUST starting out before having closed your first deal, what would you tell yourself knowing everything you know today? Your best tips, tricks, and advice. the must-do’s and the must-don’ts of wholesaling! All comments are welcomed!!

Originally posted by @Matt Hatton :

Who here is a full time wholesaler? If you could go back to the past and talk to the ‘you’ that was JUST starting out before having closed your first deal, what would you tell yourself knowing everything you know today? Your best tips, tricks, and advice. the must-do’s and the must-don’ts of wholesaling! All comments are welcomed!!

Well 1st thing I need to tell you all is that Wholesaling as it's taught is a myth. You need a license to Broker real estate. That's all wholesaling is, it's brokering real estate except instead of being up front & telling the distressed seller that you'll sell their property for X amount & take X amount as your commission / fee you are taught to lie to the seller & pretend you are going to buy the property while you secretly attempt to "assign" your contract.

It doesn't work. Nobody has any respect for wholesalers. Whenever a wholesaler contact me I simply get the information about the property & reach out to the owner myself cutting the wholesaler out of the deal entirely. If you do business above board as a licensed agent that won't happen to you. The only people making money wholesaling are the guys selling the education.

Now that we've got the above out of the way let me explain to you that brokering real estate or connecting buyers and sellers is a pretty lucrative job if you are really good at it. Things you would need to focus on to excel at it are as follows.

  • An in depth knowledge of the market.
  • Marketing skills.
  • Sales skills.
  • Negotiation skills.
  • Accurately estimate rehab costs.
  • Understand how to much time it would cost to run a renovation on the properties you are presenting.

@James Wise i greatly appreciate the advice and will definitely use it. But with all do respect it is proven to work, right? and i hear of people know people that are very upfront with the owner about the process. And they simply do t care from what I’ve heard they just want their problems solved. I fully believe it is not as effective as having a license but saying it doesn’t work is a pretty bold statement. Is that a fact?

And wouldn’t you say that some real estate investors or fix and flippers simply don’t care because in the end they are all making money on the deal? And i’m fully aware you are way more knowledgeable on the subject just trying to figure it out exactly. Not really in the position to be able to get a license unfortunately.

Originally posted by @Matt Hatton :

@James Wise i greatly appreciate the advice and will definitely use it. But with all do respect it is proven to work, right? and i hear of people know people that are very upfront with the owner about the process. And they simply do t care from what I’ve heard they just want their problems solved. I fully believe it is not as effective as having a license but saying it doesn’t work is a pretty bold statement. Is that a fact?

And wouldn’t you say that some real estate investors or fix and flippers simply don’t care because in the end they are all making money on the deal? And i’m fully aware you are way more knowledgeable on the subject just trying to figure it out exactly. Not really in the position to be able to get a license unfortunately.

The fact that one is up front with a homeowner about their business doesn't have anything to do with state license law. It is a legal requirement to have a license to broker real estate in the USA. I can be up front with you that I sell Heroin and you could be very happy to buy it from me. Win win situation for us. Doesn't mean there isn't a law preventing that business transaction consisting of two happy and consenting adults.

 

@James Wise , I understand how you feel about wholesalers, and that many other people have felt the same way.  What I have found is that some wholesalers are better than others.  Since wholesaling is an attractive entrance into real estate investing, it attracts a lot of people.  Those who are successful are honest, hard-working, and have taken the time to really learn how to do the business.  They also have an honest desire to help everyone involved - the seller and the buyer.

No, wholesaling isn't illegal.  As with anything, there are right ways and wrong ways to do it, and that can vary from state to state.  If I didn't know several wholesalers that were successfully and legally doing this, as well as several buyers that love working with wholesalers, I might have more concerns since I keep hearing this sentiment pop up from time to time.

As you said, some wholesalers will lie to the seller and tell them that they are going to buy their house without as much as a hint about the fact that they are going to assign the contract.  Others will be very clear from the start that they are going to assign the contract.  Personally, regardless of which side of the conversation I'm on, I prefer honesty.  It works out better in the end.

Personally, I think if you go around the wholesaler direct to the seller, (1) the wholesaler doesn't know what they're doing because they should already have a contract with the seller, and (2) if the wholesaler is good at finding deals and you're only interested in screwing them over, they're not going to bring any new deals to you - only to your more honorable competition. Karma, baby.

Wholesalers really can be good, honest people who are really helping out, and getting paid in the process.  But as with any profession, there are those who are good and those who are not so good.

As for your bullet points, you got those right.  Good job!

Originally posted by @Barry Pekin :


If I didn't know several wholesalers that were successfully and legally doing this...

I challenge you to find me one person that you know that actually does it legally.  Just because nobody has slapped their wrist yet doesn't mean what they are doing is legal.  People regularly speed down the interstate, but that doesn't mean it isn't illegal.  The Real Estate Commission focuses their time and effort on complaints, so the first person that gets pissed off at a wholesaler for any reason and files a complaint is going to spell trouble for that wholesaler.

Wholesaling in and of itself is legal, however I would argue that 100% of people who label themselves as a 'wholesalers' are doing it wrong.  You might be an investor who just happens to wholesale a few properties, but if your goal is to wholesale, then by definition you are doing it wrong.

There are several problems with wholesaling, and the first is intention to buy.  You can not legally enter into a real estate contract if you have no intention of actually closing on that property.  If your goal from the beginning is to assign the contract, then the contract you signed is automatically be declared null and void.  How can people tell what your intentions are?  -If you have previously wholesaled 10 properties and have never closed on a single unit yourself.  If you only put up a very small earnest money deposit, if you don't have funds on hand or a letter of approval from a bank, if your contract states that this offer is contingent upon finding another buyer etc etc etc.  The Commission will look at the totality of circumstances and if it can be shown that a  contract was signed with the intent to tie up a property while you look for another buyer, then that contract is void and you are guilty of practicing RE without a license.

Marketing:  This is the second problem.  While you can market your equitable interest in a legitimate contract (see above), it is very difficult to actually market and find a buyer for a contract.  Instead what people do is they post pictures of the house online, or post addresses, or other features of the property such as sq ft, bed/bath count, lot size and so on.  By doing any of these you aren't marketing a contract, you are marketing the property itself.  

Here is a 3 part series interview with the Real Estate Commission in Ohio.  While laws will vary slightly by state, the overall premise remains largely the same.  https://www.expresshomebuyers....

Originally posted by @Barry Pekin :

@James Wise, I understand how you feel about wholesalers, and that many other people have felt the same way.  What I have found is that some wholesalers are better than others.  Since wholesaling is an attractive entrance into real estate investing, it attracts a lot of people.  Those who are successful are honest, hard-working, and have taken the time to really learn how to do the business.  They also have an honest desire to help everyone involved - the seller and the buyer.

No, wholesaling isn't illegal.  As with anything, there are right ways and wrong ways to do it, and that can vary from state to state.  If I didn't know several wholesalers that were successfully and legally doing this, as well as several buyers that love working with wholesalers, I might have more concerns since I keep hearing this sentiment pop up from time to time.

As you said, some wholesalers will lie to the seller and tell them that they are going to buy their house without as much as a hint about the fact that they are going to assign the contract.  Others will be very clear from the start that they are going to assign the contract.  Personally, regardless of which side of the conversation I'm on, I prefer honesty.  It works out better in the end.

Personally, I think if you go around the wholesaler direct to the seller, (1) the wholesaler doesn't know what they're doing because they should already have a contract with the seller, and (2) if the wholesaler is good at finding deals and you're only interested in screwing them over, they're not going to bring any new deals to you - only to your more honorable competition. Karma, baby.

Wholesalers really can be good, honest people who are really helping out, and getting paid in the process.  But as with any profession, there are those who are good and those who are not so good.

As for your bullet points, you got those right.  Good job!

 What described below is brokering real estate. A license is required to broker real estate in the USA. This isn't an opinion for you and I to debate. This is a fact.

"As you said, some wholesalers will lie to the seller and tell them that they are going to buy their house without as much as a hint about the fact that they are going to assign the contract. Others will be very clear from the start that they are going to assign the contract. Personally, regardless of which side of the conversation I'm on, I prefer honesty. It works out better in the end"

BUY the house first, which means every single offer you make to a seller you make it with the actual intention of buying their house.  Then after you buy it, sell it.  That's the professional way to wholesale.  

Don't have the money?  Find a money partner that will bring money to the table, pay him/her points to use their money....consider it a cost of doing business.

Do this correctly a few times and then you won't need a money partner, you can use your own money to close the houses and then re-sell them.

Just had to put in my two cents :)

I tend to scroll through BP when I’m laying my son down but rarely post. This discussion spurred me to make a rare exception.

Wholesaleing is not illegal or at least not in Texas. I’ve closed 8 deals in 2017, 21 in 2018, and 9 so far this year. Why only 9, because I’ve graduated to the next stage and involved in 2 flips. Wholesaleing has been and always will be my baseline to find deals for whatever strategy I want to pursue ( rehabs, rentals, owner finance, etc).

On to the seller side of things. Most of these properties need a ton of work and most agents won’t touch them without a cleanup and work done to them that costs money that the seller doesn’t have. They are distressed and need someone with knowledge to help them. That’s where I come in and I am compensated well for it.

EVERY one of my sellers have said thank you when it’s all said and done with many testimonials.

Heck I can confidently say I know more about the market as a wholesaler than probably 90% of the realtors in my markets. How??? Because I talk to 20-30 sellers per month and run mls based comps and submit offers to almost all the sellers I talk to. Why would I want to settle for 3% commission with the knowledge I have and the time and energy I spend helping the seller? There is nothing wrong with getting paid well for knowledge and your time.

The key thing I will say is to know what your doing and don’t lock up the property if your not confident you have a buyer for it at the contracted price. That just gets the sellers hopes up and they come crashing down when you back out. No one deserves to be treated like that. At a minimum pay a reasonable earnest money deposit fee if you do need to back out as that’s doing the right thing which I have done on the very few properties I was unable to close on.

Anyway just my thoughts.

@Matt Hatton there is nothing illegal about wholesaling real estate. Sounds like someone has a bad taste in their mouth from a bad experience. But, to hear someone speak about ethics then openly admit to going behind another’s back to basically steal a deal is kinda ludicrous if you ask me.

Every contract in the USA is assignable unless otherwise stated in that contract. This applies to real estate contracts too. You are not brokering Real Estate, simply selling your role in a contract to purchase a piece of property.

Originally posted by @Logan Causey :

@James Wise

We aren’t selling real estate, we are assigning contracts.

assigning contracts as a business model does not fly in our state see response from directly from the state of Oregon real estate agency investigator.. 

Hello Jay,

Thank you for getting back to me. The advertising copy you attached to your email came out perfectly and will be very helpful. Thanks!

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Thank you again for the information, if I have further questions for you during the investigation I will certainly reach out.

Best regards,

Frances Hlawatsch | Financial Investigator

State of Oregon - Real Estate Agency

What others are alluding to is that you simply cannot in any form or fashion advertise a property U do not own.. assignments happen sure I see them all the time.. primarily between closely held entities.  But at least in Oregon if you set up like a brokerage sending out direct e mail flyers offering to assign a contract your BUSTED... I mean they don't open an investigation if one is not warranted.. this wholesaler now has a license..  its the intent.. but if your state does not enforce the laws then there you go  have at it.. but the law is the law.

Just like right now in the SF bay area particularly Oakland they will not go after snatch and grab car break ins.. ergo cars are hit all over the place.. is it legal NOPE do they enforce it NOPE..  same thing here.. 

I think though the bigger issue with so many beginners in the space is for whatever reason they think this is easy and quick money.. because that's what they hear and they believe what they hear..  I think assigning contracts is very tough and it takes a lot of dough in marketing to be any good at it or have success and it sure depends on your market.. lower value assets older areas with a lot of run down houses are prime areas for wholesaling we all know that. 

 

Originally posted by @Duncan Hayes :

Every contract in the USA is assignable unless otherwise stated in that contract. This applies to real estate contracts too. You are not brokering Real Estate, simply selling your role in a contract to purchase a piece of property.

Assigning a contract is legal.  Signing a purchase agreement with a seller, with the sole intention of later assigning said contract to another buyer is not.  You can not sign a purchase agreement contract on a property that you have no intention of. ever. actually. purchasing.  

Intention is everything.  You can most certainly intend to buy a piece of property, and then later change your mind and decide to wholesale it, but if you intended from the beginning to wholesale the property, then you most certainly will get tagged with brokering without a license if anyone ever files a formal complaint against you.  

This is due in part to the legal concept of "intention to be legally bound" which is a requirement to form a valid contract.  If you sign a contract with no intent of actually fulfilling that contract, then a court will rule the entire contract to be voided.  The typical wholesale contract offers little or no earnest money deposit, and has verbiage that makes it incredibly easy for the buyer to back out for any, or no reason at all.  Courts have consistently ruled that creating such 1 sided contracts where the seller is obligated to sell, but the buyer is under no serious obligation to buy have been ruled as void.  

Please watch the below video made by the Ohio Department of Commerce Division of Real Estate.  The entire thing is good information, but specifically 5:50 through 9:44.  This section covers both "is wholesaling in general legal", and also covers tying up a property with a contract, with no intent to actually buy it yourself. 

https://www.youtube.com/watch?...

 

@Bob Daniels I have the intention of actually purchasing a property if I put it under contract. Whether I purchase or assign after it’s in contract is my decision, since the contract is assignable. It’s unfortunate that there are people tying up properties and failing the sellers, but that doesn’t give you or anyone the right to group everyone that wholesales a property into a category of acting illegally. There’s bad apples in everything, and that is something that we cannot control.

People like Ron LeGrand have been wholesaling and purchasing properties with little to no EMD since the 80's. What's the issue now?

Originally posted by @Logan Causey :

@Jay Hinrichs

Yessir the advertising of property for sale is what’s illegal, in my state (North Carolina) all contracts are assignable, some states do not allow contracts to be assigned.

I don't think that is accurate every state has assignable contracts if its not in the body of the contract you simply do an addendum . the point is if your business model is to solely assign contracts that's a foul at least in the eyes of the state of Oregon I sat with the investigator for 2 hours over this.. I believe Ohio FLA and others are picking up steam.. but hey I don't deal in real estate at the consumer or street level. So it really does not affect me and my wife is a top producer who focus's on owner occ in that sweet spot of 500k here.. she does 12 to 17 million a year.. so wholesalers we really never run into them.. or she does not.. reason being her listings are fair market value and if its a distressed asset there is so much competition from cash buyers there is no reason to do anything but put it on MLS and get a bidding war..

I just sent the flyer to the state to get definitive since this is such a hotly debated subject on BP>  AS of now I am only a broker in CA I keep the license for two reasons one it allows me to make hard money loans legally in CA and for referral fees ..

 

Originally posted by @Duncan Hayes :

@Bob Daniels I have the intention of actually purchasing a property if I put it under contract. Whether I purchase or assign after it’s in contract is my decision, since the contract is assignable. It’s unfortunate that there are people tying up properties and failing the sellers, but that doesn’t give you or anyone the right to group everyone that wholesales a property into a category of acting illegally. There’s bad apples in everything, and that is something that we cannot control.

People like Ron LeGrand have been wholesaling and purchasing properties with little to no EMD since the 80's. What's the issue now?

just because a guru teaches it don't make it legal.. just like those touting overages and how to get rich doing that just pay 20k for our class.. half the states or counties in the US don't allow it or only allow a very small fee.. of course they never teach that part.. in most states there needs to be consideration for a contract to be legal and binding no consider IE no EMD and you have no contract.. you may want to research that one a little bit.. But hey guys go knock your self out.. the direct mail companies love you LOL

Originally posted by @Matt Hatton :

Who here is a full time wholesaler? If you could go back to the past and talk to the ‘you’ that was JUST starting out before having closed your first deal, what would you tell yourself knowing everything you know today? Your best tips, tricks, and advice. the must-do’s and the must-don’ts of wholesaling! All comments are welcomed!!

If FL, marketing properties you do now own is illegal. I have turned in dozens of unlicensed broker scabs for brokering, and many have gotten cease and desist orders. Just because some break the law doesn't make it legal! Signing contracts with no ability or intention to close is FRAUD.