Trying to understand "wholesaling"

Rob K. · 2012-12-29T05:31:40-08:00

I usually avoid any thread that falls under the “wholesaling” category because it always seems like a bunch of nonsensical posts from wannabe “investors” who have never done a deal. Half the people make it sound like you’re going to walk in with nothing to your name, make a deal with someone for half what the property is worth, and then flip it to a cash buyer and make thousands for having nothing invested. It just sounds too good to be true. Any “wholesale” deal that I’ve done has involved me making a deal to buy a property, going to closing with my own cash, purchasing the property (as I agreed to do), and then re-selling it to another person. I’ve never made a deal with someone to buy their property (with my fingers crossed behind my back), and then gone out and tried to find a buyer so I could make the deal happen. When I tell someone that I will buy their property, I follow through. It’s not a maybe. There was a real estate agent in my area that used to do a ton of business and then he disappeared. It was like he fell through a trap door. After many months, he contacted my friend with a “killer deal” on a ten-unit apartment building. It turns out that he was trying to do a no money wholesale deal and make $40K on the transaction. My friend told me that if he did buy the building, he would “cut this bottom feeder out of the deal” and go directly to the owner. I agreed that I would do the same thing and get it for a cheaper price. Is there some late night guru out there preaching this wholesaling with no money nonsense? Do these deals actually go through? If so, it would seem to me that it would just be a starting point. Once you did some deals and banked some cash, you would get better deals by making solid offers. Can anyone who’s done deals (other than the kind I have done) post on here and walk me through all of the steps. I’m curious how it all works (or doesn’t work). Does the seller know that you’re not the end buyer? If so, why would they deal with you? Are you lying to the seller and saying that you’re the buyer, only to try and find an actual buyer? If so, what if you don’t find one? I’m not trying to pick on wholesalers. It’s just that the ones I read about seem like “all flash, no cash” or as they say in Texas, “big hat, no cattle”. The whole thing seems very dubious. Maybe someone can explain it better.

Kyle Weimer

Real Estate Investor · Aurora, CO · Member since 2009 · 155 posts · 60 votes

13y

Ok,
To delve completely into it would take more time.

Can you do wholesale deals with no money out of pocket?
Yes, it's done all the time. In some ways it takes more skill to navigate this scenario, but I've done it.

Do you lie to the buyer?
Why would you have to lie? If I'm working with a motivated seller they rarely care what I do with the house. Ill tell them I may assign the contract to my network or whatever the case may be. No big deal.

In my case, I primarily flip REO's. I am not required to tell the selling bank anything.
Wholesaling a property is not illegal, immoral, or anything else a naysayer would make you believe.

In the market I wholesale in now I close my transactions with my own cash. However, you can use transactional funding, or even your buyers money to close both sides of the deal if you know how to structure the deal transparently and ethically.

The wholesaling part of real estate investing is definitely more hands on. It's active investing for sure. However, it's not below any other niche in the real estate investing business. Like I've said in previous replies, I would much rather control a property from the beginning as a "wholesaler" and leave multiple exit strategies to my disposal than pick up the property farther down the road. I think if used correctly it is a great advantage.

1 Reply

Steve Babiak

Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes

13y

Samantha, you are correct, on page 1, Jerry's second post did give a specific deal and gave answers that Rob was seeking. Nobody else has from my re-reading, except for a few that gave specific deal numbers (but did not answer the other specific questions posed by Rob). So bickering rather than proof of concept has taken over here ...

EDIT - Kyle posted more details while I was typing away ...

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Joshua D.Pro Member

BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes

13y

Folks - We've deleted several personal attacks from this thread. Please keep that nonsense off the site. We will not put up with it.

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Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

13y

Steve, in addition to posting a deal example, I believe I went into some detail, but not all, in answering some of those questions. The rest of the answers can be found in some other wholesaling threads that go into full detail of a transpired deal.

Jerry is right, many threads and posts seem to turn out to be wholesale bashers and others are just miss perceived.

I created the thread the "Truth About Wholesaling" and the fact that there is almost 40 votes for my first post and almost 10 thread pages, is a testament to how good and informative that discussion is. I believe even Jerry at one point misunderstood my intentions and became defensive. We then had multiple discussions and even met in person to realize we were on the same page. My intent has always been to educate and not bash. Sometimes, the best education is to learn what not to do which is how my other thread starts out.

Investing, not investing, job, not a job, makes no difference. The intent is to make money and if you can do wholesaling and make money at it, I call that a success, regardless of any other terms. While I still have my personal thoughts on definitions of some of the terms used, it makes no difference in the end what you call it or reference it. Do it right, make money, and become successful!

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Jerry PuckettPro Member

Wholesaler · Fort Worth, TX · Member since 2010 · 1k+ posts · 1k+ votes

13y

Amen and hallelujah Will Barnard (sorry, @mentions don't work on my phone, but hopefully you've got your keyword alerts set up)

For the record I did get very defensive, but came to my senses when I fully grasped what you were saying. I mean c'mon, you went on to give a kickass presentation on, what else? wholesaling...at the conference. How could you be anti wholesaler? But there are still many who are for whatever reason.

But I agree with you 100%! Lets all go out and make more money this year than last and help each other up along the way. That's why I love BP so much.

Can't wait to see you again this year Will, first rounds on me. You too Steve, hope I get to meet you in person this year. Yeah, you too Jake. I enjoyed your company also.

1 Reply

Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

13y

I second that buddy. One of the crappy things about the IPad is that I can't do the @mentions with it either!

Can't wait for the next Summitt.

Podcast Guest on Show #130

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Rob K.

OP

Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes

13y

I just wanted to pipe in that Jerry and Will gave actual examples of wholesaling. That's what I was looking for. Jerry Puckett, Instead of directing your anger at me, why not direct it at the poser wholesalers who give the whole crew a bad reputation? I said earlier that I understand that you are a legitimate wholesaler. My problem is with the countless threads I have seen from dumbasses that say they are “getting into wholesaling” because “it’s easy” and it “doesn’t require money”. That’s the problem I have. They are going around with no money or prospects and trying to make deals with little hope. In the meantime, they are building up the seller’s hopes and then lying to them. You, Will, and one or two other people gave actual examples of good wholesale deals. I appreciate that.

My problem is with other threads I’ve seen where the wholesaler is telling a seller they will buy the house with money they don’t have or partners that don’t exist. One guy was parading potential buyers through the property as “insurance agents”. I’m sure that by the time the fifth or sixth “insurance agent” shows up in dirty jeans and a rusty van with ladders on the roof, the occupants should rightly be suspicious.

Jerry, you made it clear that you are honest and upfront with the seller and have a pipeline of buyers. We all know that Will is reputable. One other guy mentioned that he wholesales, but also has the money to purchase if he doesn’t find an end buyer. Nobody would have a problem with this.

Where I have a problem, is some poser deciding he wants to try wholesaling because the multi-level marketing thing last month didn’t work out and he lost all his money playing online poker the month before. After they “try wholesaling”, they will be on to rolling cigars in their basement, or whatever the new trend is next month.

I started this thread because I didn’t know if some late night guru was selling a bunch of garbage on tv. Still don’t know. I was looking for some actual wholesale results. Got them.

My main problem is with liars in this business. It gives all of us a bad name. I get calls every day from potential tenants who now want to grill me if I actually own the house. The reason is that there are so many dirtbag landlords out there who are strategically defaulting on their properties while the tenants are making their rent payments. The tenant now gets evicted through no fault of their own and we all get a bad names for it. I guess that’s a topic for another thread. I won’t start a “I hate strategic defaulters thread” because it will just start more bickering.

I just want to make it clear that I have no problems with legitimate wholesalers. It’s the guy that has no money or potential buyers that’s cold calling widows from the obituaries in a feeble attempt to make a deal and then the seller gets their hopes up only to find that there’s no deal. That’s who I have a problem with.

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James Vermillion

Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes

13y

Originally posted by Jerry Puckett:

Can't wait to see you again this year Will, first rounds on me.

Dang, I knew I should have responded to this thread earlier!

1 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

13y

Rob K Your original post really bummed me out. You said you were curious and wanted to understand wholesaling deals so asked for real numbers, time frames and details of working with the seller. All good questions. Then you go and give an example where you said you'd do what it would take to cut someone, a middleman, out of a RE deal. Would you really try to go around someone who had a contract with a seller?

If the definition of wholesaling is using my end buyer's money to close on my purchase with the seller and profiting on the spread, then I was wholesaling between 1999 and 2005. My contract was 4 pages in plain English that said that I may assign the contract and that the end buyer might be someone besides myself. A couple of years in, escrow started requiring full disclosure of double escrows to all parties, so the contract included that info as well. The properties were always vacant and my contract allowed me to enter, inspect, show prospective buyers and even place a sign for "prospective tenants, buyers and/or assignees". My closings were scheduled 30-60 days out. I often agreed to net the seller a certain number and pay all costs to get the property closed. My buyers were landlords or rehabbers, most of whom had cash. Many used hard money.

Examples: in 2003, a seller called and wanted to sell a multi unit property with code compliance issues and on-going major vandalism in the vacant units. It came with one non-paying tenant, someone living on $200 of SSI, and totally entrenched in the back unit. The seller agreed to sell it for $58K as is, and I had to deal with everything. I had an interested landlord buyer who could handle all the rehab issues, and wanted it for $75K. So I had a contract in escrow to buy (with $100 EMD) and a contract in escrow to sell (with $1000 EMD). Back then escrow and title was taking forever due to the market going crazy. It was taking over 30 days just for a prelim. In the meantime I'm dealing with a property with continuing theft and vandalism and trying to keep it at my sale value, working with the county to do the necessary repair and abatement work to release the code compliance liens, getting IRS liens released, and trying to figure out if the tenant is crazy and needs a social worker. In that deal the seller paid his share of escrow and title costs and all the liens came from his proceeds, so I netted about $16K.

An agent doesn't commit to buy, doesn't do ongoing repairs and remediation at their own expense and doesn't hold together an escrow with title issues. The "K. Marie Added Value" should be apparent here. :)

I was doing about ten a year like that, with spreads from $5K to 25K. Sometimes I bought vacant land with my own funds, but I think I was addicted to not putting in my own money. Then in 2005, I had a deal that was so complicated and had so many issues and the spread was so huge ($150K+) that I borrowed hard money for 90 days and closed on the deal. It changed everything and I've closed on everything since. The control I had on the re-sale was a revelation. I no longer had to accept an offer just because I knew the buyer had cash and would close on time. I could do real demos and clean-ups and increase value. I could put it on the market and get way better offers. I could close on imperfect title and own the property while I fixed the issues. I can take full advantage of potential equity and do the rehab. I no longer had EISD (escrow induced sleep disorder).

I want to add that the vast majority of my sellers could not be served by a real estate agent, as most agents don't know how to deal with their issues, especially title problems. There are also sellers that will never call an agent or let them in their house. I would say that zero of my buyers over the years could negotiate and buy properties with these types of issues directly from the seller. That's just not their skill set, to put it mildly.

I work too hard and have developed too many skills to call what I do wholesaling or flipping.

7 Reply

Samantha M.

Landlord · Dallas, TX · Member since 2012 · 505 posts · 34 votes

13y

Just be honest with the people, and treat them the way you would want to be treated. Tell them the truth, you do not intend to take title to the property, but you do work with a group of investors and if you can get the house for the right price you are confident you will be able to sell it to one of your investor partners(true statement).

Then if that sounds ok to them and your doing the paper work, buy an option. Let them know that you are shopping around the contract to some of your buyers. Don't parade a bunch of people from craigs list through their house saying they are contractors, insurance guys, whatever. Dont use any weasel clauses, but again buy your option, tell them what your doing. People appreciate honesty. Give them $100 for the option and put in $500 earnest money too if that makes them more comfortable.

There is nothing wrong with wholesaling. Its the late night gurus who make this appear to be a 1-2-3 get rich quick scheme. Its not no money down and its not easy. Just ask the regular wholesalers here who are spending $1,000+ a month just for marketing, and thats not even taking into account all the garbage, unmotivated calls you have to deal with. Then when you start getting appointments, you are going to get No on many of the houses you put offers on, but over time you will start to get yes's.

Its true that alot of people who are thinking about becoming wholesalers, get this idea of wholesaling from the gurus and have much misinformation. But thats whats great about the Bigger Pockets community, lets share our knowledge with them and show them the right way to go about it. We have excellent role models here like Jerry Puckett who dont lie to the seller, and are honest and reputable. Also beginning wholesalers need to set expectations, and plan out a sustainable marketing campaign. Your job is to put yourself in front of as many people as possible that MAY want to sell their property at a discount, via some sort of trigger event. You cannot create motivation, all you can control is how often you put yourself in front of them so when they NEED to sell fast they remember who you are.

Realistically if your sending out 1,000 mail pieces a month, it might take 5-6 months before you get your first property under contract. But after that, once you have established your roots a bit and have an ongoing campaign, you can start to pick 1 or 2 a month after that point, even more if you use profits to increase your marketing budget. The reason there are alot of "wannabee wholsalers" is because many are not committed or consistent enough or patient to wait out the months where they dont get any houses undre contract. Those who persevere will get the contracts. Lets encourage people here folks, not degrade them.

I understand your concern Rob K, but you could address your points next time with a little less cynicism.

0 Reply

Josh R.

Wholesaler · Fort Worth, TX · Member since 2011 · 163 posts · 45 votes

13y

Great post K. Marie Poe! You truly have added value and provided solutions to very complicated problems that most do not have the knowledge or desire to deal with. Kudos to you.

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Will BarnardPro Member

Moderator

Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes

13y

Originally posted by James Vermillion:

Originally posted by Jerry Puckett:

Can't wait to see you again this year Will, first rounds on me.

Dang, I knew I should have responded to this thread earlier!

You snooze, you lose! Second drink is on you James!

Podcast Guest on Show #130

1 Reply

Account Closed

Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

13y

Originally posted by Samantha M.:

Then if that sounds ok to them and your doing the paper work, buy an option. Let them know that you are shopping around the contract to some of your buyers. Don't parade a bunch of people from craigs list through their house saying they are contractors, insurance guys, whatever. Dont use any weasel clauses, but again buy your option, tell them what your doing. People appreciate honesty. Give them $100 for the option and put in $500 earnest money too if that makes them more comfortable.

Options are good solution when you've got a property that's not conforming or you are unsure of the market. In 2007, I had more than one buyer go into contract and then bail because their refi and hard money dried up overnight. A lot of those buyers were depending on no seasoning cash-out refis to buy their next deal and the lenders shut that down. Without the giant pool of cash buyers I had become accustomed to, I was leery of certain types of properties in certain areas.

Unfortunately sellers were still in their bubble mindset and didn't yet have any understanding how the the lack of lending was going to affect them. I used options to tie up the property for 90 days and marketed the deals with small spreads. The consideration was $100 or $200. The sellers loved it. Even sellers who had never heard of it had no problem with an option. One said it was like getting paid to list their property. I didn't buy a single property that I optioned as by the end of the year we were all in a free fall in my RE farms. The sellers kept the consideration and essentially were paid to do a reality check on value. I was by then totally freaked out and didn't buy anything that I wasn't sure about (which was precious little).

The challenge with options, especially for newbies trying to wholesale, is that you have to be working with sellers that aren't in a hurry to sell and understand why you are optioning. You also have to understand the paperwork and how to "exercise" your option.

0 Reply

Samantha M.

Landlord · Dallas, TX · Member since 2012 · 505 posts · 34 votes

13y

K. Marie Poe

Those are all great points, but I wanted to address one in particular.

"The challenge with options, especially for newbies trying to wholesale, is that you have to be working with sellers that aren't in a hurry to sell and understand why you are optioning. You also have to understand the paperwork and how to "exercise" your option."

This is absolutely true, and dependent on the sellers specific situation. Sometimes options make sense, otherwise they need to sell ASAP and an option wont be ideal. However, in the vast majority of cases, that I have dealt with at least, getting an option to sell their house in about 2 weeks typically will suffice and is within the window they need to sell by.

0 Reply

Laurence Bealer

Real Estate Investor · Houston, TX · Member since 2012 · 80 posts · 11 votes

13y

Interesting Post...I have to address the point about letting the seller know what you are doing.

Who in Real Estate tells the seller exactly what they are doing?

I tell them I am going to resell the property for a profit otherwise I would not get involved.
The manner and method is not their business it is mine. That is why I am in Real Estate and they aren't.

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Trying to understand "wholesaling"

Trying to understand "wholesaling"

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