First time wholesaler what do I need to know?

Question

Hi team,

I want to get started wholesaling so I can afford a rental property and begin my career in real estate,

My first question is being that I don’t have any Capital to start with what is your recommendation as far as the legality of presenting a seller with a contract? Since I know nothing of what should be in the contract how would I be able to make sure what the seller is signing is legal and correct? Would I need to present the contract to a lawyer beforehand and if so would he charge me for his services?

I totally understand the importance of having a legal team  and as I grow I will have one, but since it’s my first deal and I have no money how wild I be able to ensure I am doing things the proper way contract wise?

Barry Pekin · Answer

@Coralie Arango,

Good questions!  Clearly you're just getting started and you have some valid questions.

I suggest as much education as you can.  Get these questions answered to the point that you're confident taking action.

I got my contracts from local wholesalers.  You can also talk to a good wholesaler friendly title company and ask if they have contracts you can use.

Erik W. · Answer

@Coralie Arango, hi and welcome to BP!

I think the first thing a wholesaler should do is come to a firm, deep understanding that your promises and your integrity are the two most valuable things you will ever have in this business, and to commit now to never do anything to compromise either one, even if it ends up being very expensive for you to fulfill your word.

Why state such an obvious thing?  Everyone wants to be honest and do the right thing, right?

Not always.  I've met a lot of wholesalers since I started in this business in 2005.  The majority (not all) are masters at bending the truth to acquire money or slip out of any significant responsibility to their profession.  Let me give a few examples of phrases from the mouths of said people:

1) When talking to a Seller: "This is the best offer for your property!  You won't get better offer in this market."

2) "I will buy your house in 30 days."  30 days expires and they can't flip the contract and can't close it either so they walk away.

3) "The ARV on this house is (insert unrealistic number taken from Zillow's Zestimate)." when talking to Buyers

Just a few starters...

You said, "I don't have any Capital to start."  How will you close a deal for a $100,000 property if you can't flip your contract due to bad numbers, bad marketing, bad timing in the market, etc.  Will you do what many wholesalers do and only give your Sellers a pittance of $25 or $100 earnest money and just walk away, leaving them holding the bag and their life plans ruined and excuse it with, "Well, that what our contract says."  A contract is so much more than earnest money!   It is a promise.  Earnest money is just a deposit on that promise.  Weak earnest money = weak promises.  You do not want to get a reputation for making weak promises.

Remember earlier I said it can get very expensive to fulfill your word?  You should be prepared to purchase that house for $100,000, if that's what you said you would do.  I know one wholesaler in my town who does exactly that.  He is very skilled, so most times it doesn't cause a problem.  But he has bought houses he didn't want to because he valued his integrity.  I think that's one reason why he is so successful.

I'm of the opinion most people in the real estate business should not be wholesalers when starting out.  The reason is simple: you don't know what you don't know.  Most people will not have the combination of ability, resources, determination, and skill to self-educate properly before starting in, and that leads to lots of messed up deals that mess up the lives of real people and the most valuable financial asset they have.  That's when the temptation to lie, puff, fudge, gloss over, downplay risks, and in short compromise one's integrity gets intense.

A better idea would be to get your real estate sales license and work for an experienced, ethical Broker in your market for a few years.  Learn the tools of the trade of how to actually do all the hard work that wholesalers must do to become successful.  Learn to cold call, send mailers, talk to everyone, network, fill out contracts, determine values, troubleshoot problems, deal with difficult people, etc.  These are all highly valuable skills that no guru, podcast, or book can teach you.  It's mostly on the job training, and your Broker can guide you.  He/She has the experience, wisdom, and skill you lack.

After 2 years of successfully learning the trade, you can decide not to renew your sales license and go wholesale on your own.  Then you will have the knowledge, skill, and experience necessary to act ethically for yourself and your customers.

Probably not what you wanted to hear.  It's so much more work and takes so more time than what the gurus say.  But ultimately, if you wish to treat people well I think it's the path that has the greatest odds of helping you achieve success.

I hope that helps.

Bob Prisco · Answer

@Coralie Arango your ONLY option is to LEARN from those doing deals and find deals .They will pay you a fee. Save , learn, then apply what you learn. You 100% do not need a legal team, you are not signing anything just finding deals. .

Good Luck

Coralie Arango · Answer

@Bob Prisco many thanks!

Coralie Arango · Answer

@Barry Pekin thank you so much!!

Brian Pulaski · Answer

All the deals I have done in CT there was a standard real estate contract I always used. I am not sure if it allows for assignment as I have never done that. I imagine you would want to use what is standard verse creating some one off contract. I would however get an attorney on board before you start.

Coralie Arango · Answer

@Brian Pulaski thank you!!!!

So once I find a seller and I need to get the house under contract, would the attorney be the one coming up with this contract?

Brian Pulaski · Answer

I would 100% be in discussion with a competent attorney before I did anything I wasn’t sure was legal. Houses are one of the biggest most personal items anyone owns, I would be certain what you plan to do there are no issues with it, and no matter what anyone here tells you, only an attorney (who would be there to defend you should the issue arise) will have any skin in the game giving you the truth.

First time wholesaler what do I need to know?

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