Is wholesaling legit, legal or worth the time?

120 Replies

So I have been watching a bunch of videos and reading things on wholesaling after just finding out about it the other day.  From my understanding it requires a lot of work and can be harder than youtubers make it sound but it can pay pretty well and is legal. You can learn how to do it all by reading online and watching youtube and just doing it.

 After looking at a realtor forum though they seem to have a very negative view saying that it is basically a scam for people selling “courses”, and that it is very close to at times or is illegal.  They also say it’s basically impossible to make money for 99% of people.

Which is it?  I would hate to put tons of time, effort and maybe money into it if I would just be better off trying to learn to code or something with that time and effort.  I also don’t want to get arrested or anything either obviously. Would i need to get a lawyer to check my contracts before using them? 



its by far the hardest thing In real estate to do..  in many states the way its taught is for sure illegal. ( violates Real Estate license laws) .

the most successful I see are Licensed. And have monster marketing budgets along with vertically integrated.  IE full time staff..

Like anything sales based there will always be winners .. However in this en-devour the losers FAR out weight the winners.

I know Texas has a carve out for this activity.. I know Illinois cleaned it up and REQUIRES a license.  So just check your state. But even though its not legal folks do it all the time. Just like speeding you get caught you going to have some legal issues. 

99 percent of the people who will tell you it's legit, legal, or worth the time will be trying to peddle you a weekend class. You are their target audience. Things you need to know or have to be good and upfront and legal (in states where it is not banned) as a wholesaler:

- Money. If you are putting contracts in your name, you should have cash or cash-adjacent to back it up in case you can't sell the deal to a third party.

- Experience evaluating the cost of rehab. If you can't tell an end investor the correct amount of repair value needed, you are of no use to them if they are looking at 25 deals a day. If they run your numbers and they look good and then see the property and your repairs are 50k too low (75-98% of wholesalers), why would they trust you?

- Experience running and understanding ARV. Do you have a license to get real comps? If yes, great, but not great for wholesaling as it creates several ethical quandaries with your brokerage. If you can't run ARV correctly, why does anyone care what you put out there? It just make them do more work to realize your numbers are garbage.

- Honesty. The 1% of wholesalers who are good are explaining the assignment process and why it's a win-win and still showing that they can buy the property, but since they have investors who will also buy, they like to share the products and make a little money for bringing someone to the table without doing a ton of showings or Open Houses or listing the property.

- Background. If you've never been involved in real estate, how the hell can anyone become a wholesaler. End. Of. Story.

I'm a wholesaler in Texas, and yes it's totally legal. I'm not concerned about about other states because that's not where I do business. Realtors are against it, say it's illegal and so forth for one reason only, competition!

But yes, as Jay said, it's the hardest thing to do in real estate. Locating properties that are not on the MLS is near to impossible in many areas. But for all you realtors out there, if you're not able to do your job and sale a property, don't worry, I'll sale it for you once the seller has given up on you coming through.

Wholesaling, if done correctly, is legal. In the State of Illinois you are limited to one transaction per year unless you are a licensed realtor.

#1....how good are you at marketing and how much are you willing to spend.  Getting seller leads is just one of the challenges.  Just to give you an idea, many of the best wholesalers I know spend about $3000 or more a month mailing letters and postcards to generate leads.   Just putting a magnetic sign on your truck or some vinyl lettering on your back window that says "we buy houses cash" is not enough.

#2...how great are your sales skills.  Remember you basically need people to sell their homes to you at 50% discount to be successful.  You need to convince them why that is a good idea to sell to you.

#3 Have the cash to close.  Don't be the guy who has a reputation for not closing.  Of course hopefully you can arbitrage it...but if you can't or your end buyer falls out, be ready to close.  Lots of people want to get into the business because they have no money.  Don't be that guy.  If you have no money or access to money, go work for someone else and learn the business and save up some money so you can be a cash buyer.

Originally posted by @George Skidis :

Wholesaling, if done correctly, is legal. In the State of Illinois you are limited to one transaction per year unless you are a licensed realtor.

cant build much of a business doing one deal a year  LOL..  I am sure those that wholesale violate this every day and twice on Sunday.. They will just keep going till their caught or realize how expensive it is to do or how stinkin hard it is  !!!  

 

If you think about it, in these market efficient times, with zillow and internet things and almost noone can scam buyer or the seller.....why would anyone want wholesale since the house is tear down quality anyway.

I can't see more business that's as dishonest as the wholesaler, you need to say bad orange is good orange.

Originally posted by @Randall E Collins :

I'm a wholesaler in Texas, and yes it's totally legal. I'm not concerned about about other states because that's not where I do business. Realtors are against it, say it's illegal and so forth for one reason only, competition!

But yes, as Jay said, it's the hardest thing to do in real estate. Locating properties that are not on the MLS is near to impossible in many areas. But for all you realtors out there, if you're not able to do your job and sale a property, don't worry, I'll sale it for you once the seller has given up on you coming through.

Randall its not competition.  Its just the fact that licensed agents follow the law and in many states wholesaling as taught is illegal.. So it becomes a moral dilemma  are you OK breaking the law.. Man of course are..  Many are not..  The overriding issue with most wholesalers is the out right misrepresentation of what they are doing and what the property is truly worth on the open market.  wholesalers do exactly what agents do.. I suspect your buyers do walk through the property.. maybe under the guise of being an inspector or partner or some other white lie that is told to the owner..  But for sure in rough neighborhoods were you have a lot of low value assets and beat up houses those can be undeserved by the real estate community they simply dont want to fool with that product.. its not competition or jealousy.

A good agent that works investment properties does very well in many markets.. and keep in mind 90% of resi realtors want nothing to do with investors or beat up houses.. 

But one thing is certain in many parts of the country no matter what your doing inventory is very slim.. so educating thousands of people to jump into an already tight market and those folks are beginners going to be a ton of failures no question.. but Guru they dont care you pay them whether you win or lose right.

Also minor note  its SELL a property not SALE a property  :)

 

Your are wrong sir, a wholesaler does not NOT do exactly what you do. A wholesaler is known as a bird dog, all I do is locate a property and present it to a investor. If the investor, after running the numbers believes it's a good investment. I will draft a assignable contract and assign it to the investor who takes over my role, and close and the property via a title company. If anything the investor does what you do. And the title company assures all is legal and legit. There is no need for a realtor, and yes that's competition. 

You have to determine if it's worth it yourself. Many people will say they hate it. For me, I have zero interest. However, I know people who make tons of money doing it. I assume they feel its worth it. The problem comes in when people think something is easy money. There is noting in real estate investing that is easy accept maybe bird dogging but that is another story. You have to put in the work no matter which way you go and HGTV, Youtube and gurus selling courses leave that part out. 

@John C.

Definitions are different in many areas.

If you sell your car, you are legal. If you sell enough cars to define yourself as operating a business, the government wants a cut, as well ant number of groups that claim rights to your money and your work because of licenses and such.

Same for buying and selling homes, or buying and selling the interest in hones.

Know your definitions, and work within the letter of the law. It helps also to not make yourself one that people would complain about.

@John C.

I’m sure there are “wholesalers” who provide full and truthful disclosure to the seller. But in the vast majority of cases the buyer is led to believe that he has a sale with a contingency based upon an inspection, and or financing. In reality he has a sale based on the success of the “buyer” being able to find someone ready, willing and able to buy at a price higher than the contracted price. And it is this that is rarely disclosed.

Originally posted by @Randall E Collins :

Your are wrong sir, a wholesaler does not NOT do exactly what you do. A wholesaler is known as a bird dog, all I do is locate a property and present it to a investor. If the investor, after running the numbers believes it's a good investment. I will draft a assignable contract and assign it to the investor who takes over my role, and close and the property via a title company. If anything the investor does what you do. And the title company assures all is legal and legit. There is no need for a realtor, and yes that's competition.

So whoever is buying the house then is buying it sight unseen ??  since your not arranging for an inspection ?.. is that what your saying.

I know some wholesalers will make full disclosure to the seller.. but as mentioned above that is rarely done.. I mean I know I get wholesalers calling me at least once a day if not more.. for props we own in various cities.. that are in areas of lower value assets ( under the median price point for a given MSA) and they have no debt so we are on all sorts of mailing lists I guess.. Not a one of them has ever said they are going to assign the contract Even the ones I had in Texas. In Fact everyone of them professes to be a cash buyer with never a mention of anyone but them closing on the property.. Even when I ask for a POF they will send me one USUALLY a pretty rank fake..

So maybe your the one in a thousand that makes full disclosure and if so congrats .. if not if your doing business with out disclosing your true ability to buy or intent well then  case closed.

 

I certainly wish it were illegal.  I get 50 calls, texts and snail mails a week from wholesale spammers.  95% of them don't even know what's on the property. They've obtained a list of property owners and are skimming for a person in distress to take advantage of.  

I'm sure the wholesalers mention that realtors and auctioneers are better options since they provide broad visibility. Visibility increases competition. Competition increases sales price. 

A wholesaler is to a relator what a pay day lender is to a credit union. 

Wholesaling has been restricted in several places, most notably Illinois and the city of Philadelphia. But it's still "legit" (i.e. legal). From what I've seen, the vast majority of wholesalers don't make it. The advertising costs just eat up their profit margins. A few do quite well and you can see (some of them) bragging on social media with their huge checks. Although that represents gross revenue and we don't see any of the costs. Most wholesalers, from what I can tell, don't make a lot while a few do really well.

As far as the ethics, wholesaling can be a minefield. There's little regulation and no fiduciary duties to the seller, so it's definitely very possible to take advantage of people. Wholesaling is also very similar to a net listing, which is illegal in every state from my understanding. That being said, a wholesaler could just do a simultaneous close and make the case that what they're doing is different than a simultaneous close (which few have a problem with) in everything but the technicalities. 

For more the ethics of wholesaling, I would check out @Darren Sager 's piece: https://www.biggerpockets.com/... It's quite negative on wholesaling but I think very well argued.

@John C. John C. Please do not listen to all these Realtors. Wholesaling is a legit business. If it wasn't Bigger pockets wouldn't support it and wouldn't have friends and blogs on how to wholesale and tips on it. There are a lot of people that wholesale and I mean a lot. Its a legitimate business and provides a lot of competition for Realtors. We work with off market properties and our proposal of getting their homes sold as is with out them putting any money into is more often more desirable to sellers than Realtors telling them they'll need to fix it up and out it on the market for however long especially when they are in distressed situations and There certain sellers that Realtors cannot help on a timely manner and more wholesalers make way more money than Realtors. Its why you can find Realtors on biggerpockets that are investor friendly and some that specialize in investor properties. Realtors and wholesalers should be the best of friends and could a lot of money together but most are ignorant when it comes to wholesalers.

Wholesaling is great, if done correctly. It’s very easy to do incorrectly and gets a terrible reputation. It’s very hard to do correctly and do it consistently. In my opinion, there’s really nothing different than an investor doing direct to seller marketing and wholesaling.

The biggest problem I see is that Youtubers and TikTok’rs make it seem so easy that a bunch of people jump into it, get someone in a distressed situation under contract, make them believe they’re going to save them from their situation, then don’t perform for a number of reasons (bad numbers, don’t know how to find buyers, etc.).

I also see a huge problem with wholesalers lying to owners by saying that they will be the ones to buy the house. If you can’t be honest about your intentions and your business, you have no business starting a business.

People will say that it’s a great way to get started in real estate. I tend to differ. I think it’s a great way to source deals once you’ve been doing real estate. I primarily do SEO, Google PPC and FB ads to source deals. I keep the ones that o want as investments, wholesale the ones I don’t. Anytime I’m meeting with an owner, I’ll just say “I run a for profit business and my goal with any property is to make said profit. I may do that by renting, flipping, building on, assigning it.”

Never had someone take issue with that. That type of statement is also written in my contracts.

Originally posted by @Troy Weaver :

@John C. John C. Please do not listen to all these Realtors. (I am not a realtor). Wholesaling is a legit business (So is pay day lending). If it wasn't Bigger pockets wouldn't support it and wouldn't have friends and blogs on how to wholesale and tips on it. There are a lot of people that wholesale and I mean a lot. (Amen brother, I get bugged 50 times a week. There must be a million of you) Its a legitimate business and provides a lot of competition for Realtors (much like pawn shops compete with Home Depot). We work with off market properties and our proposal of getting their homes sold as is with out them putting any money into is more often more desirable to sellers than Realtors telling them they'll need to fix it up (and there's the lie) and out it on the market for however long especially when they are in distressed situations (ever heard of a public auction?) and There certain sellers that Realtors cannot help on a timely manner (Yeah, those crazy realtors want to maximize the sales price for their client) and more wholesalers make way more money than Realtors (LOL oh my sides hurt). Its why you can find Realtors on biggerpockets that are investor friendly and some that specialize in investor properties. Realtors and wholesalers should be the best of friends and could a lot of money together but most are ignorant when it comes to wholesalers. (Realtors are ignorant of wholesalers like a chess player is ignorant of checkers).

 

Wholesaling is get rich quick scheme pushed by lots of gurus.  Its ways for people with no money, license, etc to get started.

To me, it makes no sense, most investors always are searching for deals online.  Unless you get an off-mafket listing any investor would simply call the listing agent and save the markup.

The idea I list a property for X the Wholesaler gets an assignable contract charges X+20K to sell to an end-buyer is a joke. I sold a throw away property for in January for $15K a Wholesaler wanted to get a purchase contract because they had an end buyer. I told them I give them a 30 day contract but I wanted a $2K non-refundable fee EMD. Which they balked at. I said if you have a buyer and you plan to sell the property for $40K you won't put up $2K to make $20K in 30 days? Either you don't have the $2K or you don't have a 'buyer' lists.

Im a terrible person it was basically a 30 minute phone call of me bullying them and calling them on their BS.  Seriously with the time spent, you could just get your license.   

Originally posted by @Randall E Collins :

I'm a wholesaler in Texas, and yes it's totally legal. I'm not concerned about about other states because that's not where I do business. Realtors are against it, say it's illegal and so forth for one reason only, competition!

But yes, as Jay said, it's the hardest thing to do in real estate. Locating properties that are not on the MLS is near to impossible in many areas. But for all you realtors out there, if you're not able to do your job and sale a property, don't worry, I'll sale it for you once the seller has given up on you coming through.

 bruhhhhhh.........c'mon. When I tell a seller I can sale their house I friggin sale their house. If I had a dollar every time a wholesaler said they could sale a house better than I could sale a house I'd be a rich salesma...............eh nevermind. Party hard.

Never buy a car from a used car salesman - They are all scammers.

Never hire a coach - They will only take your money and not teach you anything.

Never go to a mechanic - they will all rob you blind.

Yes, there are a boatload of dishonest people in EVERY industry (whether they take ethics courses or not). It doesn't make the entire sector bad or wrong. Those of us who work honestly with full disclosure to sellers and buyers may be a minority, but we do exist.

The real truth is that most new wholesalers are blinded by guru hype and too ignorant to know any better. The ones who take it seriously as a business will do their homework, and set up their businesses in a hundred percent aboveboard way.

Are there too many dishonest people out there and too many ignorant people out there? Of course there are. Just like in every other business that has the potential to make a lot of money.

How about we stop bashing and start educating?