How Do I Avoid This Wholesale Paradox?

Wholesaling
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How Do I Avoid This Wholesale Paradox?

Carl Flint
Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes

Hey guys

I have yet to do my first deal. I have 6+ months of research and the “learning phase” under my belt. At this point, I know that in my market I want to start with wholesaling.

I am going on realtor.com and other similar sites and texting/calling 10 agents a day just to say I’m an investor and I am looking for good cash deals.

I firmly believe that as long as you have a good deal then you’ve got something to work with. So, I’m on the hunt for a great deal.

Here’s what I’m afraid of: I don’t want to tarnish my name among the community as someone who talks a big game but can’t close... what if someone brings me a great deal to wholesale but I can’t find a cash buyer?

And conversely, if I go out and start networking with cash buyers as “someone who can wholesale them great deals” before hand to get a base of buyers... how do I avoid becoming known as the guy who can’t deliver when it comes time to deliver a deal?

Does that makes sense? Please help.

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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
5y

@Carl Flint

There are a few people who claim they're able to wholesale deals found on MLS but I have only seen this happen in a very dismal market, certainly not today's market. If you think about it, if a property is listed on MLS, why would a buyer need you're services? Your fee on top of a Realtor's commission? There's no value added.

At best wholesalers may have a role with lower priced property, in bad shape, in dangerous hoods. That is where Realtors have little interest in pursuing. And in reality, a Realtor can’t sell a $30,000 house, earn half of an $1800 commission, and stay in the business. A wholesaler can buy it for $25k and sell for $30k and be good to go.

As for not being able to close, I would suggest that you inform the seller up front that you are selling to flip the property, and won’t be closing if you can’t. Will you lose most deals; probably, but there’s more downside to not being honest upfront with the seller.

Finally, you need to consider how “wholesaling” is regarded today vs how it was regarded in the past. In the past the wholesaler was regarded as a buyer, who would close if the property could be flipped, or would exercise a weasel clause to get out if he couldn’t. Now, a wholesaler is regarded as an unlicensed agent or broker, i.e., someone who’s representing the seller in trying to sell his property. Depending on where you operate, state real estate commissions are beginning to put some teeth in licensing requirements and filing charges against wholesalers operating without a brokers license.

Many newbies think wholesaling represents the ideal solution to (1) no money and (2) no risk. In truth it’s an extraordinarily difficult way to earn a living. The successful wholesalers I know either (1) spend $75,000 or more annually on marketing or (2) wholesale as a by product of a fix n flip operation, like Homevestors.

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  • Brian Jaime
    Wholesaler · Albuquerque, NM · Member since 2019 · 12 posts · 5 votes
    5y

    Hey Carl

    First off there's no way around getting started and dealing with "growing pains". The best way of going around it is being upfront and honest about what you're working towards, whether its a buyer/seller. Networking with buyers and letting them know you're on the hunt is understandable. Last thing you want to do is over sell/under deliver. Let your work speak for itself, hope it helps.

    4Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y

    @Brian Jaime yeah that makes perfect sense. I’m sure approaching it this way you may get more people to want to give advice and help through the early phases of your RE endeavors. Good info.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    5y

    @Carl Flint

    There are a few people who claim they're able to wholesale deals found on MLS but I have only seen this happen in a very dismal market, certainly not today's market. If you think about it, if a property is listed on MLS, why would a buyer need you're services? Your fee on top of a Realtor's commission? There's no value added.

    At best wholesalers may have a role with lower priced property, in bad shape, in dangerous hoods. That is where Realtors have little interest in pursuing. And in reality, a Realtor can’t sell a $30,000 house, earn half of an $1800 commission, and stay in the business. A wholesaler can buy it for $25k and sell for $30k and be good to go.

    As for not being able to close, I would suggest that you inform the seller up front that you are selling to flip the property, and won’t be closing if you can’t. Will you lose most deals; probably, but there’s more downside to not being honest upfront with the seller.

    Finally, you need to consider how “wholesaling” is regarded today vs how it was regarded in the past. In the past the wholesaler was regarded as a buyer, who would close if the property could be flipped, or would exercise a weasel clause to get out if he couldn’t. Now, a wholesaler is regarded as an unlicensed agent or broker, i.e., someone who’s representing the seller in trying to sell his property. Depending on where you operate, state real estate commissions are beginning to put some teeth in licensing requirements and filing charges against wholesalers operating without a brokers license.

    Many newbies think wholesaling represents the ideal solution to (1) no money and (2) no risk. In truth it’s an extraordinarily difficult way to earn a living. The successful wholesalers I know either (1) spend $75,000 or more annually on marketing or (2) wholesale as a by product of a fix n flip operation, like Homevestors.

    Private Mortgage Financing Partners, LLC
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    11Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y

    @Don Konipol thanks for your post.

    I like the way you described the role of a wholesaler and pointed out where/when his/her services would be of value.

    So, as long as you have a license wholesaling real estate is perfectly legal?

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    5y

    Well, it MAY be legal even without a license.  Depends on the state and how the wholesaler operates his business.  A very complex area subject to interpretation.  Attorneys can reasonably argue either side.  In only a very few states have definitive legislation been passed that makes licensure a requirement; many other states reinterpret existing regulations to require licensure.  In many it’s a real stretch.

    That being said, there is actually a benefit to not being licensed when wholesaling.  A licensee is an agent, and owes the seller either a fiduciary responsibility, or an intermediary responsibility.  If the wholesaler is in fact a principal and not an agent, he has much more leeway to act in his own interest without considering the interest of the principals.  

    An example may clarify.  If I am a principal and want to buy a property, let’s say I think the property is worth $100,000.  I can offer $50,000.  If the seller accepts and I buy it for $50,000 and sell it for $100,000 it’s a free market transaction.  If on the other hand I’m a licensed real estate broker and I’m acting as an agent or intermediary, the same transaction can be looked at as profiteering through superior knowledge and violating my duty to inform the seller of property’s real value.  

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  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    You'd have to be in a very rare market to be able to wholesale off MLS properties. And yes, you can expect to get a bad rep if you can't close on a property you contract for.

    2Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y

    @Don Konipol I’ve never heard someone bring that point up before. That’s really smart. I have two questions:

    1. If you’re a licensed agent why do you have to “represent” anyone. You can’t just operate as a wholesaler and not under a brokerage?

    2. What do you mean by principal?

    0Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y

    @Eric James does the wholesaler write his/her own contract? Or is there like a universal guide to writing a contract?

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    5y

    @Don Konipol I’ve never heard someone bring that point up before. That’s really smart. I have two questions:

    1. If you’re a licensed agent why do you have to “represent” anyone. You can’t just operate as a wholesaler and not under a brokerage?

    2. What do you mean by principal?

    The whole point of Real Estate Commissions requiring licensure is that the wholesaler is actually operating as a real estate broker, and hence as either an agent of one of the parties or an intermediary for both.  A principal is the buyer or seller.  The stance of many state Govs is that the "wholesaler" is NOT a principal because he isn't the seller or end buyer; he is actually brokering the transaction and should be held to the same standards as any licensed broker.  Many people, especially wholesalers disagree with this stance, and offer up different scenarios to support their position, such as I stand ready to buy the property if I can't find a party to flip it too, I put up earnest money at risk so I have cash invested, I have an "equitable" interest in the property, etc.  40 years ago these arguments we're accepted without question, now there being rejected in many states.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Eric James:

    You'd have to be in a very rare market to be able to wholesale off MLS properties. And yes, you can expect to get a bad rep if you can't close on a property you contract for.

    here is the reality of the market today..  even rookie agents will do this when they have a listing.

    offer comes in.

    1. please provide POF

    2. CASH deposit within 48 hours of acceptance usually ( west coast ) 10 to 50k.

    3. No contingencies  you dont close you lose the deposit.

    multiple offers prices bid up.

    So trying to think you can get deals for less money then remarket them..  pretty tough it can happen as Don noted in rough neighborhoods or areas of low value real estate but this would be pretty tough on the west coast.

    this is why wholesalers 99% of the time are working off market.  and with sellers that are not up to speed on what the market conditions really are.

    Lastly there is nothing tougher in real estate than to wholesale.  need a bunch of marketing money  have to right now talk poeple into selling for far less than they can get on the open market.. then have to talk buyers into paying more etc.  when your buyers are ONLY investors your talking about a very tough clientele who could give a rip about you .. its all about the deal.. thats all your good for.

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    3Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y

    @Jay Hinrichs I never said anything about wholesaling from the MLS. But yeah I get your point.

    0Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y

    @Don Konipol that’s honestly precisely how I see the wholesaler. As a guy/girl who connects the dots.

    I can understand the grey area though. It’s never easy with something like that. It can go on and on.

    You bring up a good point with the wholesaler who stands behind his earnest money and will close himself if he can’t sell the contract. I’m sure it’s very rare, but it’s honorable.

    0Reply
  • Mark Cruse
    Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    The best thing to do is start building up your cash money buyers list. Many people come to me with that approach. They just put me on their list and when they finally build up to something it comes to my email. I´m on so many lists and I don´t stop to sit around and ponder who is or isn´t sending me something. When they get it they send it. Believe me, if you can secure decent deals the legitimate buyers will easily come through on their end. However, you are correct; if you tie up a property and cant deliver they will assume you are a bozo and ignore you from there on. In terms of calling realtors for MLS deals, this approach is difficult to succeed. Most stuff there are not decent deals while every blue moon you may luck up and fall into something maybe mediocre. In addition, no one would need you to do that if they can do it themselves. There are people watching the MLS 24-hours a day submitting dozens of offers. I know people who hire AAs from overseas to just sit at computers searching for that one OK deal. Even if you do find something worth while, you have people all over the world looking at and bidding on the same thing. My advice would be to study the art of finding quality, off market deals. Those are the wholesalers who rake in the big bucks!

    4Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y

    @Mark Cruse beautiful. Thank you so much. Reading your post somehow gave me a boost of motivation.

    1Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y
    Originally posted by @Carl Flint:

    @Jay Hinrichs I never said anything about wholesaling from the MLS. But yeah I get your point.

    You wrote "I'm going to realtor.com". Those listings are from the MLS.

    5Reply
  • Mark Cruse
    Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    @Carl Flint that is awesome. Keep the faith and Iḿ glad you are asking questions seeking knowledge. Yes, abandon the asking realtors for deals in that way. I dont see much success there. Sometimes that can work for people trying to acquire multi units for themselves but that is another topic. As stated above, successful wholesalers are spending substantial degrees of money on monthly marketing. If you dont have that ability maybe you can start off bird dogging. 

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    If you bring good deals to investors there is nothing to worry about.  The only reputation I see wholesalers getting in our market are the ones that don't know their numbers and put out bad deals.  Your work will dictate your reputation.  

    2Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y

    @Carl Flint first issue I see is calling agents instead of calling home owners. A wholesaler doesn't generally work though a realtor. As far as credibility, you are telling people you are investor looking for cash deals. The problem is you are not an investor and you don't have cash. You are middle man looking to broker deals for your cut, not an investor looking to invest. The best way to gain credibility is to be honest with people. Be able to backup what you say and follow through on what you promise. If you say that you are a cash buyer, be able to show proof of funds. If you say you can close with cash in 7 days, make sure that happens. 

    5Reply
  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Carl Flint:

    Hey guys

    I have yet to do my first deal. I have 6+ months of research and the “learning phase” under my belt. At this point, I know that in my market I want to start with wholesaling.

    I am going on realtor.com and other similar sites and texting/calling 10 agents a day just to say I’m an investor and I am looking for good cash deals.

    I firmly believe that as long as you have a good deal then you’ve got something to work with. So, I’m on the hunt for a great deal.

    Here’s what I’m afraid of: I don’t want to tarnish my name among the community as someone who talks a big game but can’t close... what if someone brings me a great deal to wholesale but I can’t find a cash buyer?

    And conversely, if I go out and start networking with cash buyers as “someone who can wholesale them great deals” before hand to get a base of buyers... how do I avoid becoming known as the guy who can’t deliver when it comes time to deliver a deal?

    Does that makes sense? Please help.

    First, I don't recommend wholesaling to newbies. How can you find deals that investors will want when you don't yet know what investors are looking for? Be an investor FIRST, then wholesale.

    Second, conventional wisdom says to build your buyers list FIRST. Found out what they want to buy, then go into the market and "fill their orders".

    Third, be aware that states are increasingly requiring anyone selling a contract to be a licensed broker. Be sure you understand your area first.

    My $0.02 ...

    3Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y
    Originally posted by @Ian Walsh:

    If you bring good deals to investors there is nothing to worry about.  The only reputation I see wholesalers getting in our market are the ones that don't know their numbers and put out bad deals.  Your work will dictate your reputation.  

    This one 👌🏻

    0Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y
    Originally posted by @Eric James:
    Originally posted by @Carl Flint:

    @Jay Hinrichs I never said anything about wholesaling from the MLS. But yeah I get your point.

    You wrote "I'm going to realtor.com". Those listings are from the MLS.

    Yeah. You’re right I forgot about that. 😬

    0Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y
    Originally posted by @David Dachtera:
    Originally posted by @Carl Flint:

    Hey guys

    I have yet to do my first deal. I have 6+ months of research and the “learning phase” under my belt. At this point, I know that in my market I want to start with wholesaling.

    I am going on realtor.com and other similar sites and texting/calling 10 agents a day just to say I’m an investor and I am looking for good cash deals.

    I firmly believe that as long as you have a good deal then you’ve got something to work with. So, I’m on the hunt for a great deal.

    Here’s what I’m afraid of: I don’t want to tarnish my name among the community as someone who talks a big game but can’t close... what if someone brings me a great deal to wholesale but I can’t find a cash buyer?

    And conversely, if I go out and start networking with cash buyers as “someone who can wholesale them great deals” before hand to get a base of buyers... how do I avoid becoming known as the guy who can’t deliver when it comes time to deliver a deal?

    Does that makes sense? Please help.

    First, I don't recommend wholesaling to newbies. How can you find deals that investors will want when you don't yet know what investors are looking for? Be an investor FIRST, then wholesale.

    Second, conventional wisdom says to build your buyers list FIRST. Found out what they want to buy, then go into the market and "fill their orders".

    Third, be aware that states are increasingly requiring anyone selling a contract to be a licensed broker. Be sure you understand your area first.

    My $0.02 ...

    Yeah. I agree with your approach of reverse engineering in that way of figuring out what the demand is first then become the supply. Good stuff...

    0Reply
  • Carl Flint
    OP
    Rental Property Investor · Los Angeles · Member since 2021 · 125 posts · 64 votes
    5y
    Originally posted by @Mark Cruse:

    @Carl Flint that is awesome. Keep the faith and Iḿ glad you are asking questions seeking knowledge. Yes, abandon the asking realtors for deals in that way. I dont see much success there. Sometimes that can work for people trying to acquire multi units for themselves but that is another topic. As stated above, successful wholesalers are spending substantial degrees of money on monthly marketing. If you dont have that ability maybe you can start off bird dogging. 

    Heck yeah man. I appreciate your inspiration.

    In your own words, can you explain bird dogging?

    0Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    5y
    If you have a great deal, you will have a cash buyer. Go to your local REIA to make contacts with buyers in your areas. Finding the deal is much harder than finding a buyer. The caveat to that, though, is make SURE it's a great deal. Be very confident in your numbers. We find wholesalers tend to struggle primarily with doing a good job of accurately estimating rehab costs. Talk to your end buyers to find out what, exactly, they're looking for so you can be sure you're bringing them deals they're interested in. Case in point, we've provided a lot of parameters for our wholesalers and yet they still continue to bring us "great deals" that are not in our wheelhouse (i.e. mobile homes, properties not on City sewer and water). It also helps to do some walkthroughs with a potential buyer before you make your offer to the owner so you can see through the buyer's eyes what they're looking for.
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    1Reply
  • Scott Shelton
    Investor · Wilmington, NC · Member since 2018 · 11 posts · 2 votes
    5y



    You're overthinking the buyer situation. Best thing you can do is just start networking. call a bunch of buyers first. I can't tell you how many deals I've closed that were properties that came from my buyers that I got paid to connect to my other buyers. If they're established investors they'll be waiting for your deals.

    1Reply
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