All Forum Posts by: Account Closed

Do you have statistics you care to share? Such as, where the CASH comes from in each transaction where financing is not relied upon. Is it your average first time home buyer American who closes all those CASH deals you speak of? Note that someone in their 60's, who has fully paid off their loans and has $600K-$900K in equity they can apply to purchase a new home  with zero financing also got there by purchasing their first home on a mortgage.  And what proportion of CASH purchases is sold to hedge funds, foreign investors, domestic investors, asset management firms like Black Rock and etc.?

20% down is a conventional loan, btw. That's a typical bank financed mortgage. And in MD buyer under contract is entitled to full refund of EMD when bank denies the loan at last moment.

P.S. Every day I see completely built homes offered by builders where contract with someone who was approved for it fell through at the last moment, just before the closure. Many people get approvals to go under contract with builder, not just conditional pre-approvals saying they qualify for X dollars,  go under contract with builders , but approvals the builders request before they build the house from the scratch. They they have the homes built/finished, only to wake up one day to be told by underwriters that the loan is denied and they can't close. This usually happens when deep digging into transaction occurs,  just before the loan closure. 

 We are going off the subject here, which was to show that wholesaler whose deal depends on end buyer to purchase the home is in similar place as the average home buyer who depends on bank to actually pay and get a deed of trust on the property. Both depend on third party to make the deal close. If wholesaler who fails is "evil" in your books then so is average Joe Six Packs whose loan got denied the last minute. Having said that, the fact that 32% of home buyers pay cash does not mean 32% of adult Americans in the market to buy a house have cash to close the deals. I already addressed this in my reply to Jay and I will reiterate it: only small percentage of Americans have cash to buy homes without financing. And most of them had mortgages on the houses they had paid off, so if there were no mortgages after WWII they would be no where near having an equity to sell paid off home and buy a new one. The fact that such huge portion of currently sold homes are cash transactions means a ton of foreign cash, hedge funds , holdings and investment management management firms like Black Rock snatching those properties at highly inflated prices. There will be day of reckoning when market correction occurs, and it's not beyond the horizon. But until then they can create nice power point presentations and spreadsheets for their funders, convincing them that purchasing a million dollar home in an economy where average income is %59K and median equates to $53K is a wise way to secure their assets  and earn attractive income on it. 

You say "in mortgage states homeowner owns the home", I would say ON PAPER so called "homeowner" who has a mortgage owns the home. But in real , practical terms it's the bank who has claim to Deed of Trust and who truly owns that house. The "home owner" is more like a tenant, in a binding contract to pay a rent for 30 years or cash to own that property, regardless of what is written on a piece of paper called Deed. 

But I have to remind you, the point I am trying to make is not to teach a class in Estates, Wills and Trusts or go into depth of real estate laws in the United States. The point is: you are not evil simply because you can't pay cash to buy a home and have third party who actually pays for it and truly owns it. Or else, all the real life average Americans who used or ever used a mortgage to finance a home purchase are evil men and women. Of course, you can make that argument all day long, it's just no reasonable person would agree with it.

As to INTENT, first of all a professional and successful wholesaler (IMHO) should be able to close on his own, hold or fix and flip the house if no one will buy it from him. But I just don't think that if a right property is located at a right price (and that's what a good wholesalers MUST be looking for, not just any property and any price sitting anywhere on Earth), that it will sit there for a month with no one willing to touch it. If the numbers are right it should be sold before you know it. If it doesn't, then it's probably a bad deal, a loss project that no one in their right mind would want to invest in. 

Before COVID I was looking at RE as an investor/rehabber. I was looking for properties in MLS with REA contacts all over the place. The first property I located that fit my cash portfolio was in rural PA. Note: licensed REA, not a junkie wholesaler off the street, knowing full well that I was an investor/rehabber ,in it to make some money, was trying to sell it to me with inflated ARV based on almost irrelevant comps since the RE market was dead in the area. Not having a clue, I thought at first that I hit a jackpot. I was so inexperienced and inept that I would have paid cash to buy it. Fortunately, it required more cash than I had in the bank to close, repair, put on market and etc. so I reached out to HML to finance it.

That's when I learned what the math in wholesale acquisition is. HML which easily preapproved me for double of what my project would cost refused to finance it and explained to me WHY. I thought HML didn't like me and was biased, but in fact they did me a favor.

They taught me a simple lesson: rehabbing is not about finding a cheap distressed property and a contractor willing to fix it for X dollars to sell it for Y. Location and market turnaround is what matters most. So, that rural home in PA, that had only couple comps to calculate ARV and ZERO interest from investors was a dead end deal. If I had all cash in my pocket I would most likely buy it, fix it and end up losing my hard earned money, trying to get rid of it for below what it cost me to acquire it, with no retail buyer in the area to be found for months. Going back to intent, a good and established wholesaler should have not so much intent as ABILITY to close. And each deal wholesaler finds must be such that it would be a very good investment for him to make, should no one else buy it from him in 30 days or less. But this is a rare thing to happen if you are a good wholesaler and find a property that is worth investing from investor's stand point.

As to ETHICAL side of it, many people out there are unethical. Where do you think wholesalers come from? They don't land here from Mars, they are coming from the same pool of people that make up the rest of the population, including (surprise, surprise!) the sellers. I have seen so many unethical sellers while doing business in past, one could write something akin to Borges's Universal History of Iniquity based on those characters. 

And the last thing: entering into contract with a seller who suffers from dementia and mentally unfit to comprehend and execute a contract renders said contract void and null in the eyes of law. Now if you want to discuss all the iniquities going on out there, my favorite is about Wills where heirs or claimants to Estates of wealthy and upstanding decedents go to extreme length to forge signatures, force executions of will under duress when someone is ill and dying, well, that's an interesting subject to discuss over a nice glass of drink to contemplate on human nature. But it's not the purpose of this forum or the subject matter of discussion at hand. 

The very best to you and yours. 

 But that's not what we are debating here. We are talking about "evil" wholesalers who assign a contract instead of paying cash to purchase the home from the seller. I bring an analogy from our every day experience. Such as the fact is that overwhelming majority of new home buying Americans , who purchase to live in that house, finance their purchase through a mortgage company. That's why we have a thing called Deed of Trust. It's the bank that truly owns the house and can kick the resident for defaulting on the loan. Average new home buying American makes an offer based on contingency, that the underwriters will approve his loan. He doesn't pay cash for the house like foreign and domestic investors, hedge funds, Black Rock and etc. If underwriters deny his loan the sellers stays high and dry. In some states sellers can collect EMD no matter what, but in MD for instance you are entitled to get your EMD back if you acted in good faith and still had your loan denied. This happens every day. Now, does it mean all those Americans who can't pay cash and get denied mortgage are evil beings with malicious intents? I don't think so. Therefore, I believe wholesaler who doesn't put his own money in and seeks a buyer/investor to do so is not any more evil or malicious than a guy who makes every effort to purchase a home with conventional mortgage but gets denied by underwriters at the last moment. Strange that you keep changing the subject and don't want to address actual point I make.

Now, of course a smart home buyer will come with 830 FICO or above, with very healthy DTI ratio, make an offer on a house he can easily sell to a mortgage company, so it can be financed. But not all home buyers know how to do that and are able to do that, and that doesn't make unfortunate ones all evil. They are unfortunate and not clearly understanding the process of having to sell a house to a bank, which has many qualifiers involved that buyer should know for his own sake but often times is not aware of. And sometimes banks are the ones who mislead such a home buyer, by issuing pre-approvals and approvals to sign a contract, but then back out when more sophisticated underwriters spot an issue (in buyer's income, credit score, DTI, property value and etc.) that loan officers who gave preliminary approvals didn't want to see. None of it makes home buyer whose loan is denied evil.

 Thank you, Tom. It sounds like a good deal. I will be in touch when I have a property under contract. 

In terms of my business model, it's wholesaling that I want to get going. Rehab brings more money per transaction, but seems too risky for the beginner. If anything goes wrong (with contractors, timing, with rehabbing due to unforeseen issues found along the way and etc.) I will be in serious trouble.  I plan to do it eventually, but not until I get my feet wet. 

 You missed the point. Jay. If I wanted to make a statement about percentage of homes bought for cash v financed in the US I would get the exact statistical number. and write it But that's not the point. What is relevant is that if someone else pays for your purchase (note: in retail home purchase it's a lien holding mortgage company that de facto owns your home and holds deed of trust until you pay them off if you get a loan to buy house) it is not in itself an indication of your evil intent or evil nature. If transparency about contract assignment is such an issue (which I personally don't think is, because what matters to seller is money and house off shoulder, not the business model of people involved in unloading his burden), then I believe new MD Law passed this year will take care of it. Come October 1, 2024 wholesalers will have to disclose who they are to seller and I see no issues with disclosing to a seller what I do for a living. 

That being said, having dealt with the sellers in past I can attest that some of them are @$$es. I dealt with them while running reverse logistics and supply chain business. They were owners of warehouses that stored hundreds of pallets of goods sold to other businesses. Sometimes they couldn't stomach the fact that I was handsomely profiting from the trash I was helping them to get rid of. I couldn't stand those sellers, btw, and usually dumped them as suppliers. It was highly irrational thing for them to do, they were practically shooting themselves in the foot by trying to screw me, but many tried nevertheless. Eventually I came to conclusion that stupidity, greed and lack of reasoning skills are just part of human nature and those traits manifest themselves most vividly wherever money is involved. I have no problem telling seller I am a wholesaler. If they can't stomach the fact that I will make money assigning a contract they can kick the rocks and sell their dilapidated junk on their own. There are plenty of other motivated sellers and distressed homes out there to look at. 

P.S. Growing number of Americans live paycheck to paycheck, most jobs pay so little that people can't afford to buy homes in the US. With current inflation, student loan debts and other burdens most Americans can't save enough money to put a down payment on a house and qualify for a loan. I know people living in DC with, master's degrees from prestigious colleges and professional jobs , who rent a house shared by other professional roommates, because they can't afford to rent on their own. Those who qualify for a mortgage and buy homes for $800K-$900 and above consider themselves lucky. I also know high equity individuals , some are close friends, but these are not 32% or third of American population. More like one in a hundred. If 32% of all purchases are bought for cash (assuming no HML is involved), then we either have a huge influx of foreign cash, or the inventory is so microscopically tiny that 1% or less of Americans buy almost third of existing inventory. This goes way off the point I was trying to make, but is an interesting thing to note.

Always happy to share and go JV if that's what gets deal done. I am networking too. I am curious though: if you locate a good property, and by good I mean (as an example) 3br 2 ba SFH, in a hot zip code, with plenty of comps to figure ARV, at 70% of ARV minus well estimated repair costs and reasonable assignment fee, and then offer it as is to investors in current market, how difficult would it be to sell it if your trusted/connected buyers didn't want to buy it? It's possible to find a great deal, but not where my buyer wants specifically wants to buy, not matching no. of br and ba he wants to have and etc.? Should I avoid getting such property under contract, even if it's a great investment opportunity that HML would be willing to finance if I wanted to rehab it? Are buyers/investors picky and particular about what exact parameters house falls under, regardless of how good of an investment it is based on verifiable (not inflated) numbers and metrics from data sources?

99% of home buyers in the US don't have a cash to purchase a home they will be living in (they loan that money from the bank, who truly buys and owns that house while they keep a Deed of Trust, which they use to kick so called "home owner" out of the house once borrower defaults). Ergo, all home buyers are liars? Oh, they let builder or seller know that they are financing (having someone else pay for the house). But under MD law wholesalers will be subject to the same disclosure come October 1st. But they are still liars and will always be liars. We get. Some people just hate wholesalers no matter what they do. They are not Boeing CEO's after all. LOL

Thank you for your detailed response! 

Here are my thoughts: if you did decent more than $90K in one market and could scale it to at least 10 other markets that would yield you decent more than $900K a year. That's a lot more than most of the people I know dream of. I would be happy with a wholesale operation that yielded me $200K taxable net a year in 2024 dollars. I don't think for a moment that RE (let alone wholesaling)  is a field where one can get extremely rich. Wealthy? Yes, may be after 30 years of investing and having 100+ properties in their portfolio, and even that after taking the mental tolls that come with it. I am not sure what multibillionaires in RE did to get where they are and frankly am not aspiring to be one of them. I would rather invest my time and efforts in creating a quality life for me and my family , travel the world, enjoy the moment than burn myself out 7 days a week trying to build an empire of any kind. If $200K pre-tax is realistic while doing wholesaling then I would be fully content with it, and I would scale it (I use the word in literal sense, meaning: make my operations grow ever larger, not necessarily Warren Buffett large:-)) from there by investing extra capital and using financing leverages to grow into other ventures. Perhaps I would buy properties for rehabbing, fixing and renting and using vetted construction crews to help other investors to fix the properties they have acquired. I am somewhat unamerican in my lack of burning desire to amass enormous net wealth and live by a thought of owing it))

In the end I want to thank you again for such a detailed reply and your insights! It is generous of you. Very, very few people in wholesaling business share the real angles with strangers. From what I can tell most either sell "guru courses"/pipe dreams or don't share much of practically useful information.

P.S. I may have miscalculated the potential of income growth with expanding to 10 other locales, which you suggested was doable. I don't know what would remain of proceeds once you started to hire people in those additional markets to smoothly run your operations. Perhaps I missed the point, that the cost of scaling would simply make it a model with ever diminishing returns, with only so much deals you could close in each given locale.  

 Hi Jacob, I am not experienced wholesaler and in the process of learning the ropes. So, I will share my opinion and leave it for other, more tenured investors, correct me.

This is my understanding: your goal is to get the property at such price and location that it would make sense for investor (your buyer) to purchase from you and do whatever they want to do with it. The product they are looking is the same, sources you can get those properties from are different. You could get them on MLS (I don't believe real investor will buy it from you, because they probably have REA they work with, access to Zillow, Redfin and etc., just doesn't make sense to pay you extra fee to get what is already blasted there for ALL to see). You could get them by directly contacting sellers via your marketing efforts. You could get it from auctions. Or, you could also pull a list of pre-foreclosures, skip-trace, contact sellers and see if you could help them get out of the house with less damage and loss than if their house went through foreclosure.

There are couple of things I would be on alert for and research when you deal with pre-foreclosures. FIRST: check the state laws. In MD we have loss-mitigation laws passed after housing crisis that exposes you to great deal of liability if you contact people 60+ days in default  and offer to buy their homes. Established wholesalers who do this here jump through hoops and approach sellers as if their sole purpose was to help them keep their homes and never mention what they are after until after seller begs them to get rid of their property. Even if you do everything by the book, chances are some home owners will eventually feel angry and resentful at you for taking their house from them and profiting from it, and all they have to do is file complaint with AG. The way AGs generally work is that they don't come after you until years later when you do a lot of those closures. And then they will come after you heavy handed, with full force and charges of defrauding and abusing the vulnerable home owners. You will be lucky if you get away with hefty fines and no jail time. So, talk to investors and ATTORNEYS in your state and find out if hitting home owners in pre-foreclosure is legal and won't bite you later on.

The other thing to be on watchout is if there are liens and encumbrances that will get you stuck , because investors will do their own title search and find out the price you assign the house to them is just a part of a larger bill they have to pay to own it.  While this can be a case with any property, there are just greater chances of it being a problem property with owner in pre-foreclosure. 

So, just do your homework on it. Be wary of dealing with those types of properties and owners. And if all checks out then it might be a viable deal from monetary stand point. I personally won't be doing them here in MD, but some people specialize in acquiring those types of properties and I would strongly suggest you to attend local meet ups and try to speak with someone who had done it successfully and never got burned. May be in Texas it's a good way to make money. Just check it out thoroughly before you get into it. 

You are welcome, John. @Annie Seuer , who used be a wholesaler and quit doing it, posted on a parallel thread (https://www.biggerpockets.com/forums/93/topics/1194082-5-tips-to-create-a-real-wholesaling-business-and-not-a-chop-shop) that she doesn't think wholesaling can be scaled. She said she was doing good as a wholesaler, knew what she was doing, had trusted buyers she worked with. But apparently it wasn't good enough to justify her staying in this business. I asked her about it, hopefully she will chime in. This is an important factor to consider while getting into wholesaling. If scaling is truly impossible and you hit a ceiling at $80000-$90000 a year (figure I have got by googling "How much wholesalers make"), then it's indeed kind of a dead end a job with only benefit of working remote and making your own schedule, away from corporate world and office politics/nonsense. But as a business model not such a great venture. I am curious what other wholesalers think about it. Is her assessment correct?