Why does wholesaling work?

Question

Why would an investor pay a wholesaler thousands of dollars for a referel/assignment (whatever its called). The investor has the same resources to find houses that the wholesaler does, probably more even, considering (my opinion here) that I would imagine most wholesalers are beginner investors dont have all the resources.

Steve L. · Answer

Nick, you should build some cash reserves before you even consider becoming a landlord. It is expensive and a lot can go wrong. Land lording is not a short-term money generating system.

Jon Holdman · Answer

100% financing is impossible, even for owner occupied properties. The best you can manage on OO is 3.5% or whatever it is FHA loans allow. Investment properties are going to be 20-25% down.

Look for creative deals like lease/options, owner financing and subject to's.

But, owning rental property without cash on hand is a reciepe for disaster. We've had a number of posts to the effect "help! My tenant moved out suddenly and my payment is due and I can't make it, what do I do". Or "Its January and the furnace has croaked and I can't afford $2000 for a new one". You must have enough reserve to cover these sporadic, but totally expected events.

Curt Davis · Answer

Nick,

I work for a wholesale investment firm in Memphis. Investors buy from us b/c they do not have access to the deals like we do and we also have a turn key system in place ( contractors, management companies, closing attorneys ). Most regular investors do not have a team in place. The main thing to think about is that most investors still have full time day jobs that make it difficult to do everything like our company can do. Hope this answered your question.

Terry Royce · Answer

Wholesaling works. If it didn't why would so many people be doing it?

Peter Giardini · Answer

Tim,

Without writing a book... the only deals that any wholesaler worth their salt would be assigning are deals that came from very motivated sellers.

Every wholesaler knows that if the deal is marginal and they attempt to assign it to an experienced investor... they more then likely will end up buying the same crappy deal they were trying to sell.

Motivated sellers = great deals that can be assigned with significant paydays for all involved.

Pete

Tim Silvers · Answer

Would someone please explain how wholesaling works on the buying end? I would think that most deals are going to be those that are with negative equity. It is unlikely any sane seller would walk away from equity - at least not in my market. That being said, I would think you're then limited to doing short sale/REO flips. I must be missing something here.
Â
Â

Aly W. · Answer

Nick, Jon and the others are absolutely right about cash reserves. My 2nd tenant had been on rental assistance from Day 1, and was suddenly terminated. I've now had to make 2 mortgage payments, taxes were due this quarter, and it will take cash to pay the legal fees and clean up costs - he has no job or assets. He'll be locked out next week but it could take another month or more to find a new tenant.

The situation is painful but not desperate, because we have cash reserves.

Nick Dunin · Answer

Wow. Ok, thanks for the replies guys. I wonder how easy it is to get 100% financing for rental properties these days. I've got 0 debt (except mortgage) 780+ credit score and 120k+ income with wife. but no cash.

Why does wholesaling work?

Why does wholesaling work?

Most Popular Reply

15 Replies