Question for experienced Real Estate INVESTORS

[Shane Hampton]

I'm new to investing but definitely wanna start as soon as possible.

I originally wanted to start off as a wholesaler since there isn't really any money required but would rather just be the investor because I think that would be more profitable and from what I've researched, it just sounds too time consuming for me.

My question to the the experienced investors is do you think it's beneficial to use a wholesaler or to just find my own deals cutting out the middleman?

Thanks in advance!

[Don Konipol]

Jon Holdman equates wholesaling with selling/marketing real estate as a real estate broker/salesman. I have thought long and hard about this. While in form wholesaling differs from real estate brokerage, in substance it is the same. A licensed real estate broker/salesperson that deals with investors is doing almost exactly the same function as a wholesaler.

However, the licensed real estate agent has some advantages. Sellers would probably be more receptive to a listing contract than a "flip" contract - if the fact that the "flip" contract will only close if an end buyer is found is revealed. It is my impression that many new potential wholesalers do not intend to reveal this upfront; they intend to act like the contract is not based on their ability to sell the property to another buyer at a higher price. The result is that the seller thinks he has a firm contract, when in effect all he has done is given the wholesaler a free option. If the wholesaler is unable to flip the contract for profit, he will use a weasel clause to terminate with no penalty.

Allowing unsophisticated sellers to think they have a contract with an end buyer when in effect they are merely tying their property up with someone who is trying to resell at a profit may be considered unethical by some (including me). All sorts of bad things can be occurring during this period - a seller needing to sell may be wasting time thinking he has a sale when he does not, and may lose valuable time marketing his home more broadly.

Perhaps the established wholesaler with personal connections to real buyers who can accurately ascertain whether a deal can be done quickly is performing a service for sellers. However, newbies, with little or no marketing experience, real estate knowledge or contacts are more probably wasting what might be precious selling time for the seller. A partial solution would be for the wholesaler to disclose his intentions to the seller before any contracts are signed. I have the feeling this would greatly reduce the number of deals the wholesaler is able to tie up.

While I am usually no fan of government regulations, the licensing of real estate agents makes sense from a consumer protection standpoint. To be able to represent sellers (or buyers) in the marketing of their properties, one must go through an educational process and pass an exam attempting to insure that he has a certain basic level of knowledge so he will "do no harm' to the client he represents. Further, the newly minted and licensed real estate salesperson must operate under the watchful eye of a more experienced and knowledgeable broker, further insuring the agency relationship.

The situation with the newbie wholesaler may be one where he is a wild card, just enough knowledge to be dangerous, both to himself and the people he deals with. In some jurisdictions the licensed real estate brokers have raised enough stink that wholesalers are being "harassed" by the legal authorities for operating with a real estate license. Whether they are or not may depend on the contract they use, their historical closing rate, whether they ever close a deal in their own name, and the representations made to the people they end up in contract with. To all would be wholesalers, please recognize that with lack of experience, lack of knowledge and lack of contacts on the buying end, you might be harming the sellers you deal with, despite protestations that you are "helping" these sellers.