Good and Bad Wholesalers

[Tre Harris]

I know this is not the Wholesaling forum but I would like to hear from the other side of investors.

I have recently transitioned from being a roofing salesman to real estate investing. My goal is long term buy and holds but I am using wholesaling as a tool to achieve that goal.

My reason for leaving the roofing company was because me and my boss did not see eye to eye when it came to taking care of the homeowners we worked with.

Since wholesaling has two customer bases (sellers and buyers) I would like to hear what experiences or practices you have seen with wholesalers that uphold a sense of morals and character while also being efficient and the easiest to work with. Please share your bad experiences as well. I would like to learn from the good and bad so I can implement those lessons into my business.

[Account Closed]

Since you are asking on the BRRRR forum and I am a 100% BRRRR investor, here's my take:

By their very nature most wholesalers work in a legal and ethical gray area. 

Their aggressive marketing often relies on borderline harassment, and I personally get probably between 5-10 calls per day for various houses in my portfolio. Many are clearly in violation of federal law (TCPA) and many of the ones I've squabbled with on this forum or over the phone seem not to care. Their marketing providers are equally as shady, including making fake accounts on this website to try and generate "viral buzz" I guess. I have caught out at least one red-handed, but that is because they were incredibly dumb in picking the identity of a high profile veterinarian in NYC to post their fake accolades. 

Their marketing to sellers also frequently is just baldface lies, claiming to be a "cash buyer" when they are simply contract flippers.  They rely on motivated distressed sellers who want to sell ASAP for whatever reason, but all the contract does is tie up their property while the wholesaler attempts to locate a bona-fide buyer.  The wholesaler in this situation is a middleman, taking equity from the seller and tying up their propety from other legit buyers in the process. 

This is a double-ended detriment to the seller. The seller would have been better served by retaining an agent, who would have a fiduciary duty to the seller. Also by exposing the seller's property to the widest possible audience (eg, MLS) the seller would likely have gotten a much better chunk of their equity and would have better representation than signing with a wholesaler. The seller made this decision because they believed the wholesaler was the real cash end buyer. If the wholesaler had explained the reality of the situation they likely would not have gotten the contract.

Then, on the investor side, I see wholesalers misrepresenting properties as being in better neighborhoods or having lower rehab costs or higher ARV than what would be real. Most seem like recent graduates of whatever "dream merchant" weekend seminars are going on lately, so I attribute most of that to just being inexperienced than being dishonest. They also have to be extremely cagey about the property, as they theoretically could be easily cut out. Especially the ones who have huge spreads on the buy price and the sell price. Some will post on this forum trying to find closing/escrow companies who can double-close without revealing the real prices to either party.

It's been fascinating watching the bar lower further and further here in Columbus as our market gets crazy hot.  There's posts here from someone from Cali who got hooked up with a well known local wholesaler only to get completely ripped off during their renovation project.   I've seen agents from a local brokerage (very active on this forum) using the above techniques trying wholesale properties even though they are licensed.  I got their text messages implying they are a  "buyer" for my properties (even though I am DNC) and then see their posts about trying to wholesale the properties in my area they do turn up.  More lies and deception. 

All that rant though, but I don't think they are murderers or anything. More like if you combined a drug dealer with a used car salesman, except that those two professions actually do own the things they are selling, I guess!   

I do not at all discount their hustle though, I know they work very hard to find the deals and I don't believe for a second anyone are really out to CHEAT anyone. Just the space is naturally so extremely shady that I don't think there is much space for a completely honest one to operate, and the money they can potentially make (without investing any of their own, if they even had any) is extremely appealing.  

"It is what it is" I guess, and it will continue until states crack down.  I'm not the real estate police and haven't turned anyone in (even though I have tons of evidence) but I've also never bought from one and find it extremely unlikely I ever will.