Why Most Wholesalers Fail

[Jonathan Greene]

The best wholesalers in the country did not get into the business to wholesale. They got into the business to buy homes for themselves. They got so good at marketing in their hometown that they had overage. Their overage became a wholesaling business.

Local homebuying companies are the best wholesalers because they know everyone, people trust them, and they have all the relationships. Virtual wholesalers don't have relationships or know anyone's neighbors. If you want to find off-market properties and aren't marketing, find the best off-market home buyer in your area and ask to go through their scraps.

Local homebuying companies can talk about the other four homes they bought on the block from people the sellers know. People come to them because they know they will give them a fair price and solve their problems. Home buying and wholesaling is not about quick cash. It's about solving problems.

Most wholesalers fail because they got into the business for the wrong reasons (quick cash to become an investor/flipper).

What do you think?

[Don Konipol]

@Jonathan Greene, I agree for the most part.  I knew a couple of “we buy ugly houses” franchisees that purchased and fixed about 50 homes per year and wholesaled another 75 - 100.  

To set up a successful stand alone wholesaling business - and by that I mean a “contract flipping” business, is possible but requires a lot of capital, contrary to what the gurus teach.  One person, hoping to flip contracts and find deals by driving around the neighbor or posting illegal signage isn’t going to create a business, let alone a successful business.  They MAY somehow get lucky and flip one deal for a small profit; or get VERY lucky and hit an area going through rapid price appreciation and be able to leverage that for a short period of time.  More likely they join the 99% + who “try” wholesaling and never make a deal. 

I often suggest to wanna be wholesalers that they become a licensed real estate agent instead, and their reaction is to recoil at the idea.  Dwelling deeper I found that many wanting to wholesale believe that wholesaling is either real estate investing or a real estate business while being a real estate agent is just another “job”.  So, to be of any help to these people, we need to help them understand that (1) wholesaling is NOT investing, in any way shape or form.  And for wholesaling to be a business, one must invest CAPITAL. It’s only through investment of capital for marketing, software systems, lead generation, call centers, attorney drawn contracts, title searches, etc. can someone establish a VIABLE business.  So if you don’t want to spend 12 months completing one deal for a $2,000 gross profit and investing 1500 hours to do it, you’ll need about $50k to carry you until deals start closing.  

I know some people who were (lost contact with them) REAL wholesalers, not flippers.  They closed on the purchase of properties, often buying in bulk from builders who were going bust.  They then sold the houses individually often owner financing and selling the notes to me at a discount.  They also would buy properties where the owner had to sell quick, sometimes cashing the owner out in a day or two.  They’d hire someone to clean and paint, and put the house back on the market at a slightly below retail price.  I financed both their sales to buyers (way before Dodd Frank!) and when their capital ran short would finance their “inventory”.  These were , imo, true WHOLESALERS. The term wholesaling (real estate) as it’s used today is (imo) incorrectly used; what it purports to describe is actually FLIPPING. Adding to the confuse is the misuse of the term flipping, which as it is used today is actually “fix n flip” or “rehab and sell”.  But then again I’m 200 years old.