Buyers

[Jordan Freeman]

hello again bp, glad to be on. Had a few things I had been thinking about lately in relation to wholesaling. Hope to get some good feedback. So in my time of learning about wholesaling from many sources, I have noticed the importance of building a buyers list. However I was curious to touch on this subject. As a new investor, I want to make sure I have a full understanding of the process and what works and what doesnt. So here we go.

When you have a property under contract, and are searching for a buyer, would it make sense to search for a regular home buyer to widen your margins and sell at full retail? I was interested in how differently this would pan out as the wholesaler is searching for deals with cash and I assume the buyer would need a loan of course. But could this work? If not, why? It seems that it would take more time, however could an effective marketing approach solve the issue of time or would you need to put too much money in to market effectively? I feel like agents would be happy to sell a slightly discounted home to a regular buyer to help them save money. However this could be me assuming. Any thoughts on this? 

[Tom Mole]

OK, let's take this from the top. Yes, in theory you could market to a retail buyer, however...

Retail buyers can be difficult to find when you need them. Usually they want choices, but as wholesaler your inventory is likely highly limited. It's hard to compete in the open market served by an army of realtors.

Once you find a retail buyer he'll usually need to apply for a loan and all too often will fail to qualify. When that happens you have to start all over again. I can't imagine a seller waiting indefinitely for you claim part of his profit for doing what he could have done as well on his own. If you were to use a realtor to market for a buyer, you would be on the hook for the commissions. That could chew deeply into your expanded margins.

In some states (Texas may be one of them) there are movements to make wholesaling illegal on the basis that you are only acting as an agent without getting a license and submitting to state regulation. Selling to the retail market is what licensed agents do. I would not want to stand before a judge and explain how I didn't cross that very fine line. It just isn't worth the risk.

Finally, you might keep in mind that until you have mastered wholesaling "by the book" you really are not well served by reinventing the wheel. Ask yourself, "am I really the first person to think of this great idea"?

I would say that most people who give up the dream of being a real estate investor failed at wholesaling. They were told that it is easy, takes no cash or credit and will make anyone rich in a short period of time. Lies!! For most folks it one of the hardest way to get started, which is why newbies fail with such reliability. If you MUST be a wholesaler, please find a successful wholesaler and beg him to let you apprentice with him. You'll see what I mean.

There are other ways to get started without cash or credit. Join a local REIA. Listen to all the BP podcasts and jump onto @Brandon Turner's weekly webinars. Learn about other strategies. Find experienced folks to partner with. Real estate investing is a team sport, so start building your team by recruiting to your weaknesses. Build your lazer-like focus on area of the market that isn't inundated with every newbie who bought the dream from some $1497 guru. You'll be glad you did.

(Wholesalers of the world: Don't hate me for these words of warning. You know wholesaling is a tough market. Be honest :)