Another Question For Wholesalers

[Aaron Phillips]

I just finished reading the Wholesaling Guide on BP for a second time, just to brush up on my Wholesaling knowledge. Now i'm back here, and seeking a final answer to the big question I know many other Noobies have about wholesaling. 

Wholesaling can be one of the most profitable ways for people who are looking to get into Real Estate to build capital to fund other projects. E.g. I want to do 3+ Wholesale deals a month so that I can build the capital needed to do my own flips, or rentals. 

Now for the big question! Should a wholesaler have the funds to purchase the property themselves, if unable to assign the contract to a Cash Buyer?

If the wholesaler found a property with an ARV of $110,000 (Same as example used in the Wholesaling guide) had $30,000 in repairs, Wholesale Fee of $5,000, and $15,000 for Fixed Costs - and knows the Cash Buyer wants to make a $20,000 so the Wholesaler gets the contract for the MOA of $40,000.

Is the Wholesaler required to have $40,000 to close on the property once it's under contract in the event of the Cash Buyer can't close, or the Wholesaler can't find a Cash Buyer?  

I've heard a lot about Fraud by Inducement where the Wholesaler basically lies to the Seller and gives the Seller the impression that he/she (the Wholesaler) has the funds necessary to close but really doesn't. Which is why I tell each Seller that I will be assigning the Contract to a Cash Buyer. 

The way I want to start my Wholesale Business is by 1.Finding Great Deals
2. Connect the Seller to the Buyer 
3. Collect my 'Finders Fee' 

Without the intent of owning the property myself.

The whole reason to me getting into Wholesaling is so that I can build up enough capital to become a 'Cash Buyer' myself. I want to be able to do Fix & Flips , and own multiple rental properties. Wholesaling just seems like it can open up a window of opportunity for me, and help me find people I can use for future connections that will propel me in my Real Estate career. 

If this isn't possible to Wholesale without the intent of owning the property myself, then I will continue to search for other ways to start my Real Estate career. I want to operate my own Real Estate business, and I want to do it with integrity. 

With all due respect - I want to hear from people who are starting their own Wholesaling business, or people who have been Wholesaling for awhile now. I know there is many people who disagree with Wholesaling, but I am not here for debate. I am here for facts, and advice. 

Thanks in advance BP!

Aaron Phillips

[James Green]

@Aaron Phillips here are a few thoughts, - "Should you close on the property....?" - DEPENDS.

If the goal is to wholesale to raise funds to eventually start flipping, then that means (to me) you don't have the funds to close on a property. If you have the funds to close, then why not just close on it and rehab it?!?! Closing on the property to wholesale, defeats the goal of raising funds. Using your own example, your wholesale fee of $5K would be reduced by the typical closing costs & fees. Double those costs if you do a double close.

I know that there are many wholesalers that are closing on their deals, if they are unable to assign the contract. BUT,..what if you live in an area where wholesale price points are 200K+? Do you have 200K to close on a property? Again if you have that kind of resources you might as well buy it to rehab yourself, IF rehabbing is your intended exit strategy. I myself am not attracted to rehabbing at all!!! I just find properties, not interested in fixing them up.

I myself either assign properties or take a fee from either my seller or from my buyer. The properties I wholesale can run from $15K - $3M.

In my opinion these are the top problems with a property you can't assign:

1) You don't have a large enough buyer's list! You should start with building your buyer's list and adding to it continually. It's not that hard. I know you've probably read, "you don't need that big of a buyer's list, you only need a couple of good buyers". That's kind of a misleading statement. No matter how big your list is, you will always have a small % of consistent buyers continually looking for and buying deals. Volume buyers may buy at a higher price because they have cheaper costs because they are more experienced. They also have the ability to close faster, than someone that needs to get an appraisal from their local bank or they have to wait on approval from their hard money lender. The rest of your buyers will buy as the need fits for them ie) buyers that can only handle buying 1 deal a quarter.  As you build your list, your list will consist of -volume rehabbers & landlord buyers, occasional rehabbers & landlord buyers, brand new rehabbers & landlords looking for their first deal, other wholesalers, investors that like the idea of investing but will ultimately not pull the trigger (with you or anybody), etc. So by default, the number of consistent buyers will be small in relation to your overall list. Let's just say 5% of your list are the type that buys up everything from you that fits THIER CRITERIA. Thus you need 100 buyers on your list to have 5 of these type of repeat buyers.

2) Your offer price is to high, possibly because your not dealing with a motivated seller. There is a huge difference between a motivated seller and a seller that is willing to sell at a discount. A motivated seller, HAS TO SELL, and is willing to take less than .50 on the dollar to get out of the property.

3) The location of the property for whatever reason is not favorable to any investors. Ex) Smallest & ugliest house, on the smallest lot, in an upscale neighborhood with huge lots = A property you can't rent, nor sell to a rehabber. Property may be good for someone looking to speculate, but not invest. There is a difference, think bitcoins.

4) The deal you have doesn't fit any criteria for the buyers on your list, because you kept your list small thinking you only "needed a few good buyers". As you expand & grow your buyer's list, your potential deal opportunities expand also. Using the 5% number, note this is just a number I'm using as an example, what if you had a list of 300 buyers, 500 buyers,1000 buyers, 5000, etc. Take 5% of those numbers. What if you come across a smoking hot 20 unit multi family apartment deal, but none of your buyers buy multi-families? What do you do? Pass on the opportunity or grow your list? In a recent podcast on BP, I believe I remember hearing @Brett Snodgrass saying he has a buyers list of 10-20K, and he closes on his deals, then turns around and sells them to his buyers. I wouldn't consider his buyer's list small, yet his consistent buyers is small relative to his overall list.

I never tell the property owner I'm buying their property. I always tell them my investors will be buying your property.

You don't have to lie, to wholesale properties.