Trying to understand "wholesaling"

[Rob K.]

I usually avoid any thread that falls under the “wholesaling” category because it always seems like a bunch of nonsensical posts from wannabe “investors” who have never done a deal. Half the people make it sound like you’re going to walk in with nothing to your name, make a deal with someone for half what the property is worth, and then flip it to a cash buyer and make thousands for having nothing invested. It just sounds too good to be true.

Any “wholesale” deal that I’ve done has involved me making a deal to buy a property, going to closing with my own cash, purchasing the property (as I agreed to do), and then re-selling it to another person. I’ve never made a deal with someone to buy their property (with my fingers crossed behind my back), and then gone out and tried to find a buyer so I could make the deal happen. When I tell someone that I will buy their property, I follow through. It’s not a maybe.

There was a real estate agent in my area that used to do a ton of business and then he disappeared. It was like he fell through a trap door. After many months, he contacted my friend with a “killer deal” on a ten-unit apartment building. It turns out that he was trying to do a no money wholesale deal and make $40K on the transaction. My friend told me that if he did buy the building, he would “cut this bottom feeder out of the deal” and go directly to the owner. I agreed that I would do the same thing and get it for a cheaper price.

Is there some late night guru out there preaching this wholesaling with no money nonsense? Do these deals actually go through? If so, it would seem to me that it would just be a starting point. Once you did some deals and banked some cash, you would get better deals by making solid offers.

Can anyone who’s done deals (other than the kind I have done) post on here and walk me through all of the steps. I’m curious how it all works (or doesn’t work).

Does the seller know that you’re not the end buyer? If so, why would they deal with you? Are you lying to the seller and saying that you’re the buyer, only to try and find an actual buyer? If so, what if you don’t find one?

I’m not trying to pick on wholesalers. It’s just that the ones I read about seem like “all flash, no cash” or as they say in Texas, “big hat, no cattle”. The whole thing seems very dubious. Maybe someone can explain it better.

[Jerry Puckett]

Originally posted by Rob K:

I usually avoid any thread that falls under the “wholesaling” category because it always seems like a bunch of nonsensical posts from wannabe “investors”

And I usually avoid answering a post that begins this way....I just don't understand all the angst, and sometimes down right hostility towards wholesaling...from all of you Real investors.

But just for you Rob....

Apparently you have done a deal where you purchase a potential rehab property and thought to yourself...."hmmm, I think I'll put it up for sale and see if I can turn a quick profit without actually putting the money and effort into a rehab" I believe that's a common practice among you Real businessmen, to maximize profit and minimize expense. Wholesaling, the way that seems to upset you so, takes that one step further. If you can turn a profit on the contract, without the expense of closing and re marketing, why wouldn't you?

Seems you have been able to negotiate some good deals and put them under contract, so what difference does it make to you whether you close or sell the contract to someone who will? That's all this no money wholesaling is: being able to locate motivated sellers, negotiating a good deal, selling that deal to someone who wants to rehab (or whatever) at a price that is attractive to them.

Originally posted by Bill G.:

I suppose in Detroit you might have an inventory to work with but what puts a newbie in the business ahead of seasoned investors in locating what they want seems to be a stretch to me.

It's called marketing Bill. That's what sets a wholesaler apart from the largest majority of you Real guys. Wholesalers know how to market to distressed sellers...they go out and find the deals. Others wait for deals to come to them, and that includes folks who watch the MLS (How's that workin' for you guys lately?) A wholesalers risk is in the money and time spent on marketing and talking to hundreds of people..it's not quite no money.

What sets an experienced wholesaler apart from a beginner is all this business about a buyers list. I have 3 investors on my list who will buy 98% of what I put under contract. I need more buyers like I need a hole in the head. And yet many who wouldn't even talk to me when I first started out came sniffing around when the MLS dried up. I have no need to lie to a seller.

Originally posted by Rob K:

My friend told me that if he did buy the building, he would “cut this bottom feeder out of the deal” and go directly to the owner. I agreed that I would do the same thing and get it for a cheaper price.

Lastly, to the OP and anyone else who may be looking on....the above behavior, going around someone to grab a deal? If that doesn't make you a bottom feeder, I don't know what does. Shame on you.....go find your own deal if you're able.