Why is wholesaling not as well known ?

Question

Hey all,

Just curious why wholesaling not as well known and why when I tell people about it they look at me like I’m crazy? I’m an investor starting out and when I tell co workers, friends, and family what I’m trying to do they automatically assume I’m going to fix and flip and when I mention wholesaling they think I’m nuts. Anyone else experience this?

Erik W. · Answer

@Kody Crittenden, hi and welcome to BP!

Keep in mind the average person only buys/sells a total of 3-4 houses in their LIFETIME, and on top of that 80%+ do so using the traditional approach of buying retail off the MLS and having real estate agents hold their hands thru every step of the process.

You, my friend, are a Wild West cowboy finding opportunity where others dare not tread.  Naturally, most people think cowboys are nuts: who wants to ride in a saddle (i.e. car) on a dusty trail all day (i.e. driving for dollars) and keeping an eye on cows (i.e. looking for overgrown lawns, FSBO signs, foreclosures, short sales, off market deals)?  It's romantic in a way, but also scares the tar out of people.

Let's face it: most people follow a life that is laid out for them by someone else in a fairly predictable pattern.  Only teenagers and sub-30 year olds believe they are unique, special and have a "different" view than everyone else.  Anyone over age 35-40 figures out they are part of the 95% of people who live rather typical, predictable lives.

Something about that is....unsettling.  So naturally, people find ways to make excuses why they aren't doing things that are truly off the beaten path.  Let me give you a few examples of their excuses:

1) "That's gotta be illegal to buy a house without an agent!" (showing ignorance)

2) "You're cheating some old granny out of her equity!" (making morality accusations)

3) "You're going to buy a disaster and lose all your money!" (predicting failure)

See how that works?

Don't worry about what other people say.  Just smile and tell them if they hear of anyone whose got an extra, old, tired, or junky house they want gone yesterday to give you a call or pass on their info to you.

Erik W. · Answer

@Kody Crittenden

To be fair too, real estate wholesaling is different than wholesaling in most industries.  A traditional wholesaler purchases inventory in bulk (or at minimum takes legal possession of it via a contract), and then sells it to retail outlets.  They deal in extremely high volume of commodity goods where all items are of like kind, like 100,000 cans of tomato soup.  They make their money buying vast quantities for discounts, storing the goods in warehouses, then selling smaller quantities (200 cans) to retailers like your local grocery store every week.

A real estate wholesaler's goal is to never purchase or actually take legal title to a property: you just sell the contract to someone else, and usually only 1 or 2 properties/contracts at a time starting out.  So very small volume, at least to start with.  Also, every property is different, so it lacks the "commodity" nature of most wholesalers.

When you consider most people are familiar with what I described in paragraph 1, it makes sense that real estate "wholesaling" seems like non-sense.

Mike Cumbie · Answer

@Kody Crittenden

Wholesaling is hard. It is by no means an easy entry. Spending a couple hundred bucks and getting a license and operating within the framework of the existing regulations is much easier. Which is why I went that route personally. If I didn't have a license I would be worried that I will be in the middle of 8 huge life changing deals and then get a letter from the Department of State "Cease and Desist". Wholesaling (Which is really contract assigning as most think of it) is sort of playing in a loop hole. Sort of like Fixing someone else's car brakes requires you to be licensed and insured. However you can fix your own cars brakes for free. So instead of getting a license, I buy your car for $1, fix the brakes and sell the car back to you for $120.00 with fixed brakes.

Sounds like you got around the system or are a nomad living in an uncharted world. In reality when you get successful enough the state steps in and says "You owe us title transfer fees, registration fees, insurance fees on each of those cars". It's even worse if you finally got a fleet of vehicles to work on when that letter comes.

Getting licensed is a couple hundred dollars (and maybe 100 a year) , don't join the board (save thousands a year), just get the license and then when you find someone, sell their house. Use signs, flyers and emails with no worries about the state breathing down your neck later. Sure you lose the riding free across the plains "vibe", but you also spend a whole lot less time and energy avoiding "marketing a property instead of a contract" when you can just market a property.

Just my 2 cents

Brian Pulaski · Answer

If he wanted $100k why would he accept a dramatically lower offer?

Wholesaling works best when they track down someone in distress with a house they need to offload. The wholesaler can get it under contract for less than it is worth (usually because the seller has some desperation). They can then “assign their position in the contract” for a higher value.

Kody Crittenden · Answer

@Erik Whiting thank you for the fast response sir! And yes I agree with you at this point I’m going to let my success do the talking then they will see what I have been trying to tell this all this time.

Don Konipol · Answer

@Kody Crittenden

It sounds crazy to many people because they don’t see any added value.  Their thinking is that if someone wants to sell with the aid of another party, just engage a realtor.  They don’t understand that for specific types of houses (ones needing significant repairs), or specific areas (in areas where prices are extremely low), or specific sellers (need to close yesterday), Realtors may not be a good option.

Brian Pulaski · Answer

As stated above most people only buy/sell a house or two in their lives. They know little to nothing about it and simply follow the realtors/attorneys/title companies instructions.

Those who invest know what wholesalers do, but even a lot of realtors and attorneys who have never dealt with a wholesaler Don’t know what it is.

My guess with your family and friends thinking it’s crazy, stems from the fact that if you describe what a wholesaler plans to do it sounds a bit crazy. Enter a contract to buy a house with no intention to buy it, then assign your position in that contract to someone who can buy it... just the thought of signing a contract for something in the hundreds of thousands of dollars that you can’t actually buy sounds crazy to some (most) people. It is Very well known to investors and has a hit or miss reputation. Some live by it and love it and some hate it. My only advice to someone starting out, is to double and triple check legalities and be honest with what you are doing.

Barry Pekin · Answer

A long, long time ago, my father wholesaled businesses.  He didn't call it that, of course.  He was in "Mergers and Acquisitions", but he did just what we wholesalers do - as an entrepreneur.  He looked for businesses who wanted to sell, and found businesses who wanted to buy, and he earned a commission.  It was quite lucrative.

That was when I was a kid.  Many, many years later, when I started looking into RE investing, I was exposed to the concept of wholesaling, but I didn't even realize it.  I hardly gave it a second thought - despite the fact that is was the business model my father did.

Fast forward (or slow forward) several more years, and I'm exposed to it again.  I'm thinking, "hey, this kinda makes sense.  Why didn't I ever hear of this before?"

People hear what they're ready to hear when they're ready to hear it.

Dean Carter · Answer

Kody!!!!

SHHHHHHHH! Keep it to yourself.  Less competition for us. Lol!

Kody Crittenden · Answer

@Brian Pulaski right that’s what I said I was just using and example. Some people just want to get rid of the property. As you also stated distressed is definitely the more common

Why is wholesaling not as well known ?

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