How are wholesalers greedy? I don't get it?

[Derek Askew]

BEFORE we get into this post I want to say that the tone of this post may come off like I am a troll. I am not, I am a buy and hold investor who wholesales as well. I know that there are bad apples who call themselves wholesalers but in what profession is EVERY person or group PERFECT? Does the perfect person/group even really exist when we can always get better? Probably not but I digress. This post is going to focus on the B-C side of things aka the wholesaler to investor portion of a wholesale transaction.

I also want to say that I am by no means an "expert" I have only done 65 wholesale deals in the last 18 months since I've discovered the strategy, and hold only five rental units currently so I am far from an expert but I wanted to share my point of view anyway.

One of the most common things I see/hear is “They are greedy” let's take a look at this statement.

As the investor who is shopping for deals isn’t it YOUR responsibility to RUN YOUR OWN NUMBERS and THEN decide what YOUR maximum allowable offer is for YOUR business model? Answer to that is or should be yes. You may ask why did you just bring this up? Let's dive in.

If your margins are favorable at or near a wholesalers asking price of let’s say 100K, and you offer the asking price. Wholesaler has subject property under contract for 95K and sells it to you for 100K, getting 5K of the equity, is that cool? Most would say yes. Let’s rerun that same scenario, accept this time the property was contracted at 50K and sold to you for 100K. Why is that offer all of a sudden a problem when you find out the assignor is making 50K? In both scenarios the end buyer is paying 100K + closing costs and transfer taxes. Sounds like an emotional response and last time I checked deal analysis IS about NUMBERS NOT EMOTIONS OR FEELINGS.

Speaking to the point about offers let's say you are a flipper and you purchase a deal at 100K plus closing costs and transfer taxes then allocate 50K to renovations. You are all in roughly at 160-170K (including transfer taxes and closing costs)

The comps for your completed flip are 360K so you push on the boundaries and list it at 370K. So you are all in at 160-170K and you list for 370K giving you a 200K spread...are you greedy when you close on your listing and gross your 200K? If the answer to this is no, then why is it greedy when a wholesaler gets a property under contract for 50K sees that the ARV is 350-370K (just like you did), lists the deal for 100K gets a 100K offer, accepts the offer, and grosses 50K? How is this any different?

“Well the buyer has more to risk than the wholesaler and that's why large assignment fees are not fair”

Let's analyze this statement, using the previous scenario with the 370K flip that grossed the flipper 200K Vs the 50K grossed by the wholesaler

First thing, flips have larger margins due to larger risks, wholesales have smaller margins because they have smaller risks. Hopefully we can agree as the author and as the reader that more risk should equal higher reward.

Now that we established that, let me remind you that you chose to flip properties and hopefully know the risks that come with flipping properties. Why are you upset that YOU chose a path in real estate that has more risks than another person's path of choice...sounds like you are mad at yourself and your decisions? I’m not sure, just a guess.

Again going back to that same scenario with the 370K flip that grossed the flipper 200K. Let's look at the risk THEIR end buyer picks up, flippers sell their final projects to what are commonly known as retail buyers, a buyer who buys a peace of real estate, usually fully renovated, at full market value.

These end buyers tend to take out long term loans, where they run the risk of having their loans called at any time, can lose their jobs, especially in this volatile job market that we are in, and end up in a foreclosure situation, since they have a long term loan usually 15 or 30 years they run the risk of possibly having the property value decrease over time and have to deal with negative equity. Those are just some of their risks, not including, floods, fires, earthquakes, landslides etc. They do have insurance for these things but these are risks nonetheless.

These are all risks to the retail buyer because they bought an asset at market value leaving little if any room if they would want to sell the subject property, they would most likely be selling it at a loss.

Now with all the risks the end retail buyer incurs is it fair or not fair that the flipper grossed 200K? You might say “well flippers have expenses like paying contractors, project managers, appraisers and they need to feed their families and whatnot, that's why the 200K is warranted”. My response to that is “that’s fair to say and a great point”, so let me ask you this, how do wholesalers get deals? They get them by marketing which is an expense, calling, texting, direct mail or any other way to market to sellers cost money. Title searches and attorney fees also cost money so these are all expenses for wholesalers. Wholesalers are also investors, who are humans as well so they indeed have families to feed as well.

Another point I want to add here is the art of wholesaling is having your clients (sellers & buyers) trade equity for SPEED & CONVENIENCE.

Sellers get their properties sold in 30 days or less, pay no closing costs or transfer taxes, handle no title work, are obligated to do zero repairs. It is the wholesaler’s responsibility to find a niche buyer that will help solve the sellers problems. Sellers also do not pay the wholesaler for finding a buyer or for the services they provide, that is the wholesaler's job to make sure they get paid, through skillful negotiations and having correct knowledge of their market and knowing what their buyer network will pay.

Buyers do not have to deal with spending their time (weeks sometimes even months or years) negotiating with sellers who may be delusional about their property value, and their price. They do not have to spend time driving for dollars finding distressed properties, skiptracing addresses, cold calling, and all of the other things that go into getting a distressed property, below market value, under contract. All they need to do is contact a wholesaler and pick from the inventory the wholesalers worked to get, these properties come with clean clear and marketable title.

We are all investors on some level here on this platform and we all know that the market ONLY pays you based on the value you provide. If you are wholesaling correctly you are providing major value to buyers and sellers just how illustrated in the two paragraphs above. So if they are creating all of this value by helping others, why are they considered greedy when they are rewarded for the work they do?

I would love to get feedback on this post, good, bad or indifferent.I focused on the Wholesaler to Investor aka B to C side on this post.