Is wholesaling predatory?

Question

When I'm buying property at steep discounts, I've had people ask me "isn't that predatory, buying someone's house for 'less' than it's worth?"

It's something worthy of consideration. I've meditated on it myself because it made me mad when the person said this. But why did it make me mad? Was there a part of me deep inside that was afraid he was right? Possibly. I needed to dig deeper and really come to terms with the service my wholesaling company offers to sellers.

One of our core tenets within my company is to "only help people who need help." So I knew, at least on paper, we were focused on helping people. I've heard the stories of people crying when we agreed to take their problem property off their hands. But what I kept coming back to was the term "predatory." How much equity is appropriate to give up to get someone out of a tough situation and get them paid in cash within 7, 10, 14 days? I've had deals where, for all my efforts, I only made $500. Other times we've made over $40,000 on a single wholesale deal. Is $40,000 too much? When does the profit from a single deal become too much and move into predatory waters?

As I considered all of these things, an analogy came to mind...

Sometimes you're sick and need to go to the doctor. You call in to the office, and schedule an appointment, if you can get one. Let's say you have to wait 3 days to see the doctor. If you're not highly motivated or extremely sick, you can probably wait that time and would much rather only pay your copay of $40 to see the doctor.

Now on the other hands, let's say your are violently ill and need medical attention immediately. In this situation, you'll probably call an ambulance despite it costing upwards of $1,000 for a single trip. Someone will pay 20x more for immediate servicing of their need. Worse yet, if someone is in a super difficult situation, injured in the mountains and needs a helicopter ambulance, they'll be looking at a bill of $20,000 or more!

This made me realize, wholesalers are the ambulances of real estate. Not everyone can wait days to see their doctor (i.e. use a realtor). Many times people need help right now and the value in that is immense. We provide a very specific service to sellers and depending on the level of service they need, we can get paid well for that.

Dylan Tanaka · Answer

Contract assignments, double closing, and "wholesaling" are not predatory or unethical behaviors.BAD people are predatory and unethical.  Unfortunately all you have to do to become a "real estate investor" is just to say that you are one.Soon enough the government will regulate wholesaling nationwide as they have in Illinois, Ohio and Pennsylvania.Lumping all investors/wholesalers together as "Ambulance Chasers" is irresponsible.  There are millions of homeowners who are happy that investors exist because they were able to help them when a conventional transaction wasn't the answer.

Dennis Wayne · Answer

I think your spending too much time watching the lifetime channel television with your wife Or too maybe it’s many hallmark specials ..either way you need to get a handle over yourself and smack your inner child ! Stop worrying what people think because you’ll be da$&ed if you or da&$@ if you don’t ! Develop thick skin and just keep on . Look If you actually excel in life and become more successful than others around you then yeah your going to be labeled a predatory robber Barron or profiteer so just accept it . The lion doesn’t lose sleep over the opinions of the sheep !!

Will Fraser · Answer

I think you're doing some good deep work here getting into the nitty gritty of the ethics of wholesaling.  For what its worth I agree with you:  wholesaling is emergency service . . . costly but worth it at the moment.

I think to be intellectually honest we have to acknowledge that it IS on a spectrum of ethics.  Wholesaling can easily trend hard towards flat-out-deceptive or it can be done with the utmost honor and honesty.

I think what happens if we aren't honest about that gradient is we can give blanket justification to the act of wholesaling and then use that to justify the ends, regardless of the means.

Example: If I own a house next door to someone and use that to drive down their property value so that I can buy it, fix it up, then sell them both at a profit that would be deceptive.  That's obviously manipulation towards my goals at the expense of another person's wellbeing, but in the final analysis they had a problem and their house would not have done well on market . . . so I helped.

In the end, some scenarios in real estate require a specialized approach, and wholesaling can be just the ticket for that.  How we will know if it is ethical:  is it done honestly with a pursuit of the best possible outcome for all parties?

Damaso Bautista · Answer

@Chris Gould

Hey Chris I believe every individual has their personal line and their own ethics.

I also personally never judge anyone for doing something that is legal.

I learned many years ago that trying to place your values on someone else doesn’t work.

If your business is doing well and you are not breaking the law, then go about your business.

Don’t worry about what other people think.

On the other hand try your best not to judge someone when their values are not in line with yours.

Just my opinion.

Keep making money 💰 💰

Troy Weaver · Answer

Not at all. Wholesalers go after ugly houses that no one will buy if they put on the market for its ARV. That same home owner could go with a realtor but they'll have to pour a lot of money into (most likely take out a loan) and wait for the repairs to happen and a sake to happen. Most home owners that have real motivations time sell just don't have that option to either take out a loan for renovation, pay out of pocket for renovation, time to wait for renovation and sell of the house this whole process could take months and months where a wholesale could come in get them out of that property in less than a month. Even if the home owner isn't distressed the wholesaler are most likely getting the home owner what their house is currently worth. Its nothing unethical about it at all. There are shady people all sides of the table. Realtors,investors, banks, wholesalers, home owners. You just have to move correctly when it comes to who you do business with.

Jonathan R McLaughlin · Answer

@Chris Gould well the analogy you use cuts a lot of ways. I would describe that pricing from the ambulance as predatory and usually you aren't looking at a bill for a rescue unless you are a complete idiot. And in each case the charges are regulated and licensed and public, at least in part to prevent abuse. Wholesaling deliberately circumvents license laws designed in part to prevent abuse.

Props for thinking deeply about this as @Will Fraser. If you are to continue being intellectually honest with yourself I think you should wrestle with the question of is my business model dependent on the misfortune or ignorance of the vulnerable. It is a thin line between being the emergency service of last resort and an ambulance chaser, so to speak. "To live outside the law you must be honest" as Mr. Dylan said to sweet Marie.

Chris Gould · Answer

I appreciate your input here Will, especially with you being an agent. It 100% exists on a spectrum. Some of my "competitors" will get a house under contract with no intention of holding the agreed price and then on the 30th day of their 30 day contract, they come back demanding a huge reduction or they cancel out the contract. They are wasting the sellers valuable time. I guess this goes for any type of business. You can be slimy and get deals done or act with integrity and accept that you will lose some short term money but gain long term success by having an upstanding brand.

Brandon Sturgill · Answer

@Chris Gould State licensing laws exist for a reason...and 99% of wholesalers have no clue what they are doing...so, this is a real consumer protection issue. Having no intent to close the property and take title is brokering real estate without a license...that said, there is nothing wrong with hustling for deals. Our litmus test is "highest and best" use...as a licensee we have to disclose highest and best use, but you have to remember that the best outcome does not always mean the highest sale price.

Eventually you'll see the Attorney Generals involved with wholesaling...then things get ugly...not to mention they can easily surf BP and retroactively litigate any individuals they believe to be in violation of consumer protections...should be fun times.

Jonathan R McLaughlin · Answer

@Dylan Tanaka and likewise :)

Dylan Tanaka · Answer

@Jonathan R McLaughlin we’re on the same team sir. I meant for others who read my post to see my thoughts. Didn’t mean to come across as accusatory.

I appreciate you!

Is wholesaling predatory?

Most Popular Reply