How do wholesalers make offers with no cash?

Wholesaling
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How do wholesalers make offers with no cash?

Kevin Reinell
Rental Property Investor · Sacramento, CA · Member since 2018 · 80 posts · 31 votes

Not sure I understand how wholesalers without any cash or credit can make offers to a potential seller and get around the hurdle of showing proof of funds needed to close? Can someone explain this?

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Terrell Garren
Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
4y

Why can I find 20 wholesalers easier than I can find a good plumber, electrician or framer?

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    4y

    You still need a proof of funds from your hard money lender or if you have liquid funds. The funds that are usually tying it up is the $100 or $1000 deposit that gets transferred when you identify the buyer. I think it's misleading to think it's absolutely $0.

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  • Kevin Reinell
    OP
    Rental Property Investor · Sacramento, CA · Member since 2018 · 80 posts · 31 votes
    4y

    @Lien Vuong thanks, what about those that have intention of flipping the contract and not doing any rehab or intention of flipping the house? I assume in that case you would still need to have a hard/private money lender partner to show proof of funds just to close the deal?

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Kevin Reinell

    Not sure i understand your followup question?  A wholesaler should have no intention to actually purchase the property.  However, legally they need to be able to close while they still have the contract.  So, yes, they need to have some sort of "backing" to show PoF when/if required.  This is part of their risk to be able to find some other investor to whom to sell/assign their purchase rights.  Once the purchase rights are sold off, the wholesaler doesn't need to "maintain" the PoF since they are no longer a part of the deal really.

    1Reply
  • Kevin Reinell
    OP
    Rental Property Investor · Sacramento, CA · Member since 2018 · 80 posts · 31 votes
    4y

    @David M.

    Thanks for explanation, I understand the mechanics better now, however if you utilize a hard money lender to show proof of funds, wouldn’t that cost something to the buyer looking to show pof? Points origination fee etc.?

    Thanks

    Kevin

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Kevin Reinell

    What!??!!

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Kevin Reinell

    You are missing something big time...  Lets say I'm the wholesaler and I enter into a contract with a "seller."  Now, I find somebody to sell my purchases rights to, the buyer/investor.  The investor uses their own money/financing to close/purchase the property.  Why would let them use my money or I have to sign for a loan/  That defeats the purpose of being a wholesaler (not to mention to pay for a property to which I don't take Title).  This is why many people hate wholesalers since many times the seller doesn't know until closing that they are actually selling their property so some other person, not the wholesaler that they initially negotiated the deal.

    0Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    4y

    Why can I find 20 wholesalers easier than I can find a good plumber, electrician or framer?

    14Reply
  • Kevin Reinell
    OP
    Rental Property Investor · Sacramento, CA · Member since 2018 · 80 posts · 31 votes
    4y

    @David M.

    I was asking more about how the wholesaler initially could put deal under contract without showing proof of funds. I have been made aware that there are certain businesses that help with just transaction funding to address this part.

    0Reply
  • Kevin Reinell
    OP
    Rental Property Investor · Sacramento, CA · Member since 2018 · 80 posts · 31 votes
    4y

    For the record, I am not a wholesaler, I own rentals, was just curious about certain mechanics of it.

    0Reply
  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Kevin Reinell

    For example, the "uninformed" home seller may not be savy enough to ask for PoF...  Remember, the deals are off-market.

    Wholesalers all the time get PoF.  The "successful" ones have money.  Its not what you read on BP where people with "nothing" are starting out wholesaling because they think they can do it with no money.  The act of wholesaling is just part of the "tool" that investors have.  For example, another investor I know doesn't hve the capacity to do a lot of deals as he does the work himself.  If he finds "one too many deals,"  he could wholesale it to me..

    Perhaps to help you understand..  Not sure how much you keep up on BP, but the question pops up once in a while where some wholesaler investor starts a post asking how to get PoF when (s)he doesn't qualify for anything and has not capital reserve because they are trying to wholesale to make money.  There is no great "shortcut."

    1Reply
  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    4y
    Originally posted by @Kevin Reinell:

    Not sure I understand how wholesalers without any cash or credit can make offers to a potential seller and get around the hurdle of showing proof of funds needed to close? Can someone explain this?

    I don't think your question here was ever really answered so here it is: They either lie to the seller, take advantage of their ignorance to RE sales by locking up contracts for tiny amounts of earnest money deposits (EMD) in hopes to find their buyer and make their profit. Many sellers will not know to ask for a POF or how much the EMD should be. Others may have buyers in hand and use their POF to get the deal. They target motivated sellers who may have had a death in the family, a job out of state where they need to move quickly, health issues, or any other mitigating circumstances where they are highly motivated to sell. Not ALL wholesalers will work in this manner of course, but it is very common to see this kind of stuff, in fact, people all over BP brag about their deals where they locked up a property for $100 and made $10K or $50K.

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    4y

    Wholesaling, as it is now commonly done, is really about obtaining a low priced, or even zero cost OPTION on a property.  If the wholesaler is able to flip the contract to a buyer for a higher price he profits, if he can't he spent a little money and some time.  In fact, the residential real estate contract promulgated by the Texas Real Estate Commission, has a section regarding the non refundable amount paid for the "option", or right to cancel the contract.  

    We used to pay option fees to gain option rights on properties all the time, about 40 years ago.  Difference was we didn't disguise the option as part of or as a contract to purchase, so as a result the fees we paid for the option were significantly higher, more of a fair market value for the owner taking his property off the market and willingness to sell to us for a period of time at a fixed price.  

    @Will Barnard is absolutely correct; the way many wholesalers operate today is misleading the property owner into thinking he has a solid sale when all he really has is someone paying him $50 for the right to purchase his property at an all cash price.  

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  • Account Closed
    Rental Property Investor · Indianapolis, IN · Member since 2020 · 562 posts · 554 votes
    4y

    @Kevin Reinell there are tons of blog and forum posts on the subject if you take a second do a little research.

    1Reply
  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    4y

    If a seller is asking for a POF that's not a good wholesale lead. Wholesalers are looking for uneducated sellers who don't know what a POF is.

    3Reply
  • Charles Scott
    Real Estate Agent · Member since 2020 · 25 posts · 7 votes
    4y

    @Kevin Reinell POF letters are rather easy to get ahold of these days, lenders will give them out for free. It's best to always check the POF you're being given to make sure it's not a generic template.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Originally posted by @David M.:

    @Kevin Reinell

    You are missing something big time...  Lets say I'm the wholesaler and I enter into a contract with a "seller."  Now, I find somebody to sell my purchases rights to, the buyer/investor.  The investor uses their own money/financing to close/purchase the property.  Why would let them use my money or I have to sign for a loan/  That defeats the purpose of being a wholesaler (not to mention to pay for a property to which I don't take Title).  This is why many people hate wholesalers since many times the seller doesn't know until closing that they are actually selling their property so some other person, not the wholesaler that they initially negotiated the deal.

    the hate from sellers comes from the lie told by the wholesaler up front.. if they did not lie to the seller there would be no hate. and i suspect a lot of wholesalers are transparent with sellers.. but as we know many are not.. and use these fibs liberally to make their deals look like they are the actual purchaser.. 

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    4y

    @Jay Hinrichs

    Thanks, I know.  I'm trying to be "neutral" and answer the OP.

    1Reply
  • Kevin Reinell
    OP
    Rental Property Investor · Sacramento, CA · Member since 2018 · 80 posts · 31 votes
    4y

    @Will Barnard

    Thanks, this about sums it up directly. They take advantage of the ignorance of the Seller who doesn’t know any better and is desperate to sell, which I always knew, and any seller who is more savvy isn’t a good wholesale lead.

    0Reply
  • Kris L.
    San Antonio, TX · Member since 2019 · 930 posts · 836 votes
    4y

    @Terrell Garren

    Well to be fair, are those 20 wholesalers good?

    0Reply
  • Troy Albers
    Rental Property Investor · Fleming Island, FL · Member since 2019 · 85 posts · 104 votes
    4y

    @Terrell Garren amen.

    0Reply
  • George Munoz
    Real Estate Agent · Fort Lauderdale, FL · Member since 2018 · 360 posts · 213 votes
    4y
    Originally posted by @David M.:

    @Kevin Reinell

    Not sure i understand your followup question?  A wholesaler should have no intention to actually purchase the property.  However, legally they need to be able to close while they still have the contract.  So, yes, they need to have some sort of "backing" to show PoF when/if required.  This is part of their risk to be able to find some other investor to whom to sell/assign their purchase rights.  Once the purchase rights are sold off, the wholesaler doesn't need to "maintain" the PoF since they are no longer a part of the deal really.

    Depending on what State you are, Here in florida on the As is Agreement the buyer has 3 options ( assign with no liability) Assign with liability and no assignment..   And still you could go around on the now assignment if you know what you are doing Actually close and re-sale ( DOBLE Closing)   ..   

    As as far as the original question If is an offmarket prop. you can just deal directly with the seller, Must wont ask you for proof of fund unless the might be sketchy about the whole situation.

    Also I can almost be 90% sure that 8 out of 10 wholesaler out there is daisy chaining a deal .. ( meaning, they are selling a wholesale from another wholesaler) and probably the original wholesaler ( who is actually investing on marketing and also in real estate) 

     No nothing wrong ( hustle is hustle)   ...  as long as things are done well..  :) 

    0Reply
  • Kevin Hart
    Real Estate Agent · Louisville, KY · Member since 2014 · 257 posts · 172 votes
    4y

    @Kevin Reinell in reality, most of the sellers I work with are not sophisticated sellers like you would find with investors. I very rarely, if ever, get asked for a proof of funds. And if in the rare case I do, I have a hard money lender I have a good relationship with that will give me a proof of funds letter. Getting a proof of funds letter does not require you to go through with the loan. 

    2Reply
  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    4y

    @Kevin Reinell ask your Attorney General and see what they say...maybe start with the fraudulent claims and consumer protection divisions...

    I've always found it interesting that folks here brag openly about deceiving the public...and even more interesting forums like BP support this behavior and facilitate these conversations....or go as far as showcasing these guys on a podcast...anyway

    We're working on a study that compares the difference in the transfer price of properties illegally brokered by wholesalers and the true market "as-is" value...to me it looks like a national class action lawsuit and punitive damages, robing unsuspecting consumers of their equity...but I'm no expert in the matter...

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  • Aidan Wong
    Lender · Oahu, HI · Member since 2020 · 18 posts · 18 votes
    4y

    @Kevin Hart I just have to say, I love your comedy, man 🙌

    1Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    4y
    Originally posted by @David M.:

    @Kevin Reinell

    Not sure i understand your followup question?  A wholesaler should have no intention to actually purchase the property.  

    And that is EXACTLY why it is a slimy fraudulent business.

    1Reply
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