Ethics, honesty, morality in wholesaling?

One of the biggest questions that run through a new wholesaler's mind is the ethics of wholesaling. I know this because when i started wholesaling i immediately felt uneasy about what nearly every single "guru" on the internet is teaching. 

My first thought was that if i wanted to be successful in wholesaling, i must follow the path of those who are already successful in wholesaling. So i started taking action exactly as it was taught by the wholesalers online. Not to knock them, because often times people just don't know what they don't know. As they begin profiting in a certain way which may borderline being unethical, they automatically justify in their mind as to why it's okay to do business this way (because they want to keep profiting).

 As i took action and started to speak to sellers i couldn't help but feel as though my negotiating tactics were just an attempt at putting blinders on the sellers to make them sign on the dotted line before they realized there were other options. This comes in the form of hitting on their stress factors to stimulate their desire to get relief, hitting on the benefits of selling to you, and creating a sense of urgency so that they make a fast decision or else they'll "lose out". Just basic sales techniques, sure, but using these techniques with people who were vulnerable just did not sit right with me. 

My first breakthrough using the tactics described above was a deal which was going to net me $25,000. Everything was in place and ready to go... until just before the closing, my attorney informed me that the amount owed on the mortgage was DOUBLE what the seller said it was. The deal fell through. 

After more conversations with sellers and many almost-deals (such as "I'm ready to sign, ill get it signed by tomorrow!" and then.. never heard from them again.) i finally started to question things and re-evaluate what i was taught and what so many others are unfortunately being taught.

After a little thought, i concluded that the reason I've had so many fall-throughs is because people do not like feeling pressured or like they're being taken advantage of. And i sure don't like making them feel that way, i want them to feel like their best interest is in the heart of my company. Not only did i want them to feel that way, but i wanted it to be the reality. And i do believe for true success, happiness, and fulfillment, it is important to put people first and profits second. Obviously this does not mean creating a charity of your business or even taking less of a deal than you'd like to. It simply means making sure that, when it comes to the closing table, your seller (and buyer) feels good about doing business with you.

So i completely restructured my ways of conducting business, re-named my company to represent my business beliefs, and set sail. Below i'll list a couple of key factors that helped me start to feel great about my wholesaling business: 

1. Give Them Their Options

One of the first things i tell a seller who calls is that unless their property is creating a headache, i strongly recommend selling on the market before considering selling to us. I tell them that they will come out far ahead in price even after taking into account realtor commissions. Sure, it may take a bit longer to sell and they might want to do some repairs to get the maximum value for their house, but if they have the money and patience to do so.. that's what i would do if it were me.

This ensures that the people who really don't need our help move along quickly and typically thank us for our transparency along the way. It doesn't waste their time, and it doesn't waste our time. It also cuts through the BS with sellers who may have an urgent situation but are (understandably) attempting to not reveal it because they think they'll get a better price by keeping it a secret. To give you an example, a seller who is being foreclosed on in a month might say "we're not in a big rush but want to see what you'd offer"... you then tell them they're better off selling on the market if they're not in a rush because you'll offer them far below what the property is worth. At this point they're forced to either walk away and likely be foreclosed on OR expose themselves and continue the conversation. Because even if they don't tell you they're being foreclosed on, if they continue the conversation you'll know that there is some form of urgency and that they've now dropped the idea of getting the best price for their property.

We are not trying to pry property from people's hands, we are simply looking for those who actually need help and are more than happy, or at least relieved, to take a big loss in equity in exchange for convenience. 

2. Be Realistic About Price

Most of the wholesaling teachers online are teaching the "get it under contract, worry about the rest later!" method. Because of this, I've seen time and time again new wholesalers who tie up a property for a price that is way too high and end up disappointing the seller, wasting their time, and further adding to their stress. Just last month i had an experience with a seller whose house was tied up for 2 months by a wholesaler that couldn't close on it because it was priced too high. He returned to her and negotiated her down in price several times in effort to close the deal but he was never able to. When i spoke with her while the wholesaler had her property hostage, the desperate and newly jobless homeowner had 24 days left before losing the house to tax delinquency. 

Educate yourself on rehab costs in your area and the conservative ARV of properties. As a new wholesaler, i strongly recommend only taking on deals which are such a ridiculously good deal that there's no chance in you messing it up. As time goes on and you learn more through your transactions, you can then start to take on more deals because you've learned to identify where the line is between a great deal and a not-so-great deal. 

My first wholesaling deal came from a transaction in which i did not feel so great about the price of the property. The homeowner needed the mortgage payoff but it was too high in price for me to feel comfortable taking it on so i used a tactic that i love to use when i can't get the price i need to make it a guaranteed close. Here's the tactic...

I told the homeowner 

"Well, for this deal to work for us we would need to be at xx,xxx but i understand you need to be at xx,xxx... if you're interested here's what i can do. I can draw up a purchase agreement for the price of xx,xxx that you're asking but the agreement will be subject to finding an end investor. I know many different investors who may find value in this property at that price which i just don't see in it. I will then try to assign it to another investor for a small markup so that we can profit from the deal. If they are not willing to pay anymore than what you're asking, we will still move forward with the transaction even if we do not profit. Best case scenario, you sell the property for what you're asking. Worst case scenario, in 30 days it doesn't sell and you're still in this same situation. Does that sound like something you'd like to do?" 

3. BE HONEST

I always tell the homeowner that we may fix and flip the property or we may assign it to another investor who finds more value in it than we do. The fix and flip part is only true because I have connections to investors who will fund the fix and flip and split the profits 50/50 after it sells. Otherwise, whatever your truth is... that's what i recommend telling them. You can simply tell them that you're newer to real estate and your main focus is on finding properties for the more experienced investors whose time is better spent on things other than looking for property. If they are truly motivated, you don't have to lie or use any manipulative tactics to persuade them into selling.

4. Have A Buyer FIRST!

For me this made a huge impact on my business and i think it will on yours as well. Have a buyers list, talk to other investors in your area and ask them about the people on your buyers list to check their reputation. A good buyer, someone you want to do business with, will never go behind your back. This is why it's so great to first have a buyer for a property before you put it under contract. First make sure the seller is comfortable selling at a price that works and get quality photos of the property. Now find a buyer who is reputable and trustworthy to verbally commit to purchasing the property if everything checks out in their physical inspection. After you've found a buyer, put the property under contract with the seller for the price you spoke about and go see the property with the buyer. Now proceed with assigning the contract to the buyer, and get to the closing table! 

5. Legitimately Have The Seller's Best Interest In Mind

Look, i know that it's easy to get caught up in focusing on profits, especially as a new wholesaler. But if you're getting into this for the long haul, and your goal is to build sustainable wealth through wholesaling and other entrepreneurial ventures... the most important thing you can do is make your main priority providing quality service.

If you provide quality service and add a ton of value, the profit will come. Ask yourself how you'd like to be treated if you were a seller and also how you'd like to be treated if you were a buyer. If you were a seller or buyer, what is the BEST possible treatment you could receive from a wholesaler? By best i don't mean being given 100,000 for a 10,000 property... i mean the BEST treatment you could receive that's also fair and a win-win for everyone involved. That is how you should conduct your business, as if everyone you do business with is yourself. Because i truly believe in karma, that what comes around goes around, you reap what you sow, and whatever other sayings they have about it. Whatever action you take will always come back to you in some form, in business or any aspect of life. 

Many people starting out in this business have only one goal, become wealthy. But if you spend time with wealthy people you will notice there are some who are incredibly positive, happy, and full of life. And then some who are extremely depressed, many of them are addicts, and they lack that "spark" you probably think about a wealthy person having.

If you look at the differences between the two types of wealthy people i can guarantee you two things:

Firstly, the wealthy person who is happy and outgoing has created their business(es) ethically and with a purpose, with meaning and integrity. They are fulfilled because they live their life and conduct their business for a purpose greater than their self. 

Secondly, the wealthy person who is depressed and lacks that spark of life has either built their business(es) in unethical ways or lacking purpose (other than the purpose of getting money), or both. This person is unfulfilled because they have not lived their life or conducted business with a purpose which is greater than their self, probably negatively impacting others along the way.

If you're reading this it is likely that you're a new wholesaler, probably even a new entrepreneur. Ask yourself if you'd rather be wealthy person #1 or wealthy person #2... Build the foundation of your success with strong ethics, integrity, and purpose. Don't just chase money, chase money with purpose. Because once you're financially successful and you don't have to pursue money anymore... what will you have left to pursue? Purpose.