All Forum Posts by: Bob Daniels

You want a case that was won against a wholesaler?

-Me, they got me

I had a property under contract for $100 EMD and ultimately I couldn't find a buyer for it and I walked away from the deal. The seller was upset and filed an official complaint. They found that I had successfully wholesaled several other properties, yet never actually closed on anything myself. They argued that I never had any intention of ever fulfilling my purchase agreement contract and was using that contract as a means to circumvent license law. They won, and I lost.

 I paid a fine and had to rework my entire business strategy.  I'm not proud of what happened, but getting tagged for wholesaling can and does happen.  This is why I strongly caution people about wholesaling.  Regardless if you have been doing it for years or are brand new to the game chances are you are doing something wrong. 

Remember that you can do 100 things right, but if you do 1 little thing wrong then you are wrong and can get tagged.  All it takes is one complaint from a customer, their family, a next door neighbor, or anyone for that matter for you to have serious problems on your hands.

@Michael Ealy I would argue that if you are double closing then you aren't even wholesaling, that is an entirely different beast.  You aren't assigning a contract at all.  You are simply purchasing a property and then selling it 5 minutes later.

It still goes back to intent.  If your intent from the beginning is to assign a contract, then that is illegal.  If you are double closing then you have succeeded with intent because you have 100% fulfilled your obligation because you did in fact purchase the home just like you said you would in your offer to purchase.  It doesn't matter if you turn around and sold it 5 minutes later or 50 years later.  The bottom line is you bought it just like you said you would.

I think this was probably true in the past, but only marginally true, if at all now.  

Previously business was conducted during business hours.  So naturally those people who had a morning routine, weren't rushed, had time to clear their head etc, were able to come to work already firing on all cylinders instead of wasting half the morning over by the coffee maker.

In today's world with the internet and mobile technology, you can conduct business almost any time of the day.  So unless you have a job that mandates you work certain hours, then there is no longer an advantage.  I focus on finding deals, either cold calling, door knocking etc.  I guarantee you nobody is going to answer their phone at 5am wanting to talk about real estate.  I wake up late, find my leads in the afternoon / evening, and then do preliminary research on any decent leads I found later at night.

I have already posted that video in this thread, and while I agree with most of your points I strongly disagree with #4. Rewatch the video starting at 7:34 to 8:47 and they clearly specify that you MUST enter the contract with the intention of closing on the property, not as a way to circumvent license law.  It doesn't matter if you attempt to be honest with the seller and tell them that you intend on assigning the contract by finding another buyer.  If from the start your primary goal is to wholesale this contract off then you have already violated license law, and that is one of the big problems that the majority of wholesalers run into.  

That is why I said it is possible to be an investor who happens to wholesale a few deals, but it is impossible to have wholesaling be your full time primary business

@Duncan Hayes The author is asking a question to full time wholesalers.  If you are a full time wholesaler, then by definition your business model revolves around tying up a property with the intent to find another buyer.  This is illegal in all 50 states since you never had any intention of actually purchasing any of these homes.  

You can be a legitimate real estate investor who just happens to also wholesale some properties depending on the circumstances, but nobody can legally be just a full time wholesaler.

I don't think people here at BP have much of a problem with wholesaling when done properly, the problem is that gurus such as Ron Legrand that you mentioned, sell expensive classes to people and fill their head with nonsense like this is the best way to break into real estate.  People exit these classes thinking they will just start wholesaling.  As mentioned you can't legally start by wholesaling, because by definition then you are signing a purchase contract with no intention of actually purchasing the property yourself.  

Worse yet, the overwhelming majority of people who wholesale, since this is how they plan to 'break into the business', know very little if anything about real estate.  They tie up properties and often fail to deliver.  The wholesaler simply walks away from a failed deal, where as the seller has wasted precious time and could be seriously harmed if they needed the proceeds from the sale to pay other debt obligations.  A persons home is likely the most expensive thing they will ever own, so to have a rookie come in and screw things up can cause serious harm to the seller if they have a financial situation that requires the home sold quickly.  This potential to do serious harm is the entire reason why people are required to be licensed in the first place.

Finally, let me analyze this deal of yours, so you made 7k, the person you assigned it to made 74k, and the final end buyer made 30k equity?  By my math the original homeowner sold his house for 114k under fair market value.  The fact that they still walked away with 20k is irrelevant to the fact that they could have had 134k, or much closer to that had they been represented by a true real estate professional.

I have nothing against people who wholesale, but I can't stand wholesalers.  -And yes, there is a difference between the two.

Assigning a contract is legal.  Signing a purchase agreement with a seller, with the sole intention of later assigning said contract to another buyer is not.  You can not sign a purchase agreement contract on a property that you have no intention of. ever. actually. purchasing.  

Intention is everything.  You can most certainly intend to buy a piece of property, and then later change your mind and decide to wholesale it, but if you intended from the beginning to wholesale the property, then you most certainly will get tagged with brokering without a license if anyone ever files a formal complaint against you.  

This is due in part to the legal concept of "intention to be legally bound" which is a requirement to form a valid contract.  If you sign a contract with no intent of actually fulfilling that contract, then a court will rule the entire contract to be voided.  The typical wholesale contract offers little or no earnest money deposit, and has verbiage that makes it incredibly easy for the buyer to back out for any, or no reason at all.  Courts have consistently ruled that creating such 1 sided contracts where the seller is obligated to sell, but the buyer is under no serious obligation to buy have been ruled as void.  

Please watch the below video made by the Ohio Department of Commerce Division of Real Estate.  The entire thing is good information, but specifically 5:50 through 9:44.  This section covers both "is wholesaling in general legal", and also covers tying up a property with a contract, with no intent to actually buy it yourself. 

https://www.youtube.com/watch?...

I challenge you to find me one person that you know that actually does it legally.  Just because nobody has slapped their wrist yet doesn't mean what they are doing is legal.  People regularly speed down the interstate, but that doesn't mean it isn't illegal.  The Real Estate Commission focuses their time and effort on complaints, so the first person that gets pissed off at a wholesaler for any reason and files a complaint is going to spell trouble for that wholesaler.

Wholesaling in and of itself is legal, however I would argue that 100% of people who label themselves as a 'wholesalers' are doing it wrong.  You might be an investor who just happens to wholesale a few properties, but if your goal is to wholesale, then by definition you are doing it wrong.

There are several problems with wholesaling, and the first is intention to buy.  You can not legally enter into a real estate contract if you have no intention of actually closing on that property.  If your goal from the beginning is to assign the contract, then the contract you signed is automatically be declared null and void.  How can people tell what your intentions are?  -If you have previously wholesaled 10 properties and have never closed on a single unit yourself.  If you only put up a very small earnest money deposit, if you don't have funds on hand or a letter of approval from a bank, if your contract states that this offer is contingent upon finding another buyer etc etc etc.  The Commission will look at the totality of circumstances and if it can be shown that a  contract was signed with the intent to tie up a property while you look for another buyer, then that contract is void and you are guilty of practicing RE without a license.

Marketing:  This is the second problem.  While you can market your equitable interest in a legitimate contract (see above), it is very difficult to actually market and find a buyer for a contract.  Instead what people do is they post pictures of the house online, or post addresses, or other features of the property such as sq ft, bed/bath count, lot size and so on.  By doing any of these you aren't marketing a contract, you are marketing the property itself.  

Here is a 3 part series interview with the Real Estate Commission in Ohio.  While laws will vary slightly by state, the overall premise remains largely the same.  https://www.expresshomebuyers....

@Christopher Phillips I completely understand that at some point something is going to go and when it does you need the money to cover the costs.  My entire point however is how many times is something going to go over the course of ownership?  A brand new AC unit isn't going to go out next year, or 5 years from now, but a used one very easily could do just that.  As I mentioned, you will likely only replace the AC unit once if you hold onto the home for 20-30 years, where as you would likely replace it twice if the unit was already a decade old.  While you still need to have enough in reserves to handle the expenses as they come, the entire point is that you will need to dip into those capex reserves significantly less overall times during the course of owning the property if the guts are brand new.  

If you replace an AC unit twice in 30 years of ownership because you bought a house with an old HVAC, and I replace mine only once because mine was new, then I had significantly less costs associated with my property then you did, even though we both may have kept 20k in reserves, you had to dip into those reserves twice compared to my one time.

@Christopher Phillips Age of the property is everything when it comes to Capex.

While it's true that tenants will break things regardless if it is new or not. That is what your maintenance account is for. Capex is for big ticket items like your roof, HVAC, hot water heater etc.

A typical HVAC system should last between 15-20 years.  If the HVAC is brand new, and you hold onto the property for 10 years before selling it, then there is a VERY high chance that you will never have to replace the HVAC at all.  If you hold the property for 30 years you will likely replace it once.  Compare this to a situation where the HVAC is already 10 years old when you buy the property, if you hold onto it for the same 10 years you will likely have to replace it once...or twice if you hold it for 30 years.

Secondly, brand new fixtures come with warranties.  So even if your HVAC does go out on you next year for some terrible reason, it will be replaced under the items warranty at no (or minimal) cost to you.  Compare this to buying the HVAC that is already 10 years old.  If that unit goes out next year then you are stuck with your pants down and your checkbook open.

You should always have sufficient reserves, regardless of the age of the unit.  However you are significantly less likely to ever need those reserves when all of the fixtures are new.

Finally, I prefer to set my capex and maintenance in real dollar amounts, instead of a percentage of rent.  An HVAC will cost *roughly* the same amount no matter where you are in the nation.  However a 1300 sq foot home in Oklahoma might rent for $600/month, where as a 1300 sq ft home in San Francisco may rent for $4,000/month.  Both will require the same HVAC unit if a new one needs installed.  If both landlords set aside 10% for capex, then one is setting aside 60/month, the other is doing 400/month even though they will likely have roughly the same expenses, one landlord is putting away nearly 7x as much into the capex fund as the other.  10% of 600 may not be enough, and 10% of 4000 may be way too much.

Most of the big box agencies have a pretty decent training system set up to help brand new agents.  The down side is that I would wager that being a real estate agent has one of the highest attrition rates of any career field.  I would guess that 75% of new agents quit within the first two years.  

Once you establish yourself, you will find deals start to roll in.  It's the getting to that part that is tricky.  I wouldn't suggest going to school while you first start as an agent, focus on either one or the other.  If you are a struggling agent and someone wants to see a house at 2pm on a wedn, are you really going to turn them down and say sorry, i'm in class?  Or how about another time?  

Splitting your time between the two will likely cause you to fail at one, or both of your endeavors.