Originally posted by @Will Barnard:
Originally posted by @Alexi Schreier:
Hi all, I've never bought from a wholesaler before and would like to start doing so. I have a high-level idea of how to do it but I'm unclear on the timing of when each item needs to be done. I invest in OH, but this is more of a general question.
Could anyone please walk me through what the process of buying from a wholesaler looks like?
Some more specific questions if needed:
- When do I put up the money for the assignment fee (assuming it's an assignment contract)?
- Does a title/escrow company hold the EMD and assignment fee?
- What contingencies are typically accepted by the wholesaler? (clear title, financing, inspection, etc)
- If there is no inspection contingency do I need to get my inspection done before I submit an offer or before the assignment fee is paid? (Not sure if there's a difference).
Thanks in advance for any help!
Every deal, every wholesaler, and every situation is different so it is important to both recognize that and have the knowledge and ability to adapt while protecting yourself.
Typical process: You receive a wholesalers offer. You study and research the property online first getting to an estimated exit value and estimated rehab number based on photos and any details/evidence provided by the wholesaler. You NEVER trust the numbers presented by the wholesaler. Once the deal passes your first due diligence period on line and you want to continue forward, you request the purchase contract from the wholesaler along with the assignment contract (If it is an assignment deal), title info, escrow/closing attorney info, and info to gain access to physically inspect. You should bring a home inspector with you to check the defects of the property and someone who can properly analyze the true rehab numbers.
If you get past that and still want to move forward, it is important to note to NEVER pay the wholesaler directly, always through escrow or closing attorney. Many wholesalers will state that your EMD is non refundable as they want to ensure you can't back out and that is fair, however, it should be noted in writing that the EMD IS refundable if the seller can not deliver clear title by your specific closing date. Check with your real estate attorney for specific language that protects you for this.
Hope that answers your questions.
Couldn't agree with @WillBarnard more!
1. Do your homework. This is the best defense against an unethical wholesaler. Don't just look at the property, do some research into typical renovation costs in the market.
2. Wholesale numbers should be taken with a grain of decent grain of salt. They're trying to preserve a margin in your favor. Look for transparency and lead with, "what's wrong with the property, not what's right with it?"
3. NEVER PAY A WHOLESALER DIRECTLY. It's in everyone's best interest.
4. Definitely include in the terms that the EMD is refundable if things fall apart on the disposition side (seller / wholesaler / title company).
Otherwise, try to find people who you can trust and are willing to develop a relationship with. Check their social media and website, if possible. Also determine if the wholesaler specializes in the kinds of investments that you're looking for and has the speed, bandwidth, and network you want to tap into. All falls under the "do your homework" category. Best of luck!
