All Forum Posts by: David Hines

Originally posted by @Michael Quarles:

Your comments/concerns brought my fingers to my keyboard. So I am jumping in.  To begin , if I may, let's define terms.

• Assignor - A person who is selling the rights to an agreement/contact. Some states have limitation on the number of contacts a person may sell without the attachment of a real estate Brokers License involved. Some state that number is Zero in California it is 8.
• Wholesaler - A person who buys low and sells low, both with constructive notice. Typically zero or little work performed to the property between the buy and resell. 
• Wholetailer - A person who buys low sells at 100% "As Is" value, both with constructive notice. Typically zero or little work performed to the property between the buy and resell.

I think most people just lump all these under the term wholesaler. Most of my ethical issue is with assigning contracts, but in my experience that is what a very large percentage of those who call themselves wholesalers do. I don't have as much a problem with it when they are actually closing the sale and putting it in their own name. However, I still believe that if someone is knowingly convincing a seller that their property is worth less than it really is, while planning to turn around and profit off of that deception, then that is unethical. Wholesalers can try to justify it however they want in their own minds (or on this thread) but that isn't the same as acting with full honesty, openness and integrity.

Originally posted by @Bryan Chuchta:

If I contracted a house for $25k that the ARV was $100k, I might have a $10-$20k fee on it. If your an investor and could buy at 50% ARV (assuming no major repairs) why would you pass that up? Or worse yet, try to cut the wholesalers fee after he brought you such a great deal.

No investor would pass up that deal. However, that isn't what I was talking about. The point I've been making is that you or any other wholesaler is acting unethically when they get a property under contract for 25k that they know they can turn around and sell to their buyer list for 35k or 45k. It is completely irrelevant what the ARV is. The value of the property at the time of purchase is much lower. I think wholesalers tend to rip off sellers, I don't have as much an issue when it comes to getting a fee from an investor later.

Originally posted by @Dean Letfus:

If you want to have a successful business then just tell them the truth. I've done hundreds of transactions and always disclose my fee. It's on the HUD anyway. The way to market this is to explain the value add you provide. I would say for example this is a 100K property, you are buying it for 60K and paying me 10K. So I have just made you 30 grand. I have NEVER lost a sale through being the wholesaler. Tell no lies, build your brand on whatever your point of difference is.

In fact one of my previous strategies was to charge the buyer half of what I saved them. They found a house they wanted and would happily pay 110K for. I get them a contract at 70K. I get 20K, they get a big smile on their face through the 20K equity!

I agree that being honest and ethical is key to having a successful business. I am curious how you are able to get a contract with a seller for 70k on a property that is worth 110k if you are being open and honest with the seller?? I think it is much more likely that a wholesaler in that situation has taken advantage of an uneducated seller if not been outright deceptive in convincing them that the property is actually worth 70k.

To head off one potential argument, if the property is distressed and in need of repair and you are really talking about an ARV of 110k, then I would say that at the time you buy it the property is not worth 110k. But it doesn't seem like that is what you are referencing when you celebrate the 40k profit...

Originally posted by @Winston Cummings:

It's a free country to have opinions. A Broker , RE, Banker and Wholesaler all provide a service. If you prefer not to use that service, then dont, but that doesnt mean the service being provided is a scam. Yes some sellers are ill informed but a lot are educated sellers who chose to go the route with a wholesaler. They themselves might not trust an RE or have the equity, time nor the desire to do repairs etc. So it all comes down to a personal choice or preference. Again a deal is all in the mind or perception of the parties involved. That's my core value.

Wholesaler's don't provide a service, they provide a disservice. The only service they provide is enriching themselves at the expense of the suckers they can sink their claws into.

Your argument that if you don't want to use a service then don't use it, is an argument commonly used by scammers when they are called out. I COMPLETELY disagree that there is some large group of fully educated sellers who receive full disclosure who still choose to work with a wholesaler.

As far as your other arguments are concerned;

1) If someone doesn't trust a specific agent, then they should search out another one. There are a multitude to choose from. I don't think there are many people who just flat don't trust ANY agent.

2) If a seller doesn't have equity then how does going to a wholesaler help? Say a seller has a property worth 100k, but they owe 120k, what bank in the world would let it be sold for lower than market value so that a wholesaler can add their fee?

3) If a property is in need of repairs that the seller doesn't want to do, then that obviously lowers the market value. Going to a wholesaler doesn't solve that problem and isn't what I'm talking about. There are plenty of investors who would be happy to buy the distressed property and fix it up. But going with a wholesaler who will add nothing of value to the transaction does nothing to help the seller.

Your core value that a deal only matters in the minds of the parties involved is naïve. Even if a seller walks away from a transaction happy, that doesn't mean that they weren't taken advantage of. They may never find out, but that doesn't mean the wholesaler acted ethically. Wholesalers are a drain on the real estate investing industry and impact all of us by making transactions more costly and contributing to the public's distrust or suspicion of real estate investors.

Based on these numbers, it doesn’t look like it would cash flow. You’d be far enough away that you should factor in property management costs. You’ll also want to factor in vacancy, maintenance costs, HOA dues, etc. Do you need the equity for purchasing a place in the Katy/ Houston area? Even if the answer is no, if you had 100k would you invest it in a non-cashflowing property a couple hundred miles away?

@Pratik P.

Thank you as well sir, its been enlightening.

Originally posted by @Pratik P.:

@David Hines So tell me if I'm understanding this correctly. Let's say I negotiate to purchase a fixer for 100k with the idea that I'll spend another 50k to fix it up and sell it at 200k...for a 50k profit. But I decide to wholesale it for 125k to another investor because maybe I have a better deal or something. Does that make me a bad guy? 

Sounds like you're saying the moment I decide to wholesale something instead of keep it, it makes me unethical. 

No, I would say that at the time you negotiated the contract and made the purchase you were a flipper and planned to actually add value to the transaction by A) Being able to actually close on the transaction and B) making improvements to the property. If at a later time you decide to sell for a profit without actually doing the improvements that is fine, you haven't had to deceive the seller to get them interested in the transaction.

Using your numbers, imagine a wholesaler who has no plans to improve the property and no ability to close the transaction. Instead they find a distressed property that is worth 125k, but are able to convince the seller that it is really only worth 100k. They then assign the contract to someone from their buyers list and walk away with the profit. That end buyer is fine they are making a profit on flipping the property. But I would say that the wholesaler was acting unethically to deceive the original seller of the property. I think this is an all too common occurrence with wholesalers. It is my experience that most wholesalers do not have the financial ability to close on a transaction. They may have been to a guru seminar and are looking for a way to make an easy buck, you know the type, all excited to get in on this real estate game without any money of their own.

If your hypothetical describes your activities, I would call you a flipper and not a wholesaler...

Originally posted by @Pratik P.:

Originally posted by @David Hines:

@Pratik P.

Also, just because something is legal doesn't necessarily mean it is ethical. If there is an ethical wholesaler who is upfront with a seller and tells them before signing a contract that they won't be actually closing on the property and that even though they are only offering X, they really believe the property is worth Y, then I wouldn't have a problem with it.

I do not believe this happens very often if at all. What seller would agree with that after being told they could make more by marketing to buyers directly??

Comon David, do you really expect the buyer to say "hey I know I'm offering X, but I think market value is Y"?? Is the buyer supposed to represent the seller or something? You have this notion that the buyer has to inform the seller of market value, etc. Just make your damn offer and move on!

If I paid market value for every flip/wholesale I would have lost a ton of money by now because the numbers would never work. 

It's obvious you have some very strong feelings against wholesaling. Just consider that there is a right way and wrong way to do it. Just like being a broker. For example, I think it's kind of shady/unethical for brokers to have "pocket listings". They have the fiduciary duty to market their client's property for max exposure. Instead they don't list it and take it to their buddy buyers for the full commission?? Maybe I'm missing something as I'm not involved in the broker world. 

Damn we really beat the crap out of this dead horse huh? :D

I agree with what Jay had to say about this. The only thing I would add is that, at least in my experience, a pocket listing is at the discretion of the seller. As a broker I am always in favor of the largest possible market seeing a property, but there are some sellers who request that the property not be placed on the MLS. Think of the owner of a multi-million dollar property who doesn't want a ton of people just coming to look at the house who have no ability to buy it. It makes complete sense to me that that seller may want a broker to only market the property to verified buyers.

Originally posted by @Pratik P.:

Originally posted by @David Hines:

@Pratik P.

Also, just because something is legal doesn't necessarily mean it is ethical. If there is an ethical wholesaler who is upfront with a seller and tells them before signing a contract that they won't be actually closing on the property and that even though they are only offering X, they really believe the property is worth Y, then I wouldn't have a problem with it.

I do not believe this happens very often if at all. What seller would agree with that after being told they could make more by marketing to buyers directly??

Comon David, do you really expect the buyer to say "hey I know I'm offering X, but I think market value is Y"?? Is the buyer supposed to represent the seller or something? You have this notion that the buyer has to inform the seller of market value, etc. Just make your damn offer and move on!

If I paid market value for every flip/wholesale I would have lost a ton of money by now because the numbers would never work. 

It's obvious you have some very strong feelings against wholesaling. Just consider that there is a right way and wrong way to do it. Just like being a broker. For example, I think it's kind of shady/unethical for brokers to have "pocket listings". They have the fiduciary duty to market their client's property for max exposure. Instead they don't list it and take it to their buddy buyers for the full commission?? Maybe I'm missing something as I'm not involved in the broker world. 

Damn we really beat the crap out of this dead horse huh? :D

Yes, that is exactly what I would expect of a wholesaler to consider them to have acted ethically. As I said before, this doesn't apply to a flipper or investor trying to get the best deal possible. A wholesaler is different because they bring nothing of value to the transaction, they are just middle men trying to make a buck. All to often, the only way to make that buck is by deception. Just look at the question from the OP for a prime example...

@Pratik P.

Also, just because something is legal doesn't necessarily mean it is ethical. If there is an ethical wholesaler who is upfront with a seller and tells them before signing a contract that they won't be actually closing on the property and that even though they are only offering X, they really believe the property is worth Y, then I wouldn't have a problem with it.

I do not believe this happens very often if at all. What seller would agree with that after being told they could make more by marketing to buyers directly??