There are many wholesale companies or Investors as we all know. There are those that do their very best to secure a property at the right price, under the right conditions and with a good estimate of repairs. These are Wholesalers who have done enough research and have the ability to speak to their clients about all their options that allows their clients to make an informed decision. This a valuable skill.
As far ARV is concerned, Those with access to the MLS obviously have better access to comps. Some may exaggerate but most appear to be doing their best. so I won't get into that in this discussion.
Also , I don't want this discussion devolve into the legality or the efficacy of Wholesaling That is not what this is about.
What this is about, is those Companies that call themselves Wholesalers that target less experienced or beginner and novice investors. I won't be mentioning any names be it personal or business.
In addition, I decided to write this because I came across so many of these companies former clients in the normal course of business. And they told me in great detail of their experience. But, that would not be enough for me to write about this subject.
I did not go looking for them, they came to me.
I received a call early one morning from Joe (not his name) asking if my property was still for sale and could he see it. When I arrived at the house Joe was there and he toured the house and returned outside. At this time he said he liked the house asked for the price and agreed to buy it but with an option, $50.00 for five days. I had seven days to close on this project and replied that that was not acceptable to me. He then upped it to $200.00 for a two day option. I told him I would not do that as well because he had no skin in the game and he would have to, at the very least, match the amount I have down. Finally he said he would match my down payment and use an assignment if I extended the closing date. I asked why not put the money down as earnest and he replied because it's an assignment. I told him since it's an assignment that he should put all the monies owed me for the assignment in escrow. He said your confused and that I was thinking of earnest money by way of sale not an assignment but what he was calling an assignment was really an option. And, if he wanted me to sign that option he could not leave any way for himself to profit from this arrangement especially in the event he collected earnest money from a potential buyer and they did not perform that those monies must be returned to me. He explained that if his buyer did not perform all the proceeds go directly to the company lawyers and that they did not receive any. But if you pay your bills with this money you are receiving and spending those funds. At this point he became very agitated and got loud and said that they had bent over backwards jumped through every hoop I gave them and that I had no other buyers for this house. In very loud voice said if he did not receive the paperwork by close of business that day the deal was off. I don't know if it's needless to say or not but he did not get that paperwork. He was right, at that time I had no other buyers and if I were as inexperienced as I know the vast majority of their customers are, I might have panicked. But as it turns out I signed a contract that evening.
These companies have a well polished pitch down to the point of intimidation and, that it is not a last resort. They expect you not to have enough knowledge to counter their misleading and downright false statements when communicating with you. An example. After I told him that we would use my Title company because they understand and have a lot of experience working with investors and that they have no problem with not charging double for title insurance etc... He immediately said that that is called a pass through and in the state of Texas that is illegal and they would never participate in that. However, it is perfectly legal with an agreement called a pass through agreement that the parties involved all sign. And these title companies are almost always owned by attorneys who would never risk their business or State Bar Association Licensing.
When looking for properties they troll everything from the MLS to local company websites. What they're looking for is short times to close or anything that might hint of desperation, I have seen their ads for houses and the ARV does not seem to be inflated but the ARV was deflated while he spoke to me. In other words they are not above telling you, your ARV is wrong.
The reason for writing this.
If you are a beginner, novice or lack enough experience to deal with these people. I recommend not buying from them.
They only sell in-house unless that fails, then and only then they will pass it on to other investors outside their network. The reason for this is profit.
First tier buyers are required to use their in-house financing, no cash buyers on the first tier because this maximises their profits and the chance to get the house when and if the buyer defaults. These buyers are virtually always beginners.
Second tier buyers may use their own financing or cash.
Here is my best advice. There are no shortcuts you must learn first to play well, I personally spent in the neighborhood of $50,000 leaning what I know, that is not to say the leaning stopped there. Everything in life is trial by fire so until you've been burnt a little you don't know what the sting feels like. but a burn to early in your investing could scare you away. Just know this, those who are successful have failed on average ten times more than those who are not. There is a multitude of free information that I paid good money for that is free on this site.
There is only one way to know if you will be successful in this business and that to get in it.
While it may be scary and you most likely will want a partner in the beginning to ease the burden and lower your risk and that's fine. Just know that you can do it yourself. You do your own marketing, get your own clients, speak to them in an informative way so they make their decision. And, you can make your decisions without analysis paralysis or all the other insecurities that go along with starting a new adventure because that is what it is.
Take Action. Those are the two most important words you can remember. Without action nothing happens.
While I did not mention any names I believe we all know who these companies are especially in Dallas.
Thank you for reading.
Patrick
