Definition of a Wholesale:
To best understand this article,view the videos and blogs below. This blog is based on the assumption that you are aware of what a wholesale deal is.
Wholesale Myth #1: Wholesaling is Against the Law
It is completely legal to wholesale as long as you are doing it the right way. This myth is widely spread due to the fact that some people wholesale illegally. Almost anything can be done a right and wrong way, so be sure to educate yourself on wholesale laws. I have a great video called, “Is Flipping Real Estate Illegal?”, that explains more about wholesale laws and regulations.
Oftentimes estate investors are forced to defend their wholesaling activities to a real estate commission. Make sure you are following all of the rules so that you can prove the legality of your wholesale deal. I have personally spent tens of thousands of dollars proving that my wholesaling activities are not practicing without a real estate license. My team and I have had a 100% success rate winning these real estate commission hearings.
Do Things the Right Way
- Set up a bilateral contract between the seller and you that stipulates that you are acquiring equitable interest.
- Prove your intent to purchase by providing a proof of funds letter.
- Wait to find a new buyer until after the house is under contract with the original seller.
Wholesale Myth #2: You Need a Buyer’s List
Many people believe that you need to build up a buyer’s list before wholesaling real estate. This is completely false information. In fact, I have never had a buyer’s list and I have done hundreds of deals. My team and I have made over $250,000 off a single deal. We know the wholesale business very well and make a lot of money doing it without a buyer’s list.
With wholesale deals you get the property under contract with the original seller and then wholesale it to another buyer. Buyer’s lists are full of investors that are participating in a lot of deals, and those are not the type of buyer’s you want for a wholesale deal. Experienced investors do not want to pay good money for a property, and you do not want to undersell yourself.
Find the Best Buyer
First off, do not lie or participate in anything unethical. The best way to find a good buyer is to market for a buyer after the deal is under contract. This aids in the legal side of things if you are ever forced to defend your wholesale deals to a real estate commission. If you have a buyer’s list the commission can argue that you are participating in real estate without a license.
The ideal buyer for your wholesale deal is someone who is purchasing their first investment property, because they will pay more. Statistics show that approximately 80% of all real estate flips in the US are done by different people. This means that investors are not participating in a second deal.
Ways to Locate Buyers
- Put signs up around the neighborhood
- Craigslist Ads
- Zillow Ads
- You can list it on the MLS if you are experienced and know how to do it legally.
Wholesale Myth 3: Wholesaling is For Novice Investors
I do not believe that the wholesale side of investing is necessarily for beginners, in fact I believe it is an advanced technique. People often think wholesaling is for novice investors because they don’t need to put a lot of money into the deal. Most wholesales that my organization does are $10 earnest money and a $20 fee to record the document. We have done tons of deals for under $50 that ended up profiting over $40,000.
You’re the Middleman
The wholesaler’s position in the deal is the middleman. There is a seller that puts the wholesaler under contract on one side and a new buyer the wholesaler finds on the other side. Unfortunately, these two people can try to get rid of you in order to split costs and make more money. If the seller agreed to sell the property to you for $120,000, and the buyer agrees to pay you $140,000, the seller can cut you out and sell to the buyer for $130,000, in order to save money.
The second reason wholesaling isn’t for novice investors is because of the many issues surrounding locating deals. A novice investor is not going to have the funds, reach, or experience to locate deals before the professional investors. When a professional real estate investor closes on one deal, they are constantly on the search for the next deal. That is how they make their big money. They spend hours every day researching and advertising in order to obtain good wholesale deals.
If you think a novice investor can jump into wholesaling and locate deals before successful, experienced investors, you are dead wrong. Locating good deals is incredibly difficult in today’s market. The people that are the most experienced in this business are the ones locating the deals first. They also do not subcontract finding their deals out to wholesalers. If a deal is presented to them by a wholesaler, they will not pay top price for it.
Wholesaling deals is a huge challenge for novice inestors. As a mentor, I spend a large amount of time educating my apprentices, updating my techniques. and testing out our methods. . I don’t teach all of these techniques in my videos and blogs, and I have a video that explains why. It is called “Giving Away Business Secrets”
Opportunity for Novice Investors
There is one small chance of hope for novice investors to locate their own deals before anyone else. It is called “bird dogging” which involves knocking on doors, writing letters, and researching vacant houses you find. I also have a video called,“Getting the Backstory on a Vacant House”.
I have a course on this method called, “Earn Fast Cash by Becoming a Deal Finder” The page I will link says the course is $100, but just click below the video for free access.The course will give you insight on how to find a deal that other people simply overlooked or couldn’t find. Finding deals is incredibly difficult, but do not think that investors aren’t out locating deals as well. Even though we are busy flipping houses, we find time to locate and negotiate deals. That is a huge part of our job.