Is it wrong of me to get ticked when people who call themselves wholesalers show a complete lack of understanding of what wholesaling is, or why wholesalers get paid?
I mean, it IS my businesses—and I imagine that, say, a pediatrician might get mad of some guy who’d never gone to medical school hung up a shingle and started treating kids’ broken arms.
Not that I’m trying to compare what wholesalers do to what doctors do—people’s lives are rarely saved or lost because of what happens in a real estate deal. But I do sometimes wish that wholesalers had to prove some basic level of competence before they could call themselves wholesalers.
But that’s not the case: anyone who thinks they can “buy low, sell not so low” is allowed to print business cards that say “Don Dufus, Wholesaler” and run around wreaking whatever havoc they can manage.
My favorite type of stupid wholesaler is the one who’s fallen for one of those,
“You don’t really have to know anything, it’s all done for you” sales pitches, bought himself a website, and tries to sell me properties about which he knows NOTHING, from the actual value of the property to the amount and cost of the work needed.
In case you haven’t had the pleasure of buying one of these courses/Ebooks/seminars, the basic pitch seems to be this: don’t worry about knowing the market—the tax folks have the value of the property right up there on the auditor’s website. Don’t worry about repair costs—you never need to see the house. Just offer owners half of whatever they’re asking or whatever the property tax folks think it’s worth, and you’ll be fine. Buyers will line up to buy that house at 55% of value.
If you don’t understand what’s wrong with that theory, please don’t call yourself a wholesaler. Wholesalers get paid for providing profitable deals to serious buyers, not for getting deal under contract. REAL wholesalers know what they’re offering, know that it’s a good deal, and can stand behind their numbers.
The folks I’m talking about seem to think that they can and should get checks for throwing numbers at a wall and seeing what sticks.
“The Online Wholesaler”
Here is, as closely as I can remember, an actual word-for-word conversation I had last year with one of these “fake” wholesalers:
Him: “Hi, my name’s Don Dufus, and I saw on craigslist that you buy junker properties in Cincinnati. I have one that I think you’d be interested in.”
Me: “Ok, do you own it, or are you wholesaling it?”
Him: [long pause]
Me: “It’s fine if you’re wholesaling it, I just want to know if I’m dealing with an owner or a wholesaler.”
Him: “I have it under contract.”
Me: “Ok, tell me about it”
Him: “It’s at 1234 main street in a neighborhood called Delhi. It’s a 2 bedroom, it’s worth about $70,000 fixed up, needs about $7,000 in work, and I’m asking $22,000”
Me: “OK, Dufus, let me tell you a few things about that property.
“First of all, it’s not in Delhi, which is a bread and butter area with a great school system—it’s in Fairmount, a near-warzone in the city schools. It doesn’t even adjoin Delhi.
“Secondly, I could literally buy that house and every house for 2 blocks around it for a TOTAL of $70,000, because 9 out of every 10 houses on that street are boarded up. On a rental evaluation, this house is worth $35,000, max, and that’s really an imaginary number because there are no sales of fixed-up properties in that area for the last 5 years.
“Thirdly, it doesn’t need $7,000 in work, it needs $17,000 in work, and the reason I know this is that I sold that property 12 months ago for $1,500.
“So, Dufus, I’m curious: where did you get your numbers?”
Him: [long silence].
Me: “Have you even seen it?”
Him: “No, I’m in Portland. This was a lead I got from my website. I got my repair numbers from the seller, who said he had a bid from a contractor to fix it for $7,000, and he told me it was in Delhi. The County website says it’s worth $70,000. I have it under contract for $19,900, what should I do?”
Me: “I guess you’ll have to go to some other Dufus from the West Coast’s website and post it there, ‘cause you’re never going to sell it to anyone who actually bothers to go and see it.”
You may think that this kind of wide-eyed naiveté—“It’s done for me! I can make thousands, and don’t have to do a thing!” is rare. If only. I have some version of this conversation an average of once a month with people who honestly think they don’t have to know, or do, anything in order to make money wholesaling. And, let me add, the ‘gurus’ who are willing to sell courses using this pitch are making money hand over fist. Of course, their making it selling courses, not wholesaling houses.
But what’s almost worse is people who decide to get “creative” with their wholesaling techniques, and because they don’t really understand WHY it is that real wholesalers do what they do in the ways that they do it, end up doing things that make absolutely no sense.
Don’t get me wrong: there are creative things you can do with wholesale deals—but they kind of have to fall within the parameters of what’s possible, given the nature of the deals we do.
I was recently approached by a local wholesaler who told me about a deal that sounded pretty interesting. After evaluating it and deciding that the numbers were right, I asked what part of the total price the was the wholesaler’s fee. He informed me that it was $7,000, and that he trusted me so much that he’d take a personal check for that amount on the spot
I, of course, have no problem with paying any fee to a wholesaler, as long as the overall price works for me. But before I wrote the check, I asked to see the purchase contract. Why? Because when a wholesaler assigns a contract, the buyer—me , in this case—is agreeing to ALL of the terms of the contract. Before I pay an assignment fee, I want to know what it is I’m agreeing to.
The “wholesaler” then informed me that he didn’t have a contract—he was co-wholesaling the deal for the ACTUAL wholesaler, who was in contract with the seller. The co-wholesaler then asked me to pay HIM the ENTIRE wholesale fee (only $2,000 of it was his, the rest was what the actual wholesaler was asking), so that he could get into contract with the real wholesaler, so that he could have a contract to assign me.
HUH?? So, this guy was asking me to pay him for something that he didn’t have: the right to buy a property. And, apparently, this is tactic that has worked for him in the past. Unfortunately for him, I actually understand that paying someone for something they don’t have and have no guarantee of getting (who’s to say that the actual wholesaler hadn’t already found a buyer? Or that she was actually in contract, for that matter, since neither he nor I had seen such a contract?) is a really, really bad idea.
So I told him I would do this: pay his wholesaler $7,000 for her contract, and let her pay him, the co-wholesaler, his $2,000. He refused on the grounds that he was afraid she’d want to keep the entire $7,000…and he did not at all see the irony when I mentioned that I was sort of afraid the same thing was going to happen if I gave the $7,000 to him.
Was it pretty creative of him to bypass the whole deal-finding process and specialize in marketing other people’s deals to buyers? Sure. Was it pretty stupid of him to be out trying to sell a deal that he had no actual interest in, no idea what the contract he was trying to sell looked like, and no concept that what wholesalers get paid for is a piece of paper he’d never seen and didn’t even know for sure existed? Yep.
“The Assignment Wholesaler”
In a twist on the same “wholesalers who don’t understand that wholesaling is assigning contracts” theme, a student of mine recently related this story (basically accurate, but details changed to protect the Dufus):
A co-wholesaler approached him and asked if he could bring a buyer for the student’s deal and get paid for it. The student agreed, and the co-wholesaler proceeded to bring him an offer from a buyer that included a closing to occur in 30 days. Problem: the student’s contract expired in 10 days. Problem 2: the co-wholesaler had already collected $500 from the buyer in return for the deal.
Follow this: the co-wholesaler took certified funds from a buyer. The co-wholesaler had no contract on the property. The co-wholesaler allowed the buyer to make an offer that couldn’t possibly be accepted, ecause the buyer wanted to close 40 days after the expiration of the student’s contract.
What, exactly, was this guy thinking? My guess: “I got $500! I got $500!”, and not much else.
Here’s what I’m thinking: what this co-wholesaler did could easily be construed as criminal fraud. He took money for a product he didn’t have—a deal—and couldn’t get, because rather than thinking about the fact that a contract already existed and needed to be fulfilled, he was thinking, “in real estate, we make offers”.
I strongly recommended to the student that he track down this co-wholesaler and slap him upside the head for me, just for claiming to be in the same business we are.
PLEASE, if you’re going to wholesale, know your craft and understand your product. If you don’t, the best thing that’s likely to happen to you is that you’ll spin your wheels a lot and not make the money you should. The worst thing could be that you unwittingly break the law, or ruin your own reputation. Get trained, take advice, and don’t try to reinvent the wheel.
Article Provided by Vena Jones-Cox
Vena is a long-time wholesaler and past president of the National Real Estate Investors Association. She’s on a mission to professionalize the wholesaling business and create wholesalers who make lots of money while also treating buyers and seller right and not making idiots of themselves. Come learn from her at our March 13th meeting and her March 24th Workshop. Details at www.MAREI.org.
In her vast effort to stop the clueless folks who are doing it all wrong and makeing the rest of the industry look bad, Vena has a series of 4 Videos that we highly recommend you take time to watch. You can request access to them by clicking here and providing your name and email.