The Truth about Wholesaling

The Truth about Wholesaling

Now I know I’ll probably catch a lot of flack about this, but as an urban planner practicing real estate I feel obligated to speak up. I appreciate making money just as much as the next person, but wholesaling is getting out of control!

For those unfamiliar with the practice, wholesaling involves selling someone else’s house without taking ownership or without making any material investment. I know it sounds a lot like being a real estate agent, but the difference is wholesalers have no agreement to sell someone’s property. Typically they make a great deal to buy a property from an owner, once they have a contract in hand to purchase they then sell their contract to someone for a profit, usually an investor.

What is starting to bother me about this practice is how irresponsible some of the players have become. With so much information available on the internet and extremely low barriers to entry, wholesaling is a first option for many that want to get in the in real estate industry. The problem with that is that ANYONE can get in the industry, and this industry is not for everyone.

Now I support those that take it serious and are responsible students of the game, but everyone else needs to take a seat and let the professionals do their job. In my opinion, if you are making a business out of wholesaling, you are practicing real estate and should be regulated in some way to protect the industry and consumers from predatory practices, speculative inflation, and noise in the market.

I’m sure there are many that will disagree, but here are 5 reasons why.

 

Wholesale v. investor – Often I meet “investors”, only to find out they are wholesalers. This is very misleading. For someone like myself that deals in development, I’m thinking I’ve met a potential source of capital for projects. Consumers think the wholesaler is the one buying the property, which is one of the major reasons why consumers use wholesalers.  In both situations there is a misunderstanding about the wholesalers role. Call yourself what you are.

Unlicensed – Now I’m not a big regulator, but there have to be some rules to play by. Kind of like “don’t mistreat the women or kids”. Without some boundaries were no different than the animals, leaving things as they are now, like the wild wild west. They’ll always be someone to find a loophole, but at least there is a level of protection for everyone else, there are some serious predators out there.

Uneducated – We all have to start somewhere, but don’t you think there should be some type of training before you start “helping” others out of their situation? Lots of professions “help”, people out of their situations. Doctors, lawyers, financial advisors all fall in this category. The common theme is that in working on behalf of others related to life changing events, you usually need a little guidance to get going. A lot of the guys I know are what we like to call, “YouTube certified”. Which may be alright but there’s no council or organization to develop a standard for practice.

More fees – Everyone thinks they have to stay away from the dreaded real estate agents 6% commission. If you knew the amount of equity wholesalers were raping you for you’d be running to your local real estate agent. They would be giving you a higher level of service for a cheaper price. Its not unheard of to hear about a wholesale deal that turns a 20-30% profit on sales price, or more in some markets. On top of that buyers usually pay a hefty assignment fee and cover all closing cost. You can do the math yourself. Not only does this skew market prices, it creates artificial bubbles that leave local areas unstable

Less exposure – The MLS is still the driving force of real estate sales, and it’s only accessible by licensed real estate agents. Off market deals usually have to be distributed via email or phone calls. There are a few online platforms that provide some exposure, but nothing the consumer or serious investor is actively looking for. Don’t get me wrong these guys can get properties sold off quick, but its usually because they acquire based off their databases interest. An MLS is unbiased in who it serves making for a broader appeal of property types and uses.

Whether you are a consumer or professional make sure you vet the people you are doing business with. Gather references, ask questions, and make sure they are legitimate. We have to clean this industry up or tech companies will become the norm, not a tool. In the end we’re all needed to keep the industry balanced and can work together to make a lot of money.

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