I Remember the first time I heard about Wholesaling. It was the first time I attended a Rich Dad Real Estate seminar. They promoted Wholesaling because they said you could do that with little to no money. And it was a great way to learn about Real Estate Investing while you were accumulating some capital. They suggested that you could make from $5000.00 to $10,000.00 per deal, and that you could do a couple of deals a month. Holy easy money Batman!! I didn’t sleep that night thinking about it. It also prompted me to sign up and pay for the weekend investing course. Which was the whole reason for the “Free” Seminar.
What got me excited was that if I could make $5,000 to $10,000.00 a month wholesaling, I’d have enough money every six months to actually buy a property for myself. Talk about multiple streams of income. This was too good to be true. Well like most things you learn at a seminar designed to sell another seminar, they didn’t tell you the whole story. Not even at the weekend seminar. (It was still worth the money) There are several catches to the whole system. First the courses made it sound like you were reselling the property. Well your not. In Canada (as in most places) the law takes a dim view of you selling something that you don’t really own yet. Until the day of closing, when the money changes hands, you don’t own the property. But you DO own the “Accepted Offer“. That is really what you are selling. The money you make is for the offer, not the property. If you resold the property, then you would also have to pay the Real Estate commission on the new price. So, the money you make is more of a finders fee, than anything.
Also you have to have someone who will buy the Offer from you. The courses make it sound like there are hundreds of these customers out there. The courses tell us to use other Real Estate investors, under employed contractors, house flippers, etc. Good ideas, but they seldom offer suggestions how to contact these people. I have found that, they are darn hard to find. There are lots of people out there who want a good deal on a house, but most of them don’t have the money required to close, or they would be out there buying as well. Finding customers is for me, one of the biggest problems. Let me clarify that, finding customers with money is tough. I have found that finding the properties and negotiating a good price is not that hard. But finding someone who has the financial ability to actually close the deal is much tougher.
I figured that my Mortgage Broker would know a bunch of potential customers, but when I explained what I was hoping to do, the first question I was asked, was; “Is that legal in Canada??” I got that same response from every mortgage broker I talked to. Something else that I found tough, was finding a Real Estate agent and a lawyer, who were familiar with the process. Even my agent had heard of it, but didn’t know the process. To his credit he did finally find out how it’s done.
So here in a nut shell is how the courses say it works. You find a property that some of your clients are looking for. You negotiate a well below market value offer that is accepted. Your very first offer has to be worded with your name PLUS the words “and or Assigns” on the buyers line. Once you have the accepted offer, you call your clients and have them come out and tour the property.
The courses say to have as many of the clients see the property at the same time as possible. This is excellent advice. It creates a sense of competition. Then the course says you should get each client to submit an offer, of how much they are willing to pay for the property, to YOU. You simply accept the highest one, over your accepted price, and the client gives you a certified cheque for your deposit and the difference between what they offered and what you got it for. They will still wind up at closing having to pay the price for the property that YOU agreed to. Theoretically you are done with the deal and you take your money to the bank and go look for the next property. Sounds so simple, anyone can get rich doing it. You don’t need any Real Estate experience or skill at all.
Unfortunately this approach is very misleading. The courses leave out all the really important stuff. Like how do you find and negotiate a well below market offer with no Real Estate experience? The fact that if your client can’t close, you have to, or possibly get sued. How to find a ready list of qualified clients. You need your clients to sign an “Acceptance and Release” contract to get you out of the deal once they take the offer over. That many sellers get very nervous when they become aware that nobody knows who the final buyer will actually be. If the selling agent doesn’t understand wholesaling, your agent better be able to explain it. This can possibly be a deal breaker, simply because wholesaling is not common here.
Like many get rich quick methods, there is a lot more to it. Can it be done? Is it a good way to use a small amount of cash to generate larger amounts of cash? Yes! Is it easier in the US than Canada? Again Yes! The US has very different real estate laws, and they have a different banking system. To me there are also some moral and ethical concerns. Once you have an accepted offer, you need to get the deal sold fast. I don’t think it is fair to leave a Seller and Real Estate agents hanging for several weeks while you try and find a buyer. If you get a bad name in the business no one will deal with you. I think for long term relations and less stress on you, you need to approach your clients with set price in mind. This may leave some money on the table, but I like to shear a sheep several times, rather than skinning them only once.
What do you need to be successful at wholesaling? Number 1 is a list of financially capable Clients. Real Estate experience, a knowledgeable Real Estate Agent and Real Estate Lawyer, and enough money for a reasonable deposit, are all necessary. All of these qualifications take time. (In most cases). But that doesn’t mean you shouldn’t start learning how, now.
P.S. I am always looking for clients to wholesale properties to. Not just in my area. I now have the names of other wholesalers in other areas. If your interested in either being a wholesaler or a wholesale client, send me your name and email address for our files. Maybe we can hook up some people for their mutual profit. I would love to hear your story as well. Good or Bad.