We’re in the process of negotiating a contract for our next flip project with a wholesaler. Details of the project to follow. Since we’re in the midst of that, I thought it would be a good time to talk more about the basics of wholesaling.
A wholesaler is someone who looks for and purchases investment properties for other investors. A wholesaler will usually make an offer to a seller and get a property under contract. However, they do not close on the property, and sometimes don’t even pay any earnest money. They usually put some sort of back-out provision in their contracts, and work to assign that contract to another investor for a fee that they collect when the property closes. If they don’t assign the property, they either purchase the property themselves or they cancel the purchase agreement.
Wholesaling provides the market with a lot of benefits. It allows investors who don’t have access to funds the opportunity to make money as an investor without any cash out of pocket. And wholesalers provide a useful source of off market leads to investors, especially those who don’t have the time or ability to source deals themselves.
You do have to be very careful when working with wholesalers generally. There are no licensing or education requirements for wholesalers. So many wholesalers may not have enough experience to know how to complete a successful sale. They also have no duty of care to the seller or to you. So they are not required to be truthful and fair. You should double check all of the information they send to you. They may exaggerate the terms of their current contract, the after repair value of the property, or minimize the amount of repairs needed. We only deal with competent and professional wholesalers we know and trust from past experience and reputation.
A great resource on wholesaling for those who want to learn more about the process is the book, “If You Can’t Wholesale After This...I’ve Got Nothing For You” by Todd Fleming. You can also find a lot of information on the topic on the Bigger Pockets website, which has extensive blogs, chat rooms, and other information on nearly every real estate investing topic.
If you want to learn more about the process of wholesaling, or how to find properties being sold by wholesalers, let’s have a chat!