What is "Wholesaling"
My background is in Supply Chain and Logistics so to me, a wholesaler is a middle man that connects the factories that product products to the retail stores and that sell the product. Until recently (6-8 months) I did not know that the term "wholesaling" existed in the world or real estate as well. And basically, a wholesaler is a wholesaler regardless of what he is selling. They are a middle man between a buyer and a seller and, like retail, there is also a need for wholesalers in real estate.
Last week I spent a few hours driving around town looking for distressed and vacant homes. When i saw a home that was distressed (shingles missing, wood rot present, etc...) I would add them to my mailing list which i send letters out to every other month asking if they are willing to sell their home. If I see a vacant home, I add it to my mailing list however I also write the address down in my notebook so that i can research more in depth later. How do I know if its vacant you may ask? I look for tell tell signs that no one is living in the home such as papers piled up in the drive way, no curtains or blinds on the windows, nothing on the porch or in the yard, letters taped to the front door, and many other things. Homes become vacant for many reasons however if the home appears to be in bad shape AND is vacant, those are the homes that excite me, those are the ones that I plan to spend some time on digging into their story. Here is a story about Mrs Smith (obviously not her real name) whom i met last week.
I got home from my "driving-for-dollars" run as its called in the wholesaling industry and started to work on my vacant houses list, I had about 4 homes that i found that day. I first pulled the address up on the county tax website to find the owner. I saw that this home was owned by Mr and Mrs Smith and the tax records indicated that the "mail to" address was different than the vacant house that i had seen earlier, hmmmm, im liking what i am seeing. I pull up the tax records for the mail to address and the owner of the home has the same last name (son, husband, father maybe). At this point I don't know the age of the owner. I pull up my "skip tracing" software which is a tool we investors use to track down home owners. I saw that Mr and Mrs Smith were married however Mr Smith had passed several months earlier at the age of 79. So now im thinking that Mrs Smith has moved in with her son b/c she cannot live by herself and that she plans to sell the home or let the bank have it. So i see that Mrs Smith has both a son and a daughter (also info from the paid software i use). If you want to find anyone in the US (or the world for that matter) where is the first place you look for them.... Facebook of course. So I type in Mrs Smith's name and up pops her daughters name and she also lives in the same city. So I proceed to send her an Instant Message, "Hello Mrs Smith, may I ask if your the daughter of Mrs Joan Smith". The next day i get a response, "yes I am, why do you ask" so I proceed to tell her that I would like to buy her home at 123 Main Street and asked her if she may be willing to sell. Her response was "I will have my brother call you". Soooo the next day he did. He told me that his father had passed away and his mother could not afford the home any longer and that she was 3 payments behind with the bank and they were going to let the bank have it however Mr Smith would HATE to have this bad spot on his name and would never approve of this however he didn't see a way out.
PAUSE... Most people think that wholesalers are bad people and the scum of the earth because they buy homes for 70 cents on the dollar and then sell them for a profit... But you see, this is a perfect situation where a wholesaler can come in and provide a win-win-win-win situation. Keep reading.
So we setup a time to see the house and the next day I met the son and we walked through the home. It was a lovely little home that had been abandoned and just needed some TLC (tender loving care). In its current condition, it was not going to be able to be financed by a buyer b/c a bank would not lend on it due to its condition. Plus the owner is 80 years old and didn't want to deal with finding a realtor and listing on the MLS. I later drove to the son's home to meet Mrs Smith and discuss potentially purchasing her home. My suspicion was correct, she didn't have the money to pay the mortgage or fix it up to sell and she didn't care about it hurting her credit score so she was going to let the bank take it over. I convinced her that if she would let me purchase the home for the payoff amount, I would give her $2,000 when the home closes so she agreed (and why wouldn't she???). So we called the bank right then and there to make sure that she could still sell and they confirmed she could and they sent us a payoff statement.
So here is what is going to happen, I will get the house under contract from Mrs Smith for payoff amount plus $2,000. Then I will reach out to all the investors that I know and tell them I have a great home to flip and that I will "assign" them the contract for $5,000. The flippers do their due diligence and see that after paying for the home, paying my $5,000 assignment fee, and paying for the rehab that they stand to make $20,000 when it is sold so they agree to the assignment contract and now THEY will purchase the home directly from Mrs Smith. When the home closes, I will get my assignment fee.
And here are the winners of this transaction:
Mrs Smith - she is happy b/c she gets $2,000 cash and doesn't have a foreclosure on her family name
Mr Flipper - he invests X dollars in this property and sells it for a $20,000 profit
Mr Wholesaler (me) - I make my $5,000 assignment fee
Mr Bank - they get the money they are owed on the home
Neighborhood - instead of an abandoned home sitting for 6-12 months, they get a renovated home that increase the value of their home
That, my friends, is a great example of why wholesaling real estate is NOT about taking advantage of old, sick or poor people by stealing their home and selling it to make a million dollars. Its about finding home owners that are in need of help and getting creative in order to help them. Here are some other examples of when a wholesaler may be the right fit for the situation:
you are facing foreclosure but your home isn't in the condition to sell on the market
you are getting a divorce and you need to sale NOW without any preparation
you have a emergency in your life and you need to cash out on the equity in your home NOW to pay for that emergency
you have to pack up and move out of state and you cannot afford to or do not wish to fix your home up and list on the market
you are a landlord and the tenants will not pay rent and you cannot get them to leave and you are DONE with being a landlord. So you want to sell NOW
someone passed away and left you a home in their will. You do not want to deal with the memories of cleaning it out and listing it on the market
you are on fixed income and cannot afford to live and pay bills but the home is paid off b/c it was given to you by your grandparents so you need the cash
Just as any other profession, there will be some bad apples that will attempt to take advantage our people however no one can ever (legally) MAKE the home owner sell his/her home unless the homeowner agrees to the terms of the sell. The key is to understand the contract that you are signing before putting pen to paper and if you are not 100% confident, have a local real estate attorney review the paperwork to make sure that you are not being "taken" on the sale. If done correctly, wholesaling houses is a very rewarding and fulfilling profession and can make a positive impact on the lives of everyone that is involved.
