I’ve been investing in real estate for more than 20 years. No matter where we are in the market cycle, people are always looking for a deal. I’ve been asked on a consistent basis if I know any good wholesalers. And every time I hear that question I wince.
My response to pretty much anyone who’s asked me is the same. Over and over again, I say, “I have not met a single person in the NYC area who’s worthwhile as a wholesaler.”
I explain further that in my opinion:
They can be greedy.
They can’t calculate repair costs.
They sometimes cherry-pick comps that show the properties in the best light and disregard less-than-flattering comps (many of which appraisers would use).
And that’s just the beginning of the story.
IMO, Wholesaling Isn’t the Way to Go
My opinion is that many who wholesale on a regular basis dabble in gray areas in terms of the law. In my area, I see bandit signs all the time offering people “cash for their property.” I also get calls and text messages from wholesalers asking me if I want to sell one of our rentals. The majority of the time, what most people don’t realize is that person putting up the signs or calling and texting you has zero intention of actually purchasing the property themselves. So, from the get-go, there’s a dishonest motive to their actions.
What I realized is, in the end, there are wholesalers who are only in it for themselves and no one else. Despite what some of them think, they aren’t out there providing a good service for real estate investors.
As real estate agents and members of the National Association of Realtors (NAR), we take an oath which binds us to act as a fiduciary for our clients, who are buyers and sellers. I’m not going to claim that all Realtors actually live up to this oath—unfortunately, they don’t. There are a number in the industry (of more than 1.3M) who are only concerned with themselves, too.
However, I do think they are the minority. And there is a difference between someone who’s a licensed agent and those who are members of the NAR: members take the oath, while licensed agents do not. But non-members still have to do business based upon state laws, which restrict their actions. In most states, net listing a property is clearly illegal.
You might be thinking: Wait a second, Darren. I thought you were talking about wholesaling a property?
Yes, I am 100%. But to understand wholesaling, you also need to understand net listings. So, let’s dive in and look at both through a fictional example.
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