Part 1 of a two-part series on wholesaling by real estate investment expert and educator Vena Jones-Cox
Whenever I speak about wholesaling, I deal with the same myths about how it actually works. How many of these have you heard?
Myth 1: You need a lot of money to wholesale properties.
This reflects a basic misunderstanding about how wholesaling works: people who don’t fully “get” how it works believe that in order to sell a wholesale deal, you have to own a property.
In reality, wholesale deals are typically done in one of 2 ways: either through an assignment of contract, where you get paid by a buyer for your RIGHT to close at a certain price, or with transactional funding, where a lender provides the money for you to close the deal, which you immediately sell to the buyer.
Yes, there are investments to get set up—education, marketing, gas money, and so on. And there are “costs” to close—for instance, the title search, closing costs etc, but these are paid at closing by the buyer or seller (neither of which is you) at the closing. Any of MY expenses, like the cost of the transactional loan—are paid from profits at closing, not up front.
Myth #2: In order to assign a contract, it has to include the words “And/or assigns
”. This one’s been around since I was knee-high to a grasshopper. And it’s absolutely, positively false.
ALL contracts are assumed to be “assignable” unless they specifically say otherwise. In other words, you can assign any contract that doesn’t have a “no assignment” clause in it, without the “and/or assigns” wording. And by the way, adding “and/or assigns” does NOT make a contract with a non-assignability clause assignable!
Myth #3: You should get paid by your buyer at the closing of the sale of the property.
Wrong: your “product” isn’t a property; it’s the rights in a contract. When you assign those rights, you’ve given away your product—and when you allow the buyer to pay you only after he does the thing the contract gives him the right to do, you’ve given away your product for a promise of future payment.
Although every single buyer would prefer not to put 1 dime up before closing, it’s YOUR choice whether you allow that to happen. Personally, I collect my assignment fee UPON ASSIGNMENT, because there I’ve discovered that buyers with no “skin in the game” are much more likely to string me along for weeks and then admit that they can’t actually close.
Myth #4: Your buyer shouldn’t know what you’re making
. I see wholesalers tying themselves in knots to keep their buyers from knowing that they made $10,000, or $20,000, or more on the deal the buyer just bought. This is silly; any buyer who cares more about what YOU make in a wholesale transaction than about what HE makes should be fired immediately. There are plenty more out there that are focused on the right thing—THEIR profit, not yours.
Myth #5: Wholesaling can be “done for you”
. There are a number of mostly-online gurus out there preaching the philosophy that you can wholesale properties that are hundreds of miles away without ever evaluating them, talking to a seller, talking to a buyer, setting foot in a property, or, basically, doing anything other than logging on to a website they’re happy to sell you.
Making money wholesaling properties requires that you offer a good product—that is, a profitable deal—to people who can close that deal. And you don’t know whether or not you have a good product unless you (or someone you trust) has been in that property and figured out the value, repair costs, and what the right price is for a serious investor/buyer.
The serious buyers I know HATE the whole “virtual wholesaling” trend. They actually mock the “wholesalers” who call them with deals that neither the wholesaler nor anyone the wholesaler knows has ever seen. I do not know one single solitary buyer who’s ever bought a property from one of these people, nor who has ever seen a truly good deal come from one of them.
Anything you do that’s worthwhile—and that includes building a big wholesale income—requires SOMEONE’S time and effort. There’s no such thing as a program, system, software, or website that takes away the work component. You still have to know your business, and if you’re not doing the work yourself, you’d better know how to do it so you can train whoever is doing it. There are no shortcuts to becoming a good piano player, a skilled woodworker, or a great CEO; don’t fall for the pitch that there’s one for becoming a high-income wholesaler.
Vena Jones-Cox has been a full-time real estate entrepreneur since 1989, and has been a principal in over 800 deals. She’s the founder of Central Ohio Real Estate Entrepreneurs (COREE), past president of Cincinnati REIA, Ohio REIA, and the National Real Estate Investors Association. You can learn more about Vena at her website, www.TheRealEstateGoddess.com
*Vena Jones-Cox is not affiliated with Equity Trust Company or its affiliates. The information provided is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with legal, tax, and accounting professionals.