In part one I focused on the referral based, finder fee method of making millions in real estate without putting up any of your own money. It not necessary to read prior to this part, unless you would like to hear my opinion of this practice.
Alright! Things are going great again! Fresh out of that weekend seminar with all the motivation in the world! You just paid a bunch of money to learn how to do something that's likely illegal unless you're dotting your i's and crossing your t's. You learned how to Wholesale real estate!! This is awesome! All those suckers who go get a job to make money should be working with you wholesaling real estate. And you can make money hand over fist without having a dime to your name! "I'm so glad that nice guy took my thousands of dollars to give me the secrets to making millions" says everyone who is leaving a real estate investing seminar.
If the sarcasm in my second paragraph didn't cause you to leave then I'll quickly cover why Wholesaling is a joke that rarely works. In theory this practice is reasonable and could in fact work. However lets look at this from a rational perspective. You're going to be asking people to sell you a house for maybe $0.40 on the dollar so you can turn around and sell it to another guy for $0.60 on the dollar. Why doesn't the home seller just cut you out and sell it to the investor directly for $0.55?
The answer by everyone to that question is that the home seller doesn't know the investor. And this is very true. So if you find a sucker home seller this will work quite well. Most home owners will tell their friend Bob that you just offered $40,000 for their house that's worth $100,000 and Bob will say "Shoot, at that price I'll buy your home!"
Then the home owner starts doing some digging and finds an investor who's willing to pay them real cash without any crazy assigning of contracts. This same home owner may end up contacting a Realtor who will tell them that they can fire-sale the house at $75,000 and still make more than selling it directly to the investor. That's not always the case, but it is sometimes a very viable option.
There's also the legality side of things. Selling a home in KS or MO (your state may differ) without a real estate license is illegal. So you can't market the home for sale. You can only market your interest in the home. You don't even technically own the home because you don't plan to ever buy it. Since you don't own it, it's a fine line to even show this property to prospective buyers.
At the end of the day wholesaling works but it requires a lot of effort. You'll most likely have to offer on 100 homes to find one willing to accept your ridiculous offer and then you have to hop to finding an investor who's ready to buy it from you.
Let's not forget about the competition either. How many times do you see
bandit signs on EVERY street corner saying they buy homes for cash in any condition? Do you think that those all come from the same guy? So you not only have the odds of common sense working against you, there is also 25 other investors trying to beat you to the house.
To recap, wholesaling is legit, but very time consuming and difficult to profit from. If you're going to do this or the finder fee junk, at least in wholesaling there's a potential payoff. I would recommend another path to real estate investing however. I would recommend that you do your own fix and flip. This takes your own capital, but it also works most often.
Comments(1)