Wholesaling Real Estate Defined - Investors Need to Know

What is ‘Wholesaling Real Estate’? It is simply the act of providing discount priced real estate deals to ready, willing and able investors, and sometimes ‘retail’ buyers as well.

Read on to find out what you should already know about wholesaling real estate and how you can make sure you are reaping the rewards.

Let's begin by differentiating between an investor and a ‘retail’ buyer. For the sake of defining ‘wholesaling’ you need to know if you are actually a candidate for a wholesale deal. An investor is someone who purchases real estate solely for the purpose of making money. A ‘retail’ buyer purchases, often to get a good deal, but ultimately, to live in the property.

A ‘wholesale’ deal is not always only for investors; in certain situations a retail buyer can purchase it. It all depends on how the ‘wholesaler’ has control of the property. You see, a wholesaler is no different than a company that buys a product in bulk from the manufacturer in order to get a discount, then marks up the price and resells to a retail vendor, such as a grocery store. However, in most wholesale real estate situations the wholesaler doesn’t actually purchase the property. Instead they control it using a real estate purchase and sale contract.

If you are not familiar with the different ways of ‘controlling’ a piece of real estate, that’s fine, just know that there are different ways. As an investor this only matters to you to the extent of how you can purchase it: traditional financing, cash, private funding or hard money. (Of course there are also partial financing options that allow you to take a property ‘subject-to’ the current financing, or if the seller will hold a note (financing) for you.)

So this brings us to the question of why a wholesaler gets paid. I mean, he only found a desperate seller and had them sign a piece of paper, right? Actually, as a true investor you are either putting your money into the deal, or your business experience to run a rehab or manage the property as a rental. The wholesaler is your marketing expert. Just like a wholesaler in the grocery store chain works in bulk, so does the real estate wholesaler. He, or she, goes through hundreds of leads to find the best deals (using specialized marketing tactics), and then markets to find you, the investor. And all this marketing is not free.

Knowing how the system works, you need to know a couple of rules when it comes to working with wholesalers. First of all, they are bringing you a commodity that is very valuable and if others knew about it they would snatch it up in a second! Consider yourself lucky to be given the opportunity for these deals. (Of course not every wholesaler, or wholesale deal is worth its weight in gold; you have to use your own judgment.)

A good wholesaler also does a lot of background work by providing comparable sales, assessed values, repair estimates, pictures, rental breakdowns, tax and insurance info, and even sometimes videos of the property.

The first thing you need to do to keep getting these real estate deals is to do what the wholesaler says. If they say don’t bother the tenants, don’t do it. If they ask you to be discreet about your intentions, be discreet. And if you ever think of trying to cut them out, you should probably just drop out of the game now and save yourself the aggravation.

What you really need to know is that real estate wholesalers are providing you, as an investor, a great service; saving you time and aggravation and keeping your pipeline full so you can keep making money however you choose to do it. Wholesaling is a fulltime business if done right and produces great opportunities for good investors. So even if someone makes a million dollars on a wholesale deal that fits your buying criteria you should not even think of feeling like you should have gotten more. They are only getting paid in proportion their skill level; just like everyone should.

Understanding Foreclosure and Bankruptcy Implications

I’ve personally talked to bankruptcy attorneys who give you two options, chapter 7 or chapter 13; There’s no consultation, and not even always accurate and correct advice. I had an attorney tell me two things that later turned out to be incorrect, and it could have cost me thousands of dollars!

Most attorneys: "That'll be $2,000 and we'll fix your problem."

WRONG!! If your problem is your credit is too good, then that problem is solved. But seriously, sometimes bankruptcy seems like a good option because you don’t have all the information, or sometimes the attorney will just push you into it by scaring you with a bunch of legal-ese.But the bankruptcy does nothing to stop your foreclosure. And you can still end up with a foreclosure on your credit report (despite what your lawyer may say; they don’t know any more about credit reporting than you do most of the time). If you are facing a foreclosure, this is a situation you definitely want to avoid except in the most extreme situations.

In most cases, the best thing for you to do when facing foreclosure, assuming that your inability to pay the mortgage is not temporary, is to SELL THE PROPERTY AND SELL IT FAST!

In doing so, you will avoid having a foreclosure or a bankruptcy on your credit report. You'll be able to get on with your life and avoid having your foreclosure and bankruptcy haunt you for years to come!

There are two things to be on the look out for when using a short sale to sell your property. The first is the income tax implications. You may be ‘1099-ed’ for the “Forgiven Debt”, this is a capital gains tax on the ‘Phantom Income’(when you sell for less than what you owe), unless the property is your principal residence, the mortgage was used to purchase or improve the property and the difference is less than $250,000. (This is not an all inclusive explanation, just a guideline; the tax codes are infinitely more complicated.)

The second thing to look out for is the possibility of a “Deficiency Judgment” brought on by the foreclosing lender, or PMI (private mortgage insurance company). If they believe that you have assets, the lender may initiate the legal proceedings for a judgment in the amount of the money they lost due to the short sale. There are two items to note here:

1. The lender can only pursue a deficiency judgment if you have not signed a 'promissory note' agreeing to pay them money, or if they did not accept the short sale payoff as 'payment in full'.
2. A deficiency judgment can be pursued by the lender (or PMI company) even if they foreclose on your property. Let me say that again. You can get a foreclosure on your credit and still be sued for the deficiency amount. If there is a foreclosure there are many more expenses involved, thus the deficiency amount is greater as well.

There is no "Miracle" solution, just a better one. Your credit will be affected and you will need to rebuild it to save you money in the future. The important thing is for you to find someone who can give you the information that you need so you can protect yourself as best as you can.

Find Out More - STOP Foreclosure Today