So, wholesaling is the act of obtaining a property under agreement (contract, letter of intent, memorandum of understanding) and then transferring your interests to another investor. This is the theory, for the actual mechanics of how it works, you are going to spend a little more time than just reading a blog post. Something for you to ask now when you attend the next REIA meeting or National Conference of Real Estate Investors. Website design By BotEap.comWholesaling is great because it works in ANY market. Website design By BotEap.comWhen you have low interest rates, as we’ve seen in the last three years, and most “end-buyers” are first-time homeowners and rehabilitators, you can wholesale to them. And when you enter a higher interest rate environment (like now) and “buy / hold” investors start to return to the market, you can wholesale your offerings to this group. Website design By BotEap.comHowever, what I like best about wholesaling is that it GIVES YOU AN EXCUSE! That is an excuse to meet more experienced investors. How? By accepting wholesale deals with them and in exchange for doing so, you get to know what they know. Website design By BotEap.comUnfortunately, there is not enough space here to go into all the details of advanced wholesaling strategies, but I will return to this in future posts. What I do want to mention now is the need to stop confusing wholesaling with “Flipping”, they are not the same. However, more exactly, they do not mean the same thing in all circles.
The term “Flipping” comes from the world of commercial real estate, where wholesale deals happen ALL THE TIME. Website design By BotEap.comOn any given day in Washington, DC, or Baltimore, or in any major American city, smart and astute investors are putting small properties under contract (and making millions) with no interest in closing the deals themselves. These street savvy investors intend to take their contracts and assign them to investment groups with much deeper pockets that are in the process of “piecing together” a block to build a massive office building. Website design By BotEap.comLarger investors often encourage smaller investors to do this because if the property owner really knew that XYZ Corp wanted their property, the price would quadruple. A few years ago, the term “flipping” slipped into the language of people who do single-family deals. “Flip” originally meant “flip” the contract. Website design By BotEap.comYet today “Flipping” means many things, including “going to jail.” Huh ???
Yes, in 2003, the Federal Government (HUD) issued a ruling broadly calling “Flipping” illegal. This ruling has to do with collusion and other bad things that led to a series of mortgages (which were insured by the government) going into default. This HUD rule has absolutely NOTHING to do with wholesaling, but most people don’t care about the details. They hear the words “illegal” and “flip” in the same sentence and go no further. Website design By BotEap.comIn addition to the HUD ruling, HGTV began producing a television show called “… Flipping …”. Again, this program has nothing to do with wholesaling. On the HGTV show (which is a knockoff of a British show called Property Ladder), participants buy, rehab, and then sell houses. If you’ve ever watched this show, you’d know it’s probably something you’ll never want to do, unless you want to empty your savings account and end up in divorce court. Website design By BotEap.comUnfortunately, whether it’s a federal ruling or a television show, the term “Flipping” has come to mean different things to different people. So it’s probably best not even to use the term.
Wholesaling will make you money. “Flip” may or may not cause problems, depending on the type of “Flip” you are doing. Website design By BotEap.comAgain, in a future article (after I look at the other strategies) we will come back and discuss the various ways to make money by wholesaling. For now, understand this: Wholesaling works in ALL real estate markets, regardless of interest rates or the economy.