You're about to see 3 huge wholesaling myths get completely debunked. You've probably never heard of some of what you're about to watch in this video because this wisdom comes from the real world of doing hundreds and hundreds of wholesale deals. So if you're a real estate investor who is interested in wholesaling houses, you NEED to watch this video:
What is Wholesaling?
If you are not 100% certain what wholesaling is, please read some of my previous blogs, to better understand this article.
- How to Make Money in Real Estate
- What They Don’t Tell You About Wholesaling Houses
- Is Wholesaling Real Estate Ethical?
Wholesaling Myth #1: Wholesaling is Illegal
Wholesaling is legal, but this myth persists because a lot of people wholesale illegally. There is a legal and illegal way to do almost everything. I actually have a great video on this subject called, "Is Flipping Real Estate Illegal?", that better explains the legality of wholesaling.
Co-wholesaling is where two investors work together to do a joint-venture wholesale deal. An illegal co-wholesaling deal would be where one investor has the deal and the second investor brings the buyer to the deal, but does not have their real estate license. It is illegal to practice real estate without a license.
Unfortunately, because so many people practice wholesaling illegally, many of my apprentices have had to defend their wholesaling activities to the real estate commissions. I have spent tens of thousands of dollars of my own money, to prove that our wholesaling activities are not practicing real estate without a license. I am proud to admit that we have had a 100% success rate winning against every real estate commission.
Wholesaling real estate is legal if it is done right. This means that you have to establish a bilateral contract between you and the seller that stipulates that you are acquiring equitable interest. You also need to prove that you have intent to purchase by providing a proof of funds letter. I provide my apprentices with a proof of funds letter, that is literally a screenshot of my bank account. Then once you have the house under contract with the first seller, you can go out and find a new buyer.
Wholesaling houses is illegal if you bring the buyer first, do not have a contract in place with the seller, or cannot prove intent to purchase. If you are worried about the legality of wholesaling houses you can get your real estate license. Or you can dial in on all of the rules and laws so that you know you are doing things the right way.
Myth #2: To Be Successful in Wholesaling, You Need a Buyer's List
A lot of training on wholesaling will say you need to build a buyer's list, but this is not true. I have never built a buyer's list and my team and I have done wholesale deals that made over $250,000. We know this business very well, and make an enormous amount of money, all without a buyer's list.
The fallacy with a buyer's list is that in wholesaling, you are getting the property under contract directly with the seller, and then wholesaling it to another buyer. Most buyer's lists are compiled of investors that are doing lots of deals, and those are not the people you want to wholesale your deal to. The more experienced an investor is, the less they will want to pay for your property, and you do not want to undersell yourself.
- Finding the Right Buyer
This does not mean that you lie or do anything unethical. You simply market for a buyer once you have the deal under contract. This will also help assist the legal side of things if you ever have to defend yourself to a real estate commission. If you have a buyer's list the commission could argue that you are practicing real estate without a license.
The best buyer for your wholesale deal is someone who is buying their first investment property, because they will pay more. I recently read a statistic that approximately 80% of all real estate flips in the US are done one deal per a person. This means that people are not doing a second deal, so their first deal is their first and last. This provides a large pool of potential first time investor buyers.
How to Find Buyers
- Put signs up around the neighborhood
- Craigslist Ads
- Zillow Ads
- You can list it on the MLS if you are experienced and know how to do it legally.
Myth 3: Wholesaling is For Beginners
Wholesaling is not necessarily for beginners, in fact its an advanced technique. The main reason people think wholesaling is for beginners is because you do not have to bring a lot of money into the deal to make it work. In fact, the majority of wholesales that my organization does are $10 earnest money and $20-$30 to record the document. We have done plenty of wholesale deals for under $50 with net profits of $40,000 - $70,000.
This means that beginners can get involved in real estate with very little funds, and earn $5,000-$15,000. It can cost very little money, but there is a whole other world surrounding wholesaling that makes it very complicated and difficult for beginners.
You Are the Middleman
As a wholesaler, your position in the deal, is the middleman. You have a seller that put you under contract on one side and the new buyer on the other side. This means that these two people can get rid of you in order to make more money. If the seller agrees to sell the property to you for $100,000 and the buyer is willing to pay $120,000, then the seller might decide to sell directly to the buyer at $110,000 and split the savings.
If both parties are out to get you, and you don't know what you are doing, you can be intimidated out of your own deal.
I recently heard the story of a a gentleman in the military who acted as a wholesaler in a deal with a seller who wanted him out. The seller actually called the wholesaler's commanding officer and made a bunch of false accusations against him. The wholesaler was so afraid of the massive repercussions he could face, that he backed out of the deal.
The seller then sold the property directly to the new buyer that the wholesaler had already found. By removing the wholesaler, the seller made more money, and allowed the buyer to purchase the property for less.
If you are a beginner and purchase a property the traditional route, without considering renovating or finding a buyer until after you close on it, then you will avoid this drama. You can visit Auction.com or a local foreclosure auction and just purchase the property. You might run into other issues, but at least you will not have two people out to get you.
The second reason this isn't for beginners is because of the issues associated with the subject of wholesaling and finding deals. People believe that wholesaling fulfills a niche in the marketplace where professional investors are not gravitating towards. They believe the wholesalers find the deals so investors can focus on what they are best at.
This does not make any business sense whatsoever. When a professional real estate investor closes a good deal, their very next move is to go find another one. Successful investors that are making $1 million a year flipping houses, are always thinking about finding their next deal. They literally spend hours each day on this subject. Some of them spend as much as $50,000-$100,000 a month marketing for great deals.
If you think a brand new investor can walk into this business and find deals ahead of successful investors, you are wrong. Finding deals is incredibly difficult, especially in today's market. The people that have been in the business the longest spend the most time locating deals. They don't subcontract finding deals out to wholesalers. Now, they will buy deals from wholesalers, but they will not pay top price.
In reality, wholesaling deals is an enormous challenge for beginners. As a mentor and coach, I spend an enormous amount of time educating my people, but also updating and testing all of our techniques. I don't teach all of these techniques in my videos and blogs, and I have a video that explains why. It is called "Giving Away Business Secrets"
Opportunity for Beginners
There is one tiny sliver of opportunity for a beginner to find deals that professionals are not going to find. I am only telling you about it, because it is a lot of hustle and work, and I am not going to go do it.
I have a course on how to do this called, "Earn Fast Cash by Becoming a Deal Finder" The page I will link says the course is $100, but just click below the video for free access.
In the course, I explain the technique called, "bird dogging", where you knock on doors, or research vacant houses you come across. I also have a video called,"Getting the Backstory on a Vacant House".
The course will give you insight on how to find a deal that other people simply overlooked or couldn't find. Finding deals is incredibly difficult, but do not think that investors aren't out their looking for deals too. Even though we are busy fixing up houses, we always find time to locate and negotiate deals. That is our job.
The Biggest Wholesaling Myths
Those are the three biggest wholesaling myths. I think the technique of wholesaling is for those that are more intermediate to advanced, not just starting out. But if you are a complete beginner,you can definitely try bird dogging with the course I gave you access to. Or you can hire a mentor like me, to teach you the techniques needed to successfully wholesale houses.
If you're going to wholesale houses, you have to do it right. This means you should learn and follow the legality of wholesaling and not worry about a buyer's list. Focus on finding good deals.
Mike Shikongo says
Hi Phil, I live in Toronto, Canada. I bought all of your books and watched you on youtube. Please, can you be my mentor and partner in Toronto areas? I’m very interesting!. Your consideration will be appreciated.
Freedom Mentor says
We do mentor students in Canada! Have you considered making application to my apprentice program?
Ray Lopez says
Very informative video. Good stuff!
Are you licensed in more than one state?
Freedom Mentor says
joel yakubu says
how to get your mentor -ship program
Phil Pustejovsky says
Apply here to my Apprentice Program
Anthony Williams says
I am interested in getting more basic information on buying and selling real estate What do you suggest
Phil Pustejovsky says
Complete this free video course, Creative Real Estate Investing and Flipping Houses
Cheryl Andrade says
Hi Phil, I like your style and trust you and glad your a honest Christian. I would like to learn from you.
Harrinarine Deonauth says
Very informative and clear.
Hi Phil, love following your blog and podcasts. Question about illegality… would it be considered illegal, based on your experience with various real estate boards and knowledge, to enter into an Option to Purchase contract (a unilateral contract, not bilateral as you state is required for legality) with a small value deposit ($5-10)? Why is a bilateral contract required?
Phil Pustejovsky says
I am not totally sure why the unilateral agreement doesn’t establish equitable interest but that’s the way case law has established the precedent. There is nothing wrong with entering into an Option to Purchase Agreement. The issue is if you try to flip that deal to another Buyer for a fee.
I have been into real estate for the past 15 years part time mostly buy and hold; and fix and flip. I was thinking of strictly virtual wholesaling in USA but from Mexico where I will retire. They have good internet and telephone access. Is this doable?
Phil Pustejovsky says
If you have someone you truly trust on the ground who is doing all of the work and still allowing you to collect much of the profits, it is possible.