In June, I shared some insights in The Truth About Big Box Investors. This month, we’re diving into the world of Wholesale Investing. Before we get started, here’s a quick refresher on the different types of real estate investors:
- Flippers: These investors buy homes, renovate them, and resell for a profit. We’ve previously discussed how tricky it can be to make a decent profit in this space.
- Buy and Hold Investors: My personal favorite, these investors seek out great turnkey rental properties to hold and rent out. It’s a value-driven approach that contrasts sharply with the quick-fix mentality of flipping.
- Big Box Investors: These are your large investment companies, from Opendoor to expansive hedge funds. They seem like an easy solution when you need to sell fast, but they can be surprisingly selective.
- Real Estate Strategists: This is where we fit in. Our focus is on solving practical problems for homeowners who need to sell quickly, with the house itself being a secondary consideration.
Today, let’s talk about Wholesale Marketers. You’ve probably seen their signs on the side of the road, promising “Cash for Houses.” Here’s the thing: calling them “investors” feels generous. They don’t take ownership, they rarely close deals themselves, and they certainly don’t put their money on the line. Some of our Title Company Partners have shared with me that wholesale marketers close only about 30% of the deals they bring in.
So, how does wholesale marketing work?
If you call the number on one of those signs, a wholesale marketer will visit your home and make a quick cash offer. Sounds good, right? The reason so many people get into wholesale marketing is because it’s a low barrier to entry—just a few hundred dollars for signs and no real experience needed. Unfortunately, this means many of them lack the expertise to accurately value properties or understand renovation costs. They’re betting on finding an experienced investor to buy the contract, earning the wholesaler an assignment fee that typically ranges from $5,000 to $20,000 or more.
This lack of know-how often gives wholesale marketers a shady reputation. Nationally, roughly 50% of their deals close. They rely on desperate sellers willing to accept lowball offers and seasoned investors willing to take over these contracts (some of which are handwritten real estate contracts created by wholesalers themselves).
Wholesalers face minimal risk and limited earning opportunities beyond the assignment fee, which keeps them constantly chasing deals to stay in the game. If you’ve ever owned a home, I can almost guarantee you’ve been approached by a wholesale marketer. Random letters and postcards in your mailbox? Probably a wholesaler. Unsolicited cold calls when you’re perfectly content in your home? Wholesaler. Someone leaving notes on your door? Wholesaler.
It’s no surprise that other real estate professionals aren’t fond of wholesalers. Although they make up a small portion of investors, they’ve managed to give the industry a bad name. On the occasion a deal goes through, homeowners can be left wondering who actually bought their home. I’ve seen situations where a wholesaler promises one thing to the homeowner and another to the buyer, leading to conflicts after closing—with the wholesaler nowhere in sight. It’s no wonder that legitimate real estate agents and title companies hesitate to associate with someone making empty promises.
On the Other Hand:
While wholesale marketers may not always have the best reputation, it’s important to recognize that there is a market and circumstance for every type of investor – yes, even the wholesale marketer. For some homeowners, especially those needing to sell quickly, wholesale offers can provide a fast, no-hassle solution by connecting you with a vast list of end buyers. Additionally, some experienced investors prefer working with wholesalers because it gives them access to off-market deals that they may not find elsewhere.
If you’re a homeowner or agent considering a wholesale offer, it’s crucial to consult with professionals first. We’re here to help educate you on the right questions to ask, ensuring you can vet the true investors from the wannabes. Before you make any decisions, reach out to us for guidance.
Don’t miss our Investor Series class where we dive into the pros and cons with working with a real estate investor – visit InstructorSteve.com to register and learn more about navigating the world of real estate with confidence!
