Buying From Wholesalers?
Just a couple of general questions about wholesalers and the standard expectations. I will most likely purchase my first rehab property though a wholesaler and was hoping to get a feel for what to expect.
So - what do wholesalers expect from a buyer/investor?
1. No real estate agents on either side?
2. Quick all cash closings (10 - 15 days)?
3. Minimal contingencies?
4. Experience (do they generally want to deal with someone who has done it before - or are they willing to work with newer investors)?
Anything else I should be prepared for?
Your responses will be much appreciated.
Thanks,
Harmmg
Wholesalers are mostly interested in price. They expect to hold the property for some period of time (though quick closes are always appreciated) but they bought at what they think is a substantial discount to retail and they are trying to get as much cash as possible in a 90 day period.
Contingencies are always a problem if they think they are about you not being able to make up your mind.[ Edited by commercialking on Date 08/16/2004 ]
Commercial, I could be wrong, but I think the question is about wholesalers who are assigning the contract, not taking posession. I do wholesale properties, and sometimes I do take posession. I think if I promise to do something, that I should follow through, but I know others who have enough weasel clauses to get out of the contract regardless of the situation.
Now Harmmg. To answer your questions:
1. As a wholesaler, I don't care if you involve a realtor or not, but I don't want to pay the commission, and neither does my seller, so the commission is on you. Now that said, as a rehabber, I buy from wholesalers, and often use my realtor, and I do pay his commission.
2. Close as quickly as possible. You will find many different levels of wholesalers. I am a full service wholesaler. All you need to do is to sign a contract with earnest money, and come to closing with certified funds. I will do the title work, and make sure everything is ready. If you need a loan, it is on you. Since I operate that way, there is no reason not to close quickly. However, there are some wholesalers who just want their fee, and don't provide additional services. In that case, we would ask that you close as soon as the title work is complete or by the end of the contract.
3. If you buy from a wholesaler there are no contingencies between you and the wholesaler. You are bound by the contingencies agreed to in the purchase contract. Just FYI, I never have contingencies in my contracts. That is why my offers get accepted.
4. Wholesalers have fear when they are working with a "newbie" investor, because that investor is more likely to back out than a seasoned investor. You will need to inspire the wholesaler with confidence that you can and will close.
As far as other things you should be prepared for:
Check out the integrity of your wholesaler. Many wholesalers are less than honest when dealing with the sellers and you.
Also, make sure the fee you pay is commensurate with the services received. If they are assigning a contract, then there must be a contract to assign. The wholesaler must be willing and eager to get you a copy of the contract. If not, or if they don't have one, then they are probably an expensive bird dog, often brokering real estate without a license. Also, if they are selling the LLC, make sure that the contract is written in the name of the LLC, and if it does not say, "to be formed," that it truly exists, that they have the authority to sell the LLC, and it is in good standing.
There is probably more, but I don't want to write a book.
Thanks to both of you for your replies. Bnorton - I appreciate the in-depth reply - you have answered some questions I didn't think I had. Thanks especially on the advice about LLCs and what to expect from an honest wholesaler.
The wholesaler is a member of the local REIA so I can ask around and get an idea of integrity.
Thanks again for the advice.
Cheers,
harmmg