Co-Wholesaling: Legit or Problematic?
Lots of real estate courses out there talk about the subject of co-wholesaling or JV’ing. (Joint Venturing for short) It sounds simple enough. If you are new, work with someone experienced to do business together that seem trustworthy. If you are experienced, work with people you know and trust. You can market their deals for them and hopefully bring them a Buyer. It’s very simple so what could go wrong?
In a word: Everything
If there is one topic that I think is one of the most scathing I hear from Buyers, it’s co-wholesaling. It ranks right up there with off base renovation estimates. How can something so simple be so problematic?
Let’s take a look at the issues so you can see how to avoid these pitfalls and have more success with this underutilized subject. This is a simple subject as long as you get it right.
- Is the property actually under contract? - Not much is worse than marketing a property that is not even under contract. Even worse, you could be breaking the law. Please make sure there is a minimum of an executed contractual interest in place when marketing a property. Know your local laws!
- What price should you market a deal at? - Many wholesalers believe they must mark up the price of every deal they send out. While this does work from time to time, the people that pull it off tend to have connections with their Buyers already to allow for this to happen relatively under the radar as opposed to mass e-mail blasts. The most active Buyers tend to be on the same lists of every wholesaler in town. Buyers get disenchanted when the price is different from person to person. This does not build confidence or they go straight to the person with the lowest price. If you can have the wholesaler cover you in the deal or have the Buyer add your fee on top of the wholesalers price, go for it. Much less issues.
- What if there is more than one co-wholesaler? - The infamous daisy chain. Believe it or not, these are closable deals IF, and usually only IF someone takes the lead role in the transaction and ‘touches’ all the parties to ensure everyone is on the same page. I have seen five and six party transactions closed out. It can be done but if you are not in charge of the deal, make sure someone is. Otherwise, be very wary.
- Covering yourself to ensure you are paid - The fear so many people have, especially if you are new. Once you bring a Buyer to the table, of course you want to know you are being paid. The way to do this is simple. Draft a marketing agreement where both you and the wholesaler sign and ensure it gets in the hands of the closing attorney. Preferably before your Buyer signs the contract. This protects both of you as now the closing attorney knows about the need for you to be paid in this transaction. This alone will solve 95%+ of potential concerns about payment.
- The option contract - For some reason, some people are taught to send option contracts to wholesalers. Wholesalers generally just want cash Buyers. They don’t want option contracts. They don’t want people making them sign contracts ‘just in case’ you find a Buyer. Bring the Buyer to the table from the get go and save everyone time. Just find the Buyer!
- Bird dogs that appear to press the forward button - Sometimes I get a lot of e-mail from specific people. And none of them are deals that would work for us or in many cases, anyone. While I can’t 100% prove it, I really believe some people trying to be Bird Dogs literally just forward everything they have to anyone without taking any time to actually look at the deal. There are some interesting decisions being made out there as a result.
- Trust – Do you trust who you are working with? - This is a relationship business. Working with quality people is paramount. Don’t chase a few extra bucks to sacrifice the quality people out there to work with. If there is doubt between parties, you cannot be surprised when things go south. Choose wisely who you should be working with.
- Honesty - Tell the truth. It’s that simple. Transparency and honesty simply cannot be replaced. If you are dishonest, you can be sure it will be found out. If you take advantage of someone and pull it off for a few extra bucks, you can be sure you won’t be doing business with that person again. Be honest, transparent yet firm and you’ll have a much better experience.
So is co-wholesaling worth the effort? Most definitely. Just take the time to analyze every deal you can co-wholesale yourself and make sure it works. Don’t assume it does on blind faith. Remember, your Buyers are looking to you for answers and not necessarily the contract holder.
Do these things and you will avoid many of the common problems that arise from co-wholesaling. Do these things and it can be a profitable venture without as much work as a full blown wholesaler.
Do unto others as you would have them do unto you and you’ll be good to go.
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