Who Would Buy a Wholesale Deal?

In my last post I talked about the basics of what it means to "Invest in Real Estate".  The simplest of the three forms of investing I outlined was wholesaling.  In the most basic of terms wholesaling is playing the middle-man in a deal.  This post is about why someone would buy from a wholesaler, and to touch on why one would sell to a wholesaler, which obviously covers in more detail why you might decide to wholesale properties.

The anatomy of a wholesale is pretty simple:  Find a seller, grab it at a good price, make sure there's a lot of meat in there, and pass it along to someone else who makes a very significant profit of their own.  That has a lot of "...but, why?" questions in it.

Why would someone sell to a wholesaler?

In most cases the person with a property they no longer want doesn't care how they get the money you've promised them, as long as it arrives in their hands at the date agreed upon, they will walk away happy.  As far as this person is concerned you are a buyer.  They have something they are selling, and you came along and bought it.  If you are structuring deals properly you won't technically be buying it...  You'll be assigning the contract to someone else, or doing a simultaneous close.  Both of these are just contractual terms that basically mean that you never owned the property.  You found a buyer for the seller, and you built a profit into that deal for yourself.  But the why is because the seller is getting paid.

Why would someone buy a wholesale property?

Buyers, in an economic sense, are those who create demand for a product.  Many buyers in the real estate investing business have more money (or access to more money) than they could reasonably tie up in deals.  The plain and simple answer is that you are providing a sensible product at a price that makes a reasonable profit.  A buyer will buy from you as long as the property will profit them.  When you wholesale a deal the goal is to structure it in such a way that it's attractive to a buyer.  Your value to a buyer is that you have a deal and they have money.  To be a successful wholesaler you just need to have marketing in place that generates deals that buyers wouldn't find on their own.  You provide a unique deal to them, and it changes hands to them.  They'll rehab it and make (in most cases) a lot more money than you because they did a lot more work.

If a rehab makes more money, why bother doing a wholesale?

There are a lot of reasons, but one of the main is risk.  In a wholesale you are exposed to very little.  This is another reason you'll generally make less money wholesaling.  You're doing less work, exposing yourself to less risk -- so your reward is smaller.  Another reason to wholesale is because you lack the team necessary to rehab.  Rehabbing takes experienced contractors who can do the work cheap and efficiently.  Finding a contractor who does a good job can often not be as easy as you'd like it to be.  If you're incapable of fixing a property it's a much better idea to sell it for a few thousand dollars in your pocket and let someone with the resources do the repairs and make the tens of thousands.

Won't a seller and a buyer just cut you out of the deal?

Sometimes they will.  Sometimes a seller will see the contracts and learn they could be selling the property with the profit you would be making in their own pocket.  Sometimes the other side of that where a buyer will go around you and buy it at the price you negotiated with the seller themselves.  This doesn't serve the buyer well.  You found one deal that was going to make them money.  You are likely to work with them again in the future and make them (and yourself) even more money in the future.  Some individuals would rather have a small gain now rather than build a healthy business relationship.  It will happen sometimes.  The real estate investing landscape is used to this sort of deal happening, though -- so it won't be as common as many fear.

There are bound to be a million other questions that I've missed.  These are the obvious ones that jumped out at me when I first heard of the concept.  What would you like to know about wholesales?  Investing in real estate in general?