Jamil Damji is an investor, wholesaler and mentor within the real estate space. He is a cofounder of KeyGlee and runs AstroFlipping.
“Predatory practices.” “Stealing grandma’s house from right under her.”
In a career that’s spanned over 20 years, these are the two common statements I’ve heard about wholesale real estate. There are many paths you can take when you embark on the labyrinthine journey that is real estate investing, but I find wholesaling as one of the easiest. Especially if you’re new to investing.
But it also holds the potential for bad actors. So let’s just address the giant pink elephant that’s in the room here. We’ll call him George.
George is part of the reason wholesaling sometimes enjoys a less-than-favorable reputation. There are a variety of reasons some investors do what they do, but in my opinion, it all boils down to one thing: Education. Or rather, a lack thereof.
A Great Beginning Strategy That Turns Bad
Wholesale real estate is a great beginning strategy for those new to investing. Unfortunately because of its low barrier to entry and relatively consistent returns (compared to other investment strategies), many beginners jump into wholesaling without a proper understanding of the fundamentals.
When I say fundamentals, I mean the core components of a real estate transaction, including legal paperwork, as well as an understanding of how to assess the value of a property. The reality is that there are nuances that most new investors overlook.
This includes how to interact with buyers, real estate agents, other investors and sellers. The way you speak to an interested buyer or investor isn’t the same way you would speak with an agent, and both of those interactions will be vastly different from speaking with a property owner.
For instance, when you’re speaking to a buyer or another investor, there’s a certain level of industry terminology and jargon that you’ll be expected to be familiar with to show your understanding of the industry. Some of the most commonly used terms are: Close of escrow, title, ARV, MAO, underwriting/comping and appraisal rules. Just knowing these terms won’t save a new wholesaler, though.
No Experience Doesn’t Mean A Lack Of Knowledge
Another great reason to get started with wholesale real estate is the ability to start without needing prior experience in real estate or real estate investing. With that said, a lack of experience does not excuse a lack of subject matter expertise.
This goes back to education. It’s the mistaken belief that having a real estate license means getting both knowledge and experience. While a real estate license is a good way to learn the essence of real estate, I find that your true education only begins after you’ve earned it.
There’s a startling amount of critical information a license doesn’t cover, such as underwriting. Underwriting (also known as comping) is the process of comparing like properties against a subject property to determine the approximate value for the subject.
Knowing how to comp effectively is a learned skill and unfortunately, this isn’t a subject taught within licensing courses. This is an unfortunate reality, given that comping is one of the most underutilized skill sets an investor can develop and one that can greatly amplify your wholesaling relationships.
Again, having your real estate license can help build up your reputation and your relationships, even if having one doesn’t cover the entirety of what you’ll need to be successful. There are a lot of services and platforms that are dependent on you having that license, such as agent-specific networking events.
This doesn’t mean you need a real estate license to be a real estate investor; it’s simply a value-added skill to open more opportunities.
No Money, No Problems: Except For The Following
The first real estate investing deal I ever did was by accident. I overheard a conversation with my former business partner about properties he was looking to purchase, and I wanted to be a part of that deal. He told me absolutely not—that I didn’t have a real estate license or the experience.
He was right on both counts. More importantly, I didn’t have any money. I wasn’t broke, but I was certainly edging my way closer to it. So the prospect of discovering a means to be able to make money, pay rent and not starve? Yeah, that was the dream. But how could I possibly be a part of this deal if my partner didn’t think I had the capacity to do it?
A few hours later, I went on the dog walk of the century (for me, at least). It was on that walk that I found the very properties that my business partner had been desperately searching for. They were literally in my own backyard. In an ironic twist of fate, the property that ended up becoming my first deal was the very same one that I had tried renting months earlier. (I was denied because I couldn’t pony up two months’ rent as a deposit.)
While an entry into wholesale real estate investing means that you don’t have to spend millions (or even thousands) of dollars on a property, some wholesalers may put properties under contract without having the money for the purchase.
These types of events lead to the perception that wholesaling is unethical. I would like to counter this by saying that wholesaling is completely ethical, but it’s the presence of some unethical people that has muddied the waters. The question here is the issue of intent; if a wholesaler puts a property under contract, knowing that they don’t plan to actually purchase or that they don’t have the funds to purchase, that offer is fraudulent in my opinion.
Disclosing intent is an integral piece of remaining an ethical wholesaler; it promotes transparency and honesty, and it’s also the morally sound thing to do.
As a real estate wholesaler, I’m grateful for the opportunity that I have to help people. Moreover, using the knowledge and experience that I’ve acquired over my career, I’ve been able to spot those pink elephants and nudge them gently in the direction of a more sound and responsible approach to wholesaling.
As they say, “knowing is half the battle.”
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
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