As a real estate investor and wholesaler, I’ve come across my fair share of misconceptions about what I do and the business we’re in as wholesalers.
If you’re following me on social or reading this blog, then you know that I want to expel these misconceptions and make sure that people in real estate investing have the knowledge and information they need.
Real estate wholesaling is a lesser-known, but profitable exit strategy when it comes to investing. It’s an excellent way for new investors to dip their toes into the market without having to invest a significantly large amount of capital.
Unfortunately, wholesaling gets a very bad rap due to the misinformation people have and have gotten. Today, I’m going to dive deep into this particular topic and shed some light on the key differences between wholesaling and brokering, and explain why comparing the two is like comparing apples and oranges.
Misconception #1: Wholesaling and brokering are the same thing
The first and most obvious misconception is that wholesaling and brokering are the same thing. While they both involve real estate transactions, they serve very different purposes in the industry.
Real estate wholesaling involves finding distressed properties, negotiating a deal with the seller, and then assigning that contract to a buyer for a fee.
This fee is typically a percentage of the sale price, and it's how wholesalers make their money. The key difference between wholesaling and brokering is that wholesalers do not take ownership of the property.
Real estate brokers are licensed professionals who help clients buy, sell, or lease properties.
They provide market analysis, negotiate contracts, and coordinate the transaction process. Brokers earn a commission based on the sale or lease price of the property.
Comparing the two is like comparing a matchmaker to a wedding planner. The matchmaker (wholesaler) connects two parties and gets paid for making the connection, while the wedding planner (broker) organizes and facilitates the entire event, earning a fee for their services.
Misconception #2: Wholesalers are just unlicensed brokers
This one is probably the most persistent misconception and sadly, it’s part of the reason our industry is going through a period of regulatory laws.
Firstly, you do not need to have a real estate license to be in wholesale real estate!
As mentioned in the previous point, wholesaling and brokering are two different things and serve two different functions for our clientele. Wholesalers often work with real estate agents so that we can provide our buyers and other investors with properties that have the potential to add value.
Wholesaling is legal in all 50 states in the US and while in many of these you don’t need to have a real estate license, I do encourage people to get one in their state for a number of reasons:
It gives you greater credibility
It opens the doors for more opportunities
It allows you access to real estate agent specific platforms or tools
Several states, such as Philadelphia, Ohio, and New York, have passed legislation that requires wholesalers to be licensed or to follow a particular set of laws in order to conduct business.
Each state and each city within those states all have different laws in regard to wholesaling, so it’s crucial that you know what those laws are and more importantly, that you disclose your intent to anyone involved in your role in a purchase contract.
Misconception #3: Wholesalers are less professional than brokers
Some people believe that wholesaling is a lesser profession, especially in comparison to a real estate broker, because it doesn’t require a license.
Along with this, they also believe that wholesale real estate is just a quick and easy way to make a quick buck.
Let me be very clear about this – wholesale real estate is not a get rich quick scheme!
Yes, wholesaling is a great way to get started in real estate investing because you can make a lot of money in a relatively short amount of time versus the traditional route.
However, this does not mean that you don’t need to put in the work, the dedication, or have a fundamental understanding of the market.
As wholesalers, you need to become an expert in finding deals, analyzing properties, negotiating contracts, and building up a network of buyers, investors, and other wholesalers.
You also need to have a keen eye for spotting potential value in a property and have the ability to problem solve creatively.
I created and built up the AstroFlipping community to not only ensure that members have the knowledge and understanding of what wholesale real estate is, but can also rely and support each other through success and failure.
And there will be some failures, but that’s a truth in both business and personal.
These misconceptions aren’t the only ones I’ve come across in my decades as an investor, but they are the most prominent. Again, much of this is due partly to wholesalers not understanding the business.
Have you heard some of these misconceptions yourself or maybe you’ve heard of some others?