Real Estate Articles

Honest Capacity | By: Jeffery Watson

If you’ve been reading my recent emails, you’ve noticed that I’ve been hitting pretty hard at some of the sacred cow misconceptions in the world of wholesaling. This email will continue in that respect.

One of the things I find to be fascinating is that people who normally act with integrity and consider themselves to be upright and honest seem to check that principle at the door when it comes to the process of trying to wholesale real estate. They claim to enter into contracts for which they have neither the intent nor the capacity to execute and perform. Instead, they are merely trying to put properties under contract hoping they can then market the house or contract and assign that contract to another person who is willing to pay a little more money.

Please hear me out. I have no problem with the concept of wholesaling, nor do I have any problem with assigning contracts. My issues are the same as those that arose in the meeting I was privileged to attend with Division of Real Estate investigators and regulators from a dozen or more states who were talking about wholesaling. They are frustrated over seeing individuals consistently putting numerous properties under contract with no actual intent or financial capacity to perform on even a fraction of those contracts. There are people out there teaching wholesalers that the more properties you have under contract (sometimes they use the insidious words “tie up”), the greater the chances are that you’ll get something that someone else will want to pay you a little bit more for. I have fundamental problems with that mass-contract approach to wholesaling real estate.

While you may make a large number of offers, you should only go under contract on properties for which you have the clear intent and capacity to perform, close and take title to the real estate. This would mean you are either going to have a vast amount of liquid personal funds, or you are going to have a network of good, qualified private lenders who can make money available to you for 7 to 30 days, since you will often want to close on the property and then begin to immediately and aggressively resell it. You may be able to close the same day or the next day, or it may be a week or two later depending upon the property and how effective you are at marketing it to your buyers’ list.

This takes me back to the initial point regarding honesty and capacity. To be compliant, you should only put the same number of properties under contract as you have the actual capacity to fund.

While discussing this with another investor, I asked him point blank how he would feel if someone else entered into a contract with him, and he later found out the other party had neither the intention nor the capacity to actually honor the terms of the agreement he signed. When I phrased it that way by reversing roles and removing it from just the world of real estate, he became aware of the ethical conundrum he was creating for himself and others as he practiced wholesaling the way so many people wrongly teach it.

If think the content I’ve been sharing recently regarding wholesaling has been of great value, please make a point to look for the next couple of emails from me, as I want to offer you an opportunity to get much more free and informative content on this and related subjects.

Until next time,

Jeffery S. Watson

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