I Wholesaled Over 300 Houses and I Regret It

TLDR
Wholesaling is legal arbitrage. On paper it works. The problem is the gut feeling that keeps showing up in experienced wholesalers after enough deals. Three ways to keep the upside without crossing the line: be fully honest, bird dog for a real buyer, or actually buy the houses yourself.

Table of Contents

What Wholesaling Actually Is

I have wholesaled over 300 houses and I regret it. Not because it was unprofitable. Because of a feeling in my gut.

Here is wholesaling in a nutshell. I see a house on Zillow for $200,000. I call the owner or the agent. I offer to buy it. We sign a contract to close in 30 days. Before that 30 days is up, I find another buyer who will pay $220,000. I do not actually buy the house. I assign my position in the contract to the other buyer. I keep the difference. $20,000.

No repairs. No financing. No ownership. Just connecting a seller who wants out with a buyer who wants in.

Most people call this arbitrage. But here is the catch. Nobody is paying above Zillow list price. So to make wholesaling work, you have to lock up deals under market value. That is where the “we buy ugly houses” billboards come from. The postcards. The endless robocalls on sellers’ phones. That is where the spreads live.

So remember, you are not buying and selling the house. You are selling your contract. More precisely, you are assigning your position in it for a fee.

The Carpetbagger Story

After the Civil War, the South was wrecked. Homes were ruined. People needed out from under their land and needed cash to rebuild their lives. Land speculators showed up. They had money. They wrote contracts. They closed quick. They gave people certainty.

Sound familiar?

These guys carried their belongings in homemade suitcases made out of old carpet. That is where the name comes from. Carpetbaggers.

History does not remember them as saviors. It remembers them as exploiters. Even though they technically brought money into the market, hindsight knows they were profiting off people who were vulnerable and less educated.

No amount of logic washes away that collective gut feeling.

The Day-and-a-Half Walk

Here is another story. 1700s. Land speculators were negotiating with Native American tribes to buy land. The tribe did not use the same modern measurement systems. The deal was: we will sell you as much land as a man can walk in a day and a half.

The speculators said sure.

Then they cleared a path. Cut away all the brush. Instead of sending a normal walker, they sent trail runners. Marathon runners of their day. Day and a half later, they had claimed a massive stretch of land.

Both sides signed. Both sides did exactly what the contract said. Fair.

Yeah. Fair. Like when I picked up a fully rented-out duplex for $42,000. Not my fault the seller never heard of the 1% rule.

Common Mistake
Conflating “legal” with “clean.” A contract can be signed by both parties and still feel wrong in the morning. That feeling tells you something about how the deal was made, not whether it was enforceable.

Where the Gut Feeling Comes From

I am a capitalist. I have wholesaled hundreds of deals. I can rattle off every logical reason wholesaling works. You match motivated sellers to real buyers. You earn your spread. I have moved houses that had human crap in the living room. Was a realtor going to list that one? I have closed deals for cash in under 7 days when that was exactly what the seller needed. I still talk to some of the sellers from my wholesaling days, in a positive way.

But when $40,000 is on the line in a single deal, would you be tempted to bend the truth with the seller a little? And the next time, does it get just a little easier?

The dictionary says arbitrage is the practice of “exploiting price differences.” Exploiting. I have bought hundreds of houses as an investor, and I cannot say I have ever felt exploited by the purchase price. Which means somebody else is getting exploited in the arbitrage trade. Usually the seller.

On top of that, the industry has a professional problem. A lot of wholesalers out there are newbies. They get a seller to sign at whatever price the seller will take. They blast it out to a subpar buyer list or to Facebook Marketplace, praying for a miracle. The seller thinks the house is basically sold. Sometimes they move out. Sometimes they pre-spend the money on credit cards. Then the call comes: sorry, we are backing out.

A big-time national wholesaler told me his company closes less than 60% of the contracts they write. Less than 60%. That means almost half the time the seller thinks the house is sold and the rug gets pulled.

And most of them are posing as the end buyer, knowing full well they are never going to buy the house.

Line to Know
Locking up a house you cannot or will not buy is the wrong side of the line. The exact dollar spread does not change that.

Three Ways to Stay on the Right Side of the Line

There are really only three.

Number one. Be completely honest. Tell the seller exactly what you are doing. Explain how wholesaling works and what your role is in it. Let them know you have a buyer list. These buyers are not scrolling Zillow for trash properties. You have exclusive access to them. That is your job. You are good at it. Say it plainly. Do not twist it. Do not sugarcoat.

The problem with full honesty: it is brokering. In many states brokering without the right license is illegal. Talk to a lawyer before you go that route.

Number two. Bird dogging. This is the training wheels of wholesaling. Find an experienced investor who has the cash but not the time to hunt deals. You find them at meetups, Facebook groups, wherever investors hang out. Get them to tell you exactly what they want. Neighborhoods, condition, price per square foot. You go hustle. You find it.

Before you sign anything with the seller, call the investor and confirm. Show them pictures. Ask them directly: are you going to close on this? If yes, you sign. You close. You collect your fee. Everybody wins. If the investor ever flakes and does not close, you never work with them again. Period.

Number three. Actually buy the houses. This is the gold standard. If you have the money or financing lined up, you cannot get too good of a deal. You are the one taking the risk. You deserve the upside.

I locked up a house once that looked like a slam dunk. When we closed, we found out there were 400 tires in the backyard, plus a roach infestation, on top of an already huge renovation. Hauling out the tires cost way more than I expected. We barely broke even, if that. That is the risk I signed up for.

There is a caveat on buy-it-yourself. If you sincerely plan to buy and then decide to assign to a different investor, knowing full well you will buy it if the assignment falls through, that is fine. The same checkbook is behind the deal.

Pro Tip
The problem isn’t making money. The problem is locking up houses you cannot or will not buy, and taking advantage of people who do not know what is going on.

FAQ

Is wholesaling illegal?

Not universally. Brokering without a license is illegal in many states. Legal clean arbitrage where you can actually close is usually fine. Laws vary. Talk to a lawyer.

How do I find an investor to bird dog for?

Local meetups. Facebook groups. REIA clubs. Ask around. Experienced flippers with capital are always willing to meet someone who might bring them a deal.

Is it OK to wholesale my first deal if I have no money?

Bird dog it instead. Get a commitment from a real buyer before you sign. That way if the buyer flakes, you are not holding a contract you cannot close.

What if I am already deep in wholesaling and the gut feeling is there?

You are not alone. Most experienced wholesalers I know eventually feel the same way. Move toward either bird dogging for a real investor or buying the houses yourself. The business does not have to end. The shape of it changes.

How do I test if I am on the right side of the line?

The test a buddy of mine uses: how would you feel if your actions made the front page of the news? For me it is simpler. How would I feel if my kids saw what I’ve done?