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Bird Dog v. Wholesaler – What The Heck is the Difference…? Part II
By Sherman Ragland | October 18, 2007
In an earlier post (Bird Dog v Wholesaler…) I talked about how in the world of Quick Cash investing, there are three proven areas for making money in our region:
A) Bird Dog
B) Wholesaler, and
C) NEW (Since 2005) Foreclosure Consultant.
All three will make you money, as in QUICK CASH. However, there are differences in each of the three, and more importantly, for some people, one of the three is a much better place to start.
Unlike Bird Dog(s), a Wholesaler is generally someone who has some access to capital, either in the form of their own money, or access to investor type loans, such as “hard money” loans, and has the ability to put a transaction together, and then assign their interest in the transaction to another investor, who is the one who actually performs on the deal.
So a Wholesaler actually puts a property under contract, and then either assigns the contract, or more accurately their position as one of the parties to the contract to another person (or entity) who is actually capable of performing on the contract for a fee.
A couple of things are important before we go any further:
1) It needs to be understood that a WHOLESALER is a PRINCIPAL in the transaction. Meaning, they are a party to the contract, who has the ability to transfer their position to another. In other words, a WHOLESALER is NOT a BROKER. Despite the proliferation of Boards of Realtor(r) Agreements (Contracts) that list the names of both the Selling and Listing Agents, Brokers are NOT parties to transactions. A Seller and a Buyer are PRINCIPALS in transactions. The only reason that the agents are names in the Agreements is to protect their abilities to ask for and receive commission checks. But if a BUYER Backs out, or a SELLER Backs out, the respective agent is NOT required to stand in their place and perform on the contract.
2) A BASIC understanding of “Hard Money” is in order. A Hard Money Loan, is NOT a loan that is “Hard” to get. Rather, it is a loan that is made based on the soundness of the deal, more so than the soundness of the borrower. Typically, it is a loan that carries a significantly higher interest rate than most mortgage loans, because it is designed to be a “business to business” loan for a short duration, AND to provide capital to those who may have little to no prior experience and are putting up a very small amount of the capital needed to do the transaction. In other words, a “hard money” loan is by definition: A short-term (as in 6-12 months) business to business loan made by lenders who are comfortable with both the borrower and the transaction, even if the borrower is not considered “A” Credit.
So, a Wholesaler is someone who uses their ability to place a property under contract and then get’s someone else to “step into their position” and compensate them for putting the deal together.
In general, the major difference between a Wholesaler and Bird Dog, is that the Bird Dog is NEVER a participant in the contract, and therefore, NEVER has anything at RISK. While a Wholesaler is ALWAYS a participant in the contract, and therefore MUST have something at risk for their to be a VALID and BINDING Contract. Normally, what is at risk is the EARNEST MONEY, or consideration. For a contract to be VALID and Binding it must meet several tests. The most basic test is the test of “Is There Consideration”, and in most contracts, the Earnest Money Deposit fulfills this requirement.
IF THERE IS NOTHING AT RISK on the part of the WHOLESALER, then the WHOLESALER is NOT A PRINCIPAL and If the WHOLESALER IS NOT A PRINCIPAL, they are acting more like a BROKER and may in fact be practicing brokerage without a license, depending upon local law.
Because a Wholesaler actually has something at RISK, they normally can command a significantly larger fee than the person who is simply acting as a Bird Dog.
HOW MUCH LARGER?
It depends. Starting with, “What is the profit potential of the deal?”
Another consideration is “How many favorable terms are in the agreement that has been negotiated?” AND,
Most importantly, “Is the Wholesaler ALSO Arranging for Financing, particularly if the Investor who is taking over the Wholesaler’s Position a NEW Investor?”
There are many things that impact the success of a Wholesaler earning fees that are “Average, Above Average, Astronomical and – HOLDING THE BAG”
In future posts, I’ll discuss how one goes from “Average” to “Astronomical” and also makes sure that they are never faced with “Holding the Bag!”
Thanks for reading…
Until next time – “Go For The GOLD!“
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Tags: assigns, bill broncick, bird dog, dcreia.com, earnest money, hard money, investor type, principal, realtor, ron legrand, sherman ragland, steve cook, wholesaler, william bronchick
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October 18th, 2007 at 6:25 pm
[...] Bird Dog v. Wholesaler – What The Heck is the Difference…? Part II [...]