Wholesalers of sold-out houses are flooding the poorest neighborhoods

States and cities across the United States are grappling with a home turnaround niche known as wholesaling driven by a flood of largely unlicensed middlemen lured in by YouTube tutorials and a scorching market.

With quick cash, wholesalers can help struggling homeowners sell quickly, but have been accused of tough tactics and misinformation. Unlike repair investors, who take title to houses, renovate them, and put them back on the market, wholesalers typically negotiate with homeowners just to put houses under contract and sell those contracts to pinball machines.

“I don’t buy houses. I solve problems,” said Scott Sekulow, who leads a congregation of Messianic Jews in the Atlanta area and presents himself as the stunning rabbi. He said clients come to him when they are going through a divorce, can’t afford home repairs, or have other issues. Sekulow said he can earn them money while beautifying a neighborhood.

Hedge funds pay big for contracts, he told a conference of future tycoons: “When you can get in with them, they pay stupid money.”

While the practice is legal when transparent, advocates for the poor say aggressive wholesalers trick sellers with lowball offers. Illinois, Oklahoma, Arkansas, Kansas and the city of Philadelphia have recently proposed or passed regulations after complaints. The latter city acted in the fall after neighborhoods were overrun with “We buy houses” signs, and reports that demanding wholesalers would not leave homes without a signed contract.

“In my West Philly neighborhood, I probably get three postcards a month from one of these guys,” said Michael Froehlich, a community legal services lawyer in Philadelphia. “If you can get leads, you can trick someone into signing them for a price well below fair market value, and you can make $ 30,000, $ 40,000, $ 50,000 on a house. “

Wholesalers, typically entry-level investors who find off-market housing through cold calls or across neighborhoods, have been favored by the low interest rates of the pandemic era and the tight supply of homes that created a record price appreciation.

The United States had only a 2.4-month inventory of unsold homes in April, near an all-time low. The prices make a lot unprofitable for investors, causing some wholesalers to scour popular and poor neighborhoods to scare off transactions. The cost of collecting contracts is often 10 or 15% of the selling price and can generate a wholesaler’s salary of $ 15,000 in a matter of weeks, although the costs of internet advertising and customer lists weigh on these gains. rough.

On a recent night in Roswell, Georgia, about 50 wholesalers, pinball machines and investment novices descended on a DoubleTree hotel for an Atlanta Real Estate Investors Alliance meeting. Sekulow, whose brother Jay was one of Donald Trump’s impeachment advocates, was one of the panelists.

‘MONEY IS KING’

A second, Mike Cherwenka, calls himself the “Godfather of Wholesale” and shares on his website the testimony of having played on a male journal dance team. He left life after kissing Jesus and starting a career in real estate.

“Money is king, and when you can just offer people money and close in a week, you get leverage, don’t you? Cherwenka said, still a muscular figure in a purple sports coat. “People wake up and listen when you make an offer and have proof of funds there.”

As the discussion revolved around the benefits of having a spouse involved in her real estate business, Cherwenka’s wife Tolla used a game show to show the couple’s book, “The Art of Becoming a Multi-Millionaire Real Estate Investor.” .

“If you want one, it’s $ 20,” he says. “Hold one up there, babycakes.

Wholesale has been around for years, but hit the radar of property data provider PropStream most significantly four years ago, said Rob Zahr, general manager of parent company EquiMine in Orange County, in California. The PropStream database can help find homes that are abandoned, threatened with foreclosure, or loaded with privileges.

Only one Facebook group enthusiastically titled – Wholesale Homes with PropStream! – has more than 41,000 members.

The “handy fruits” of homes that just need a little improvement are all gone, said Brian Dally, whose Atlanta-based finance firm Groundfloor plans to fund up to $ 350 million of real estate investments this year. What remains is not on listing services and is in need of major overhauls.

“You need more scouts there,” he said. About 40% of the company’s transactions involve wholesalers.

Complaints, however, began to pile up with poor legal aid companies as people poured into the industry. Because wholesalers often do not hold real estate licenses, regulators have little power. Wholesalers claim they don’t need a license because they buy direct from owners, and laws generally allow “sell by owner” transactions.

In Philadelphia, Froehlich said he heard complaints from wholesalers using a bad news and good news about homeowner approach. The bad news is that a home needs tens of thousands of repairs. The good news is that the wholesaler will get rid of it for $ 30,000, when it is really worth $ 100,000.

Philadelphia last fall created a license for wholesalers and requires them to tell homeowners how they can get fair market value.

The Oklahoma Real Estate Commission has heard of deals that have collapsed, clouding owners’ titles, said executive director Grant Cody. In other cases, owners felt duped when they learned that the wholesaler had quickly sold the contract.

“It’s kind of like saying to your girlfriend, ‘Hey, I want to marry you’, and then she finds out that you just got paid to give her to another guy,” Cody said.

STATES CONSIDER LAWS

This spring, Oklahoma forced wholesalers to license and allowed the commission to make rules, Cody said. Arkansas and Illinois passed laws in 2017 and 2019, respectively, increasing their power to regulate wholesale trade. A bill in Kansas is dead, but it could be reintroduced.

Wholesalers admit they have bad actors, but say most are genuinely interested in housing revitalization.

In Atlanta, Duane Alexander, a 37-year-old man who went into wholesale during last year’s covid-19 quarantines, wakes up every morning to cold call owners. At 10 a.m., he switches to his day job as a software engineer.

Alexander has completed four deals so far, one offering $ 120,000 for a house owned by a relative of a friend and assigning the contract to another investor for $ 130,000. Alexander earned $ 10,000 for about 10 hours of work.

He said he sees his role as making sure homeowners get a fair deal and something nicer dawns in a dilapidated house.

“If I know gentrification is going to happen anyway, as a person who comes from these kinds of neighborhoods, I would rather someone like me making money than a hedge fund,” said said Alexander.