Wholesalers, Rehabbers, and Hard Money Lenders

In the business of real estate investing, three major players feed off of each other to spin the wheels of wealth creation.

Wholesalers, rehabbers, and hard money lenders form a symbiotic trinity in which each one is dependent on the others.

Wholesalers need rehabbers to buy deals, rehabbers need hard money lenders to finance deals, and hard money lenders need wholesalers to find deals to lend on.

If you want to become a part of the real estate investing community, it’s important to know which one you are.. and then get to know as many of the the others as possible.

Three Levels of Investing

The three players in the trinity represent three levels of investing. The higher the level, the more passive the income. The lower the level, the less money and credit is needed. The natural progression is to move up in level as your equity and life stage develops.

Young, aggressive investors without money or credit start out as wholesalers; which means they hit the pavement to find deals to sell to rehabbers. Once a wholesaler develops decent credit puts a little money away to invest… say $20,000; he’s ready to start buying and rehabbing homes to either flip or rent.

Once that investor has built up more than, say $100,000… (and is getting tired of rehabbing homes and managing tenants); he becomes a hard money lender and lives off of the interest on his loans.

Level 1: Wholesaling

Wholesaling is tremendously popular on the internet and in guru bootcamps because anyone can do it regardless of money or credit. If you’re broke… this is how you get started in real estate investing.

The catch is: you make up for lack of money and credit with sweat equity. I hesitate to call it investing because it’s more akin to owning your own business. The good news is that it can be a very profitable business.

Like any business, it requires an investment of time, money, or both to make it work. Don’t let the gurus fool you into thinking that wholesaling is free money.

The Basic Idea

The idea behind wholesaling is that investors are willing to pay up to 70% of the after-repair value (ARV) to buy and rehab a house. For example, if the ARV of a house is $100k, and it needs $20k in repair; an investor would be willing to pay $50k for that property. Got it?

Here’s where you, the wholesaler comes in… If you can get that property under contract for $45k, you can sell the contract to a rehabber for $50k; banking $5k in the process without ever taking possession of the house.

Pretty cool huh? Yeah, I didn’t believe it either until I actually did one… for $15k.

So How the Heck…

Most people don’t realize that they can do this without money or credit because they have always had to show a pre-qualification letter to buy a house listed with an agent. Good agents will only consider offers from potential buyers who have proven their creditworthiness to a bank.

BUT… Nothing is stopping you from signing a purchase contract with someone who doesn’t have an agent. For example: if your neighbor decides to sell you his house and he doesn’t care about your credit, you could sign a contract with him to purchase the house.

But… How are you supposed to come up with the money?

You’re not. You are going to find an investor who can, and sell them the contract.

But… What if you can’t find anyone?

If you’re smart, you’ll give yourself some time on the contract… say 45 days or so. If you’ve done your homework and it really is a 70% deal, you shouldn’t have a problem getting rid of it. (Send it to me!)

Okay… I get it. So, how do I find these people?

That’s where your investment of time, money, or both comes in. You’ll need to market to two separate groups: Sellers and Buyers… but not just any sellers or buyers; you want motivated sellers and investment buyers.

Motivated Sellers

The average seller with a house in good condition and no particular pressure to sell isn’t going to take 70% of the ARV on their house. Most of those homes don’t need repair; so they sell for retail, not wholesale.

The types of sellers that you are looking for are in situations where the only buyer that can help them is an investor. For example:

A homeowner who has lived in a house for 20 years and never fixed anything.

Someone who inherited a house in disrepair and doesn’t have the time to worry about it.

A divorce situation where the sellers want quick closure.

Someone who is about to be foreclosed on and needs cash quickly.

All of these scenarios produce situations where the traditional retail market cannot help the sellers. Only an investor who is willing to take on the risk of a large rehab or quick cash closing can solve their problem.

Bandit Signs

The cheapest, but most labor-intensive marketing channel for motivated sellers is putting up bandit signs. Have you ever seen a sign on the side of the road that says “We Buy Houses” and a phone number? That’s a bandit sign and they work.

You can buy blank signs for about 50 cents a piece and large permanent marker for 5 bucks and you’re in business. The downside is that it takes some hustle to run around and put the signs up, navigate city ordinances, and fight off other wholesalers who will pull down your signs.

But.. that’s how many of us got started.


The next cheapest form of advertising is walking neighborhoods and placing door hangers or flyers on houses that look like they are under duress. Overgrown lawns, neglected repairs, etc.

Realize that some of these houses will have out-of-state owners. Look up their mailing addresses on the county records and send them a letter.


Good old fashioned snail mail can work wonders. Just send out some letters to homeowners explaining that you help solve real estate problems by getting people cash quickly for their house.

You can buy mailing lists from a list broker or just blanket neighborhoods by getting addresses off of county records.

It typically costs about 50 cents to a dollar per letter if you use a service… Or just recruit your kids and start licking stamps!

Internet Leads

Tech-savvy types can find seller leads on the internet by paying Google to place ads when people search for terms that indicate they might be a motivated seller, or paying a service to do this for you. Expect to pay $50 – $100 to get someone to fill out your form and only 1 in 20 will be be a deal.

Cost Per Buy

After you have found a few deals, you can calculate your cost-per-buy ratio (CPB). Bandit signs should produce the lowest CPB, but take the most effort. Paid advertising will produce CPB’s in the range of $500 – $2,500. The object is to keep your CPB below what you make on the deal… or you’ll be out of business in no time.

Finding Investors

The best way to build your buyer list is to hang out at local investor groups. Find a group near you here.

You also might try mailers, or bandit signs, or internet leads for this one as well.. Get creative.

Level 2: Rehabbing

Real estate investing, as most people know it, involves fixing up old houses to sell or rent. To do this, you need access to enough money to buy houses.. with either a loan or cash.

The average borrower will need credit in the 700 range and cash reserves of 10-$20,000 in order to get a hard money loan.

The key to rehabbing houses is to buy at the right price. Remember the 70% rule? It’s to protect your downside.

Your Profit

Of the remaining 30%, 10% will pay a realtor and title company when you sell, 10% pays for holding costs, and the remaining 10% is your profit… or protection against a down market.

Investors who hold properties to rent reduce the burden of transaction costs, but don’t get to realize their profits as quickly.

Flip or Hold?

Flipping houses is the more glamourous of the two, but rental real estate is where the long-term wealth is created. In our business, we use a combination of the two. For every house that we flip, we hold 2-5.

When you hold property for longer than a year, there is huge tax benefit when compared to flipping. Most importantly, rental income produces cashflow.. which is the only way you can “retire” without killing your golden goose.

Property Management

Most people’s biggest fear in rental property is dealing with tenants. Most tenant horror stories stem from mis-management. Take some management classes to learn how to properly screen and handle situations that might come up.

While I won’t try to convince you that land-lording is all roses… It’s a heck of a lot easier if you know what you are doing… and I’d rather be a landlord and be my own boss than work for the man any day.

Level 3: Hard Money Lending

Hard money lenders are a special kind of bank who loan exclusively to real estate investors. They understand the needs and risks associated with fixing up investment properties in a way that traditional lenders don’t.

Hard money lenders can be institutions with large pools of capital to draw from, or simply a private individual who wants to earn a strong interest rate on his or her net worth.

Private Lending

In the case where the hard money lender is a private individual, they are typically referred to as a private lender.

Private lending done correctly is the most passive form of income in real estate investing. Once your due diligence has been done to be sure that you have a borrower with a strong track record and a solid investment property, you simply sit back and collect checks.

Protect Your Downside

The key to successful private lending is protecting your downside. We do that by:

a) Never lending more than 70% of the ARV
b) Getting 1st lean on the house
c) Working with borrowers with a strong track record

These protections are in place in case your borrower stops paying you. Private lending becomes less passive when you have to take back houses that you’ve lent on… But, if you’ve stayed within the 70% rule, you can sell it and recoup your money.

The Symbiotic Trinity

Wholesalers, rehabbers, and hard money lenders all rely on each other to keep their businesses flowing. As a rehabber myself, I can tell you that we love wholesalers… and hard money lenders. As a wholesaler, I can tell you that we love rehabbers… You get the idea.

Networking is the key here. Get around as many of these people as possible and start building relationships.