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States and cities across the United States are cracking down on a home-flipping niche known as wholesale driven by a flood of largely unlicensed middlemen lured by YouTube tutorials and a scorching market.

With quick cash, wholesalers can help struggling homeowners sell quickly, but they’ve been accused of heavy-handed tactics and misinformation. Unlike fix-and-flip investors, who take title to homes, renovate them, and put them back on the market, wholesalers typically negotiate with landlords just to put homes under contract and sell those contracts to flippers.

“I don’t buy houses. I solve problems,” said Scott Sekulow, who leads a congregation of Messianic Jews in the Atlanta area and bills himself as the Flipping Rabbi. He said clients come to him when they’re going through a divorce, can’t afford massive home repairs or have other problems. Sekulow said he could provide them with money while sprucing up a neighborhood.

Hedge funds pay top dollar for contracts, he told a conference of would-be tycoons: “When you can get in with them, they’re out there paying stupid money.”

While the practice is legal when transparent, advocates for the poor say aggressive wholesalers trick sellers with low bids. 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 flooded with “We Buy Homes” signs and reports that demanding wholesalers wouldn’t leave homes without a signed contract.

“In my neighborhood of West Philly, I probably get three postcards a month from one of these guys,” said Michael Froehlich, an attorney with Community Legal Services of Philadelphia. “If you can get leads, you can trick someone into signing a contract for way less than 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 homes through cold calling or driving around neighborhoods, have been energized by pandemic-era low interest rates and the tight housing supply that created record price appreciation.

The United States had just a 2.4-month supply of unsold homes in April, near an all-time low. The prices are making many unprofitable for investors, prompting some wholesalers to scour working-class and poor neighborhoods to scare off business. Contract collection fees are often 10% or 15% of the sale price and can earn the wholesaler a salary of $15,000 in a few weeks, although the costs of internet advertising and customer lists reduce these earnings. gross.

On a recent Monday night in Roswell, Georgia, about 50 wholesalers, pinball machines and investment neophytes packed into a DoubleTree hotel for a meeting of the Atlanta Real Estate Investors Alliance. Sekulow, whose brother Jay was one of Donald Trump’s impeachment lawyers, was one of the panelists.

A second, Mike Cherwenka, calls himself the “godfather of wholesale” and shares on his website the testimonial of a performance in a men’s revue dance team. He left life after kissing Jesus and starting a career in real estate.

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

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

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

Wholesaling has been around for years, but hit real estate data provider PropStream’s radar more prominently four years ago, said Rob Zahr, general manager of parent company EquiMine in Orange County, California. California. PropStream’s database can help find homes that are abandoned, at risk of foreclosure, or loaded with liens.

Duane Alexander, a wholesaler in Atlanta, sees his role as making sure homeowners get a fair deal and something nicer comes up in a run-down home. Matt Odom/Bloomberg

Only one Facebook group excitedly titled – Wholesalers with PropStream! – has more than 41,000 members.

The ‘low-hanging fruit’ of homes that just need a little upgrade are all gone, said Brian Dally, whose Atlanta-based finance firm Groundfloor plans to fund up to $350 million. in real estate investments this year. What remains is not about registration services and needs major revisions.

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

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

In Philadelphia, Froehlich said he’s heard complaints from wholesalers using a bad-good-news approach to landlords. The bad news is that a house requires tens of thousands of repairs. The good news is that the wholesaler will get rid of it for $30,000, even though it’s really worth $100,000.

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

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

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

Oklahoma this spring required wholesalers to be licensed and allowed the commission to set rules, Cody said. Arkansas and Illinois passed laws in 2017 and 2019, respectively, increasing their power to regulate wholesale. A Kansas bill is dead, but could be reintroduced.

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

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

Alexander has struck four deals so far, in one case offering $120,000 for a house owned by a relative of a friend and selling the deal 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 landlords get a fair deal and something nicer comes up in a run-down home.

“If I know gentrification is going to happen regardless, as someone who comes from these kinds of neighborhoods, I’d rather it be someone like me making money than a hedge fund,” he said. said Alexander.