Why Wholesaling and subject to are not real Business Models: The Truth Behind Real Estate Scams

This is a public service announcement. I'm going to show you a scam that is happening in the real estate space, and many, many, many people fall victim to it. It is the misuse of certain clauses or certain real estate strategies, pretending that they're a business in order to sell courses. There are a few models that absolutely were not designed to scale, are not supposed to scale, and as a result, almost no one really makes money on them, but they're very easy to pitch. So if you've ever fallen victim to this or know people who have fallen victim to these strategies, I'm going to share why it's not a real model. And certainly not something that you want to do for financial freedom. There's two mainstream strategies. I'm not picking on any individual here. There's a ton of people who sell these products. This is just a general— there are two avenues of which you seem to see scam artists online selling you real estate content. And that is wholesalers. And that is people who are doing the low-value subject-to or Section 8 houses in the middle of nowhere. These are the most common scams. I'll share why, because there's psychology behind this on why they can make so much money selling this product. It is the easiest thing sell and also the least effective. So let's break down both really quickly. Welcome to the channel. I'm Christian Osgood. I've bought hundreds upon hundreds of rentals. I've done hospitality. I have retail. I have over 600 multifamily units. I've been doing this for a long time. My property management company manages over 1,000 doors in Texas, and we're expanding rapidly. I have been in this space for my entire career. I know a thing about a thing for what works. I also run the group Multifamily Strategy, which has had hundreds upon hundreds of students. So I'm actually in the information space. One thing I want to point out. This channel is free. I do not need you to buy anything for me. In fact, I love sharing information. I think information should be free. In the AI era, if you're trying to sell information, I think you're pretty much hosed. It's all already out there. I sell direct coaching if someone wants my direct time and my direct experience with me and my team. That is the only thing that I do. However, I do think this puts me in a position of being uniquely qualified to talk about all aspects of this because the actual structuring of content and education and the practical operation of real estate and making money in real estate as my primary means are both things that I have a ton of experience in. So I hope you find this very valuable. First of all, let's dive into wholesaling. Wholesaling is a way that you can sell a contract to someone else and make a little spread. The problem is, it's not designed at all to be made into a business. Now, if I have a deal under contract, and there's a reason where it's like, hey, I need to drop out, but I have negotiated an amazing deal, I don't want to just walk from all the hard work I've done, I can be compensated for that little bit of hard work. The intent, though, is that you were trying to buy the deal, and there's reason that you walk from it. Another correct use of the wholesaling, which is just simply selling a contract, a, a purchase and sale agreement to another buyer for a fee. If I have done all the work putting together a deal, and this is a very common use of this structure, my relationship, my broker, I build a team of investors to knock out this deal. And so I've put together the team, I've gone through the bank financing, I'm a signer on the loan, and I'm going to be the principal operator of this deal. It is usual for me to do a small assignment fee from my name and/or signs to the team of people who are going to make a bunch of money off of the back of the hard work and years I put into building the relationship, structuring the deal, getting it under contract, lining up the debt, building the team, and all that comes after all of that. These are all common uses. Now what people see is, oh, wait a second, I can skip the real estate spot and I can just start getting in the middle of transactions without a broker's license. I can negotiate a deal and just sell that deal to someone else. Here are the Key problems. You build your wealth through long-term holding of assets. Appreciation will make you very wealthy. Now you get there by cash flow. So never buy a deal that doesn't cash flow, but you're skipping the wealth building thing and you're earning an income. So what have you done? You've created for yourself a sales and marketing job in real estate where you provide functionally low to no value. Many, many, many of these courses I've watched through their content. The strategy is you're going to find these on-market listings and you're going to put them under contract. You're going to negotiate the deal and you're going to pass it to someone else. So you're not even finding Finding the deal. It is the sleaziest of the real estate sectors. Now there's some helpful wholesalers and I've worked with them before, but honestly, and I, I'll tell any wholesaler the same thing, I think the business model is mostly useless, should never be a business. And it's a sales and marketing job and there's a million other products that provide way more value that you could sell. So why would you do it? I don't know. You miss out on all the benefits of real estate, all of the tax savings, all of the actual property pieces. Ownership is where the money's in. That's why people are buying these deals from you. But you are packaging deals that did not need to be packaged most of the time. You're getting a fee and you're pissing off sellers left and right. And oftentimes when I hear from my students who buy from a wholesaler, they're like, oh my gosh, there were all of these problems through the whole transaction and they didn't disclose a bunch of things. It's a bunch of people who are not operators trying to sell a deal without the actual practical experience of what actually is going to make that deal make money. Why do they sell these courses? Wholesalers, it's so easy to pitch, hey, you don't have to own the real estate. I know it's hard. I like all of your fears. What are the fears that you have when you're getting into real estate for the first time? Where's the money going to come from? What if there's a major operating thing? Like, man, I'm putting my name on this debt. This is a really big decision. And it is. So if I wanted to sell you something for the most volume possible, I just wanted to make a whole bunch of money off you as an individual. What is the real estate-related product that I would try to sell? The one that takes low responsibility. Oh, you know, you're not buying the real estate. I bypass— you don't need to worry about the down payment. You don't need to worry about the debt. You also don't need to worry about any of the benefits of real estate, but we're going to put that off to the side. Make money doing this. In one day, you can make so much money that you'll just buy the real estate without all these problems. I have never worked with someone who is just a wholesaler who has a huge portfolio. And I've met several wholesalers who started buying real estate and what did they do next? They immediately stopped wholesaling because they realized, I've been going about this wrong. It is a sales tactic where it is easier to market a course to you because it bypasses most of your fears. If you're interested in real estate but feeling a little risk adverse or a little nervous, instead of helping you through the things that you're nervous on, I can just sell you, oh, but what if you could make money without all the things? We'll just bypass the whole thing. It's the easiest sell in the world. People get sold on this all the time. If this is you, good news, you found the right channel. We talk about how to buy real estate, load it up, lay it down all the time. In fact, literally wrote the book on creative real estate. I used a lot of creativity and none of my own money to build a multi-hundred unit portfolio. You could do the same thing and I have actual examples in this book of exactly how we applied each of these clauses correctly. But that's the big one. The other one is using these clauses and marketing them as a strategy. This is the same vein of what is the most palatable version? Of real estate that is the easiest to sell to people. And so I'm talking Section 8 courses where it's buy crappy houses in the middle of nowhere where Section 8 rent makes the deal work and try to scale it indefinitely. And I'm talking about the subject-to or other clause-based, like, hey, we're going to try to skirt the banks and do this. So let's dive into subject-to. I'm going to buy a deal subject to the existing debt. First of all, almost only available in single-family. Your loan's going to get called if you try this on a commercial deal. Like, like they're— you're absolutely not going to get away with it. Banks actually ask for reporting and they'll like, they will find this out. On a single-family house, when subject-to is available, there's usually a huge pain point for the seller. So it's a low equity deal. So you're usually buying these at or above market price. You're getting in low to no money down. But what are you doing as a salesperson trying to get someone to buy this course? Yeah, there's a lot of risk. Yeah, no one— there's this rumor that like, oh, subject-to insurance, people will— There was a few companies that are no longer in operation who attempted that business model for a short period of time. It's not really a thing and you have to qualify for it. It, it generally speaking, if you do subject to, you are in building financial freedom on a callable loan. However, it's not marketed that way. It's like, oh, don't worry about it. It's totally figureoutable. But look at this, low to no money down. I solved your money fear. Now you have these low equity houses that almost never cash flow. All of the problems of being a landlord, very few of the benefits, very difficult to scale. And at any point, the bank can call you and say, who are you? And why are you not the person that I lend to? Call the note due, disaster. Yes, there are ways to try to run this business model, but it's a crappy business model. All of the holes in it, people are like, well, what if you try this, you try this? There's different ways to try to prop it up to make it look like a business that could be a good idea. Everyone I know who's bought a lot of subject-to property has sold all of it and got out of it.. And a lot of times they barely sold a large portfolio for any profit. They're basically like, this model sucks. We're out. You want the cheat code? Just don't start with it. Where does it, where's it supposed to be used? Robinhood Villages, or I actually bought a resort in Washington State. I bought it seller financed. Of our 18 cabins, one of them used to be a single-family house and it's on its own parcel and it happened to have $75,000 of debt. We put that subject to the existing debt. It's a $4.5 million purchase. There's a contract that says in the event that this note gets called, seller needs to pay off the loan and seller finance that amount to us. That's an appropriate use of that clause. It's like, hey, there's a little bit of debt here. We don't have a clean way to deal with it. They don't want to pay it off. We can keep servicing this and we have a plan for if it gets cold. Am I building a business around doing subject to? Absolutely not. There was a thing that came up where I'm like, hey, there is a clause in real estate where this could be applied. Notice I'm not selling you a course on how to buy subject to real estate, no dilloa. Money out of pocket because it's not a model. It's a clause in a contract that can be used for the right purpose. And even then I could have structured the deal without it. Don't buy into that. The other big one that I mentioned earlier, Section 8, this is another easy one to sell because I can come in, hey, you can buy these really cheap houses. I'm helping assuage your fear of like, oh man, how am I going to buy these multimillion dollar deals? They're not that hard to do. And if you follow the structure of deal first, then line up the debt and then the equity, Everyone who owns real estate, for the most part, very, very, very, very, very few people started with family money or inherited a portfolio. We all build it from scratch for the most part, 99% of us. You have to start with the first deal. I would rather get you through that. I think that's a real value of like, how do you get over that fear? How do you structure the deal correctly? How do you actually build the business that you wanted to build? The Section 8 model says, hey, buy cheap assets and try to stack a ton of these. Buy them in rough areas. Typically, they're the areas where the Section 8 tenants are actually the roughest is where I noticed they recommend buying. Section 8 tenants can be great, by the way. I have a ton of them. My business is not powered by buying crappy houses in the middle of nowhere, and there is no portfolio that I recommend that you'd build in any asset class that is based on buying garbage. It was like, oh, let's buy the worst companies because they're just, they're so cheap. A bad building is a bad building. Your maintenance cost will usually eat you alive on these. You'll usually, these courses, learn how to buy cheap houses, which turns out they weren't really solving anything for you because you could have bought these cheap houses at any point anyway. They're low value. And unless you're planning on scaling a massive portfolio and you happen to live in a market where you're like, there's a huge need and I'm going to try to help people on Section 8 without— you have a very specific use case for where you would ever actually need to use that. Now, I've actually seen some course creators and content creators who are in, like, example, I have some friends in Memphis, Tennessee. They only do Section 8 houses. They're contractors. They know how to to do the reno. They love what they do. They're basically home flippers who found a model to be able to hold their portfolio. So is there a place for some of these sometimes? But in general, ask yourself, how easy is this to sell? And am I buying something that is cheap? If you're going to want to learn a business, learn a business that is worth learning, do something that is scalable and aligns with your original goal. If it's something that feels more difficult, like as an example, buying multifamily, it's like, man, doing a $2 million transaction, I want to get there, but that's really intimidating. That's probably the thing that you would need coaching or mentorship on. I got this advice from someone named Zach Lazo early in my career. I wanted to work for his real estate firm, so went out to coffee with him and he is like, you've already figured out how to buy real estate. Why would you be a broker if you've already figured out the thing that every broker wants to do? And so he made the decision not to hire me specifically because he is like, I think you need to figure out how to make your living doing the thing that you obviously want to do. That ended up being the best career advice I ever got from someone who I just met on a, effectively on a coffee job interview. To you. That's the same advice I'm giving you. Identify what it is you actually want to do. What is your end goal? Not what is the path in real estate. Don't add steps for yourself. Do the thing you want to do. If you want to go into multifamily, if you want to go into self-storage, if you want to go into hospitality, God help you. It's a hard business. But if that's what you want to do, focus all of your attention on doing that thing. Don't waste time on the other things. This is coming from someone who went to college, did a first, second, third, fourth job, worked for LAMS.com, then the CoStar Group, Apartments.com, LoopNet, the whole nine yards. Became a real estate agent and bought a couple of duplexes to become a multifamily investor. Then I met a 19-year-old who had more rentals than me who never went to college and didn't have a job. Case in point, do the thing that you want to do, learn the things that you want to do, engineer the business that you actually want to build. Do not fall prey to cheap ideas or lame courses or easy sells. Do the thing that you want to do. My recommendation, skip subject to, skip cheap houses or single family in general, and absolutely do not become a wholesaler. There are so many better ways and easier ways. To make money in real estate. Hope this helps. Appreciate y'all. See you on the next episode.