Ever wondered about those “We Buy Houses - Fast Cash!” signs?

Have you ever wondered about those "We Buy Houses Fast Cash" signs you see stapled to telephone poles? Well, wonder no longer! We've all seen it. You're driving through a freeway off-ramp, you're going through a rough neighborhood, or you stopped at a red light, and you look over and you see a big yellow sign that says "We Buy Houses Fast Cash," usually stapled to a telephone pole with a handwritten number to call.

But have you ever been just a little bit curious what happens when you actually call that phone number or why you see these signs so frequently? Well, I'm here to shed some light on this and demystify the "We Buy Houses Cash" sign.

So let's start here. There are usually three types of people behind these signs, which I will discuss shortly, but the main purpose of these signs is to find people who need to sell and need to sell quickly. These are usually in less desirable areas or up-and-coming neighborhoods at a discount of market value. It's these types of areas that are more likely to find distressed sellers who don't have the luxury of being able to put the property on the market and wait for an offer.

Maybe they don't have enough money to fix up the property or perform any repairs, or maybe they're in the midst of potentially losing the property back to the bank. With this, they need to sell as soon as possible and take a loss from what they can otherwise get in any other scenario. Sometimes these properties are in such bad condition that no buyer can buy them because they can't find a bank to finance a property in such disrepair.

Now, usually, the higher-end the area, the less likely you are to find sellers in that type of situation, and with that, the less advertising you see promoting "We Buy Houses Fast." These signs are also combined with mailers and other forms of direct marketing to sellers. Typically, the way I see it is that the reason these signs look so junky or homemade is that it typically attracts a less sophisticated type of seller, the seller who's actually desperate enough to sell their home from a sign they saw stapled to a telephone pole.

It also makes it more disarming for sellers who might feel more comfortable dealing with the type of person who handwrites their number on a cardboard sign. The goal of all of this is to find a motivated seller that will call that number, who needs to sell as soon as possible, doesn't want the hassle of actually listing the home and showing it to buyers, and who also doesn't mind selling it slightly under market value simply for the convenience.

So, let's just say someone bought a property 40 years ago but simply didn't have the money to fix it up. The roof started leaking, water started seeping in the walls, it now has mold, the foundation has cracked over the years, and the property is overall in pretty bad disrepair. Maybe in recent years, the owner took out a second mortgage to use on whatever, and now those payments have caught up with them. They simply can't make those payments anymore.

The bank has maybe given them multiple notices to pay, and now they are only 45 days away from losing the property. The owner is not going to make much money on the deal simply because of what's owed on the property and all the repairs the property needs. Maybe they also just don't have the luxury of putting it on the market, the inconvenience of showing it, and also the risk that the buyer backs out last minute and the deal doesn't close.

So, in this case, the owner can call the number on the sign and get a guaranteed buyout, usually with a commitment within just a few days, and get their money within a week or two, usually for somewhere between 60% and 90% of their home's value. While this situation isn't perfect for the homeowner, it can often be better than nothing, and the investor then gets a property that they could turn around and make money from.

But who's the one who's actually on the other side of the deal? Who is actually buying these properties? Like I mentioned earlier, there are three types of people who are actually behind these signs. The first one is the wholesaler, the second one is the individual investor, and the third one is the company.

So first, let's start with the wholesaler. Now, usually, this turns into a heated discussion on the ethics of wholesaling, but I will remain completely neutral on that and simply just give my thoughts. A wholesaler is someone who's going to post these signs, and they get phone calls from distressed sellers who might need to sell a little bit quicker than usual.

The wholesaler will then evaluate the property and negotiate the contract to buy that home, usually with an assignment clause that allows them to transfer that deal and that price to somebody else at an even higher price. The wholesaler will profit the difference. This gives the wholesaler a unilateral option to buy that house at a pre-agreed-upon price, and then they could spend the next few days or weeks finding someone to assign that contract to.

If a wholesaler can't find somebody to buy that property at a price higher than what they negotiated, because they typically have no money at risk, they can simply cancel back out and lose absolutely no money. Essentially, they're really just tying up the property long enough for them to go out and find a buyer to pay more than what they agreed to offer.

As an example here, let's say that wholesaler Johnny finds a property worth $500,000, and that seller is willing to sell it within a week for $450,000. Johnny then gets the seller to sign a purchase agreement for $450,000, and the buyer is listed as wholesaler Johnny and/or assignee. Once the seller signs the purchase agreement, Johnny then has a legally binding option to purchase that property for $450,000. Johnny could then go and promote that deal to other investors for $475,000.

This is still $25,000 under asking, but $25,000 more than what Johnny is actually buying the property for. Then a few days later, Johnny finds an investor who agrees to buy the property for $475,000 under the terms agreed upon in the original contract, and Johnny then assigns that contract to his new buyer, collecting $25,000 in the process.

So with this wholesaler Johnny makes his profit from the spread between what is in contract for and what he can get an investor to pay. In this case, it's $25,000. And when it comes to doing this, I really have no problem with it, as long as it's a win-win scenario between the seller, the wholesaler, and the new buyer who's buying that property.

Now, there's definitely a stigma out there that wholesalers are profiting off the misinformation and misfortune of homeowners, but honestly, the way I see it, this happens in just about any industry, especially when an investor's buying a property. Their goal is to buy that property as low as they can.

So anyway, with that said, I'm not gonna get into it. The last thing I need is people getting upset in the comments section like, "Understand wholesaling!" "He doesn't understand!" "A big bottle!" But in all seriousness, I will just say this: the problem lies when the wholesaler isn't upfront with the seller about his or her intentions and pretends to be the buyer to tie up the property long enough to see if they can flip it to somebody else for a profit at the seller's expense.

It's the people who sneak in a clause in the contract that allows them to tie up the property for a lengthy period of time with absolutely no money lost or no money at risk. Meanwhile, the seller is losing money every single day by holding on to the property in situations where a timely sale is necessary. The homeowner might actually be in a position of potentially losing the home if the deal doesn't close, and for the wholesaler, they can simply cancel it and walk away. They don't flip the property with no money lost.

Now, don't get me wrong, because there are some great wholesalers out there. Not all wholesalers do this, and not all wholesalers are unethical. There's certainly a big demand for quick cash closings, and to be honest, there are unethical people in just about every single industry that are out there that will take advantage of you if they can. But as long as it's a win-win situation for everybody involved, I'm happy.

I'm sure there are many situations out there where the wholesaler makes the best of a bad situation and everyone walks away satisfied. This is what I'm an advocate for.

Now the second type, of course, in posting these signs are simply individual investors. These are people like me who simply want to cut out the middleman and cut out the competition. They place these signs to buy the property directly from the homeowner, saving them time, commission, and the hassle of listing and showing their property.

The homeowner is going to sell the property for a little bit less because they have the convenience of not going through the formal process of listing a home, paying a five to six percent commission to a realtor, and the investor can save on the cost by making the sale as timely and efficient as possible.

For instance, I would totally end up doing this to find the next property that I end up buying. I would save the seller the time of listing it, showing it, and dealing with people. I'll be able to save them five to six percent of the home's value by cutting out the realtor fees and simply just representing myself. This automatically makes the home five to six percent less to me, even if I'm buying it at market value.

Finally, the third type of person posting these "We Buy Houses" signs are large companies. They typically offer a quick close all cash, and by far, these are the most efficient of these signs. These companies can often give a hard offer within 24 to 48 hours that's cash and non-contingent and will also close in as little as one to two weeks.

Now, in exchange for the convenience of all of this, they will typically only offer you 50 to 85% of your home's actual value. Then usually once they buy the property, they'll do a very light renovation to it and put the property back on the market and flip it and move on to the next one. These companies are often like well-oiled machines, and they're extremely efficient in making offers, closing, renovating, and flipping.

Honestly, these "We Buy Houses" signs are a very good low-cost way to get very motivated seller leads. So there you go! Now you know—mystery solved! Thank you so much for watching; I really appreciate it.

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