The Beginner’s Guide to Real Estate Wholesaling

by admin

Posted on December 10, 2016


real estate wholesaling

Real Estate Wholesaling is an entirely different concept than the regular wholesaling that you might have heard. Yes wholesaling in general is connecting the dots between the producer and the consumer and it is quite similar in the world of estate as well but the only difference being you do not have to invest any money at all or a meager amount sometimes but get paid nicely for connecting the seller to the buyer, sounds interesting and simple? Interesting yes, but not simple

For example let’s assume there’s Mr. X who is a wholesaler, his work routine would include looking for great wholesale real estate deals, basically finding properties which can be easily transferred to another person but how will he do it? Let’s say there’s Ms. Y (A friend of Mr. X) who currently wants to sell her house and get it off her books as quickly as possible and she doesn’t wants to go through the hassle of repairing it, Mr. X sees the house to see its value and to know the kind of repair works it will need and properties for cash buyers.

After figuring out the numbers he offers a deal of let’s say $75,000 to Ms. Y and she’s happy with the number, the next thing he would do is coming up with a contract known as “Purchase Agreement” which basically states that Mr. X or anyone else he assigns the contract to will buy the home for $75,000 within the next 14 days.

Following that Mr. X has a friend who is a house flipper (A person who buys distressed properties, to repair and renovate them to brand new and fancy condition, in order to sell it at a profit) He contacts this house flipper friend of his to let him know about the property that’s he’s wholesaling currently to discuss about what it needs as far as the repairs and renovations are concerned and to know how much it’s worth post rehab (Also known as ARV or After Repair Value)

Now Mr. X offers this house for $80,000 to the house flipper and the house flipper knows he can make a healthy profit with this deal even after the repairs and renovations due to ARV. So, after looking at everything they agreed on the price and they signed the “Assignment Contract” which legally translates to Mr. X letting the house flipper to buy the home from Ms. Y and that’s it Mr. X can pass on the property to another person and pay the $75,000 to Ms. Y and drop from the deal and still make big money, $5,000 in this case which is his wholesale fee.

Mr. X never owned the property and he never paid from his own pocket but he made $5,000 on the deal by simply connecting Ms. Y (seller) to the house flipper (buyer) and this is the most common way of how a wholesaler structures his/her deals and make money.

But wholesaling isn’t easy, sure it pays you nicely but it takes a lot of effort and time to find and crack deals just like any other work. By now you would questioning yourself – Where do I find buyers? Let’s start with buyers first, these buyers are going to be local investors and house flippers, you don’t need a huge list of such people to run your business/livelihood just one or two contacts would do with whom you can build rapport and keep doing business with again and again.

You have to put in your time to network a lot to meet such people. You can find them on MLS, Craigslist, REI clubs etc. Finding the buyers are easy you might even have your friends or friend’s friend or a flipper who wants to invest it’s just that you need to put your time to find them out. Use all social media channels and personal contacts, let people know what you are doing, hustle all the time and you will eventually get a pool of cash buyers.

Now to the next question, where do I find the sellers? Take a drive, look at all the properties in your city and you’ll know a distressed property on sale when you see one, if you spot one, find out its owner by inquiring the people on that locality or in public records then contact the owner to talk about the deal.

Another effective way of finding sellers is through Snail Mail, where you can send highly targeted mails, you can purchase leads online, find them by looking up at public records or use a program like Agent Pro 247, in short there are many ways to find sellers but you have do your research and put your time into finding people or if necessary pay for premium services which helps you to find such people.

Bottom Line

Real estate wholesaling is a serious business and actually finding and cracking a deal on wholesale properties for cash buyers is a challenging task, so don’t take up this profession if you are in for easy money because you do have to invest a lot of time, effort and some money as well to get your deals done and cracking one deal a month won’t be enough you must be in a position to crack 4-5 deals a month and that takes a lot of work.

Also make sure to contact an attorney in your state to talk about your work to get some legal advice because there’s a lot of debate regarding real estate wholesaling and whether it is a legal or illegal work, both sides have valid reasons and the rules are different from one state to another, so make sure you know all the accepted procedures first. Either way get a real estate agent license first, that way no one would be able to question you.

Last but not the least, have an innate understanding about numbers, you always have to ensure that you can make profits with every single deal that you make and always pitch your deals in a way which makes it interesting to the seller as well, for example let them know that you will buy the property in as-in condition with no inspection (which means the seller doesn’t have to spend on repairs and renovations and that’s a great thing for them) and let them know that you would quickly close the deal in days and not over a period of several months.

Now all that’s left for you is to start researching a bit about real estate wholesaling and the real estate market so that you can start listing out probable sellers and buyers to make your deals.

 

Tags: ,