An Investor’s Guide To Real Estate Wholesaling
You might have heard “The best form of investment on land is land”. There is definitely no denying that and if you have read my previous real estate investing blogs, you will see that I’ve mentioned this quite a bit.
Why is this so?
Because real estate investing is a promising business, it promises you all of the rewards, benefits, and bounties. There are many ways for you to get into the investment business. But, let me tell you a little secret.
Most of the investors and I’m not lying started investing with real estate wholesaling.
Why so? Well, many would say that wholesaling real estate is probably one of the easiest forms of investment. For starters, it requires little or no cash at all and the best part about it is that you actually don’t have to own anything for a long time which clearly means low risk involved.
But is it easy? No way. Not at all.
Real estate wholesaling may be considered as the easiest form of investment strategies.
People do struggle with it. In fact, they actually have a hard time figuring out how to wholesale real estate.
And, this is what this blog is dedicated to. In this post, I will be taking you through what exactly wholesaling is, what are the different strategies, and how the exact process works for assigning contracts.
Let’s take a minute to understand the concept of real estate wholesaling. In a way, it’s very similar to flipping houses. However, it’s much more quickly than that. Flipping houses usually involves buying a property, renovating, and then selling for a much higher price.
As a real estate wholesale investor, you don’t need to do that. You get a property under contract or buy it completely and look to sell it off immediately as it is.
People who get into real estate wholesaling have usually heard about assigning contracts but there are two other types as well which will be discussed further on in this blog.
The general idea behind real estate wholesaling is that you as an investor will look to find good deals, work them out and get them under contract. Once you do that, you can market to sell the property off or sell the contract off to a willing investor.
Sounds simple right?
But, trust me it’s not that simple If you don’t do your homework.
To be good at real estate wholesaling, it requires you to:
- Understand and know the math behind a good flip
- Understand and know the math behind a good property
- Invest in digital marketing for leads ( The cost should obviously be less than the profit you’ll get out of those leads)
- Estimate the rehab costs ( Fix and flip scenario)
- Estimate the property value after repairs
- Learn sales and negotiating skills to close more business
We’ll now head into all the three strategies which fall under the umbrella of real estate wholesaling.
The Three Strategies of Real Estate Wholesaling
Strategy # 1 Assignments
This type of strategy is very famous with wholesale investors as it doesn’t require any money being spent on your part. Because technically, you don’t own anything. The only thing you’ll be selling with this type of strategy is the “rights” of the contract to an investor who is willing to buy the property.
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Let me give you an example. You have a seller available who wants to sell the property for $50,000. You take a look at the deal, assess the ARV (After Repair Value) and estimate that it’s going to cost around $10,000 to get the property fixed and the property could be sold close to $90,000.
Your job as a wholesale investor, playing the middleman would be to get a purchase agreement signed by the seller for $50,000 and sell the agreement to the buying party for $57,000.
Everybody goes home happy and you pocket the extra $7000 for playing the middleman.
Remember, laws of every area are different so make sure that you stay in touch with a real estate lawyer to ensure you’re not violating any local laws.
Strategy # 2 Double Closing
The next strategy I’ll be explaining is called “Double Closing”, but unlike the first strategy that we discussed, this one requires you to spend money from your pocket. You make the full payment to the seller and close the deal with them. And almost immediately, within an hour, you double-close the deal with an investor willing to buy at a higher price.
For this type of strategy to work, timing is very important. Also, you need to have a buyer lined up so you can sell the property almost immediately and make quick money off the deal. It’s a win-win strategy if you’ve done all your homework and have everything planned out beforehand.
Remember, in double closing, timing is key.
Strategy # 3 Buying and Selling
The third type of strategy that I’m going to discuss is “Buying and Selling”. This strategy is very much like “flipping houses”. In this strategy, a wholesaler, such as yourself is required to fully own the property before they can sell it.
With this strategy, you’re the full owner and can market it any way you want. However, the drawback of this strategy is that it requires a lot of cash outflow in the first place and also it’s a time-consuming strategy that can take days, even weeks for you to get a good deal.
Alright, now that you understand the general concept of wholesaling and what are the different strategies that you can use. Let me take you through the step by step process that you can implement to become a successful wholesale investor.
Step # 1 – Finding A Motivated Seller
The first step to making a wholesale deal work will be to find a motivated seller.
You might be thinking, what actually a motivated seller is?
Well, anybody who’s looking to sell their property for a really low price will be considered as a motivated seller.
How low am I talking?
Well, say, somewhere between 20-30% off the market value.
They could have their reasons for selling the property. Let’s not get into that. But trust me, they will be rare and you’ll find only a few willing to let go of their property at such a price.
Do such deals even exist?
The answer is Yes.
And that’s your target. So get to work and start making a list of such owners in a certain area which are highly motivated to sell. Don’t forget, you’re looking for a certain type of people that are willing to agree to such terms.
Once you’ve collected all the information and made a list, make sure to sort through it and pick out your targets.
Step # 2 – Explain What You Do and Get A Contract Signed
Let’s be clear from the get-go. When you approach these sellers, you need to explain it very clear what your intentions are and what you plan to do with this deal.
When you go ahead and meet these sellers, you need to explain it to them how as a wholesale investor, you’re not going to be buying the property yourself. But instead, work on getting them a deal by playing the middleman.
If you’re unable to explain this to them, you’re only going to confuse them and one thing can lead to another and the next thing you know, you’re getting pushed out of the door.
I will make a checklist for you of all the things you must make sure to clear with these sellers.
- You don’t plan on buying their property
- Your intentions are to sell the contract to a buyer
- The buyer will buy the property outright
- They’ll be kept in loop throughout the process
- If there’s no buyer, there’s no deal
Step # 3 – Do Your Property Assessment
Well, this step may be a little easier for you since you’re not actually the end buyer, you don’t have to familiarize yourself with all the details involved in the deal. However, it’s always a good idea to do your due diligence and prepare a property assessment report with some basic details.
Why do you need that? You’re going to have to market the property to your buyer’s list. And to do that, you should at least know the basic few details listed in the form of a report
The purpose of this report is not to give each and every detail to the buyers no matter how little it may be. But, instead entice them enough so they know, they’re getting a very good deal.
Here are some of the basic details that should be included in your report.
- Property Price
- Property Description
- Property Size
- Neighborhood and Surroundings
- Comparable Listings
Step # 4 – Finding The End Buyer
The most important step for a wholesale deal to work is finding the end buyer. And I couldn’t agree more. You can’t make any money wholesaling real estate if you don’t have a buyer. Period. It’s as simple as that.
To be a successful real estate wholesale investor, you need to find a buyer as quickly as possible. In fact, it would be even better if you had a couple of them lined up. Just take a minute to understand this, you have limited options, you don’t have enough money available to take on the contract yourself. So, you must have a buyer lined up to get the DEAL DONE.
As a matter of fact, it would be best for you to work on preparing a buyer’s list in advance. Do a little multi-tasking. Look for buyers while you’re looking for a deal. This way, it will be easier for you to assign the contract off at a much quicker pace and you can move on to the next deal in your investing journey
Step # 5 – Close the Deal
Okay. Moving on to the final step. Now that you have found a seller, done your homework on the property and found a buyer. It’s time to CLOSE. But, it’s easier said than done. It’s one thing to have a whole deal in the process and ready to be finalized but making sure that the deal actually gets done is totally another.
There are a few things you need to make sure so that your assigned buyer (investor) closes the deal.
The first step for you to do will be to seek legal help. Get in contact with a title company or an attorney and ask them for guidance to ensure everything is done properly. In the process, you’ll also need to make sure that the buyer you’ve assigned the contract to has the funds or is able to obtain the funds to close the deal.
Throughout this whole process, you also have to stay on top of everything. Stay constantly in touch with all of the parties involved. This will help you take care of any problems that might arise in the process. Trust me, you don’t want something to ruin your deal at this stage.
Note: All the steps that I’ve mentioned above explain the process of wholesaling in a very generic manner according to the commonly used practices. Every step of this process can be approached differently and a contract can be assigned or sold in a variety of ways.
Okay then, now that you understand; what real estate wholesaling is, what type of strategies are there and the steps involved to make real estate wholesaling work for you. I will now take a brief moment to explain how wholesaling is different from other forms of investments and what are the pros and cons of this real estate investing strategy.
How Real Estate Wholesaling Is Different From Other Forms Of Investments
If you compare wholesaling real estate to other kinds of investment strategies, you’ll see that it’s much easier and convenient. All you need to do is find a property, put it under contract and find a buyer to sell the contract to.
The second benefit that you get from wholesaling properties is that you can actually go through your transactions much faster. In comparison, other types of real estate investing require a longer time to finalize and complete.
Pros To Being A Wholesale Investor
- None or little out of pocket cash required to get started
- Short and quicker paydays
- The flexibility of profit margins
- The little risk involved because of the quick nature of this process
- All property related risks are not a wholesaler’s responsibility
Cons To Being A Wholesale Investor
- A lot of research is involved (estimations)
- Finding buyers may be a challenge
- Ability to find a buyer impacts your ability to find a contract/deal
- Rules and regulations are constantly changing
- Requires a lot of multitasking along with sales and marketing efforts
Starting in the investment business is tricky and to start off as a wholesaler investor is probably where more investors would like to start. Because real estate wholesaling doesn’t involve that much risk monetarily but it’s not easy by any means. To be a successful wholesale investor, a lot of steps need to be working synchronized to each other. And when it does, you’ll be making all that money you dreamed of.