Wholesaling houses enables you to earn profits with little or no credit or capital. Wholesaling involves putting a property under contract, for example, a distressed property that needs repairs, and then assigning the contract to another investor for a fee. This investor will pay you using cash, credit or hard money loans. It enables you to do quick closings on properties that need repairs. The investor may then flip the house, for example, by remodeling or improving it, and then sell it out for a profit, or possibly rent it out and build equity.
Wholesaling’s main benefits include the opportunity to earn income without actually investing your money in the property. There will be an earnest money deposit to make the contract valid (the exchange of money makes it a legally binding agreement), but it is possible to keep it as low as even a few dollars if the seller will agree to it. Wholesaling is a natural process since real estate is all about finding good deals from sellers, getting investors to buy and improve the property and getting your check. The main requirements are that you find good deals, put them under contact, and then use your network of investors or marketing to sell the property at a higher price than you have it under contract for. If you fail to sell the property within the time stipulated in the contract, you can close the contract under the agreements and walk away. The most money you can lose is the amount you put down for your deposit.
Wholesaling real estate agents are in effect go-betweens. The reason is that they can put a property under contract, for example, for $60,000. The house may need $10,000 to remodel and have a value of $100,000 after the work has been completed. If you find an investor who can take up the contract for $65000, you end up making a profit of $5000 within days, and they still get a deal that has a lot of profit baked in. Before you get started, here are 9 basics of wholesaling houses that you should be aware of:
Marketing for Seller Leads
When starting out in the wholesaling of real estate property, make sure you do your marketing right to find good deals. The reason is that you need to find undervalued property that will be profitable to the investor you assign the contract to. Bear in mind that flipping property involves buying property at below market prices and remodeling or repairing them. Therefore, it is of utmost importance that there is some profit left for the investor, and the more profit there is left, the easier it will be to assign the contract and make money. There needs to be “meat on the bones”, per se. To find these kinds of deals, you need to know where to look and be engaged in different kinds of marketing. These include your personal and professional networks, social media, internet marketing, bandit signs, “driving for dollars” (searching for possible wholesale properties by car or foot), snail mail, bulletin boards, cold calling, and many other methods.
Analyze the Property
Get as much information as you can on the particular property. That’s because you need to know how much the real estate property is worth before you get it under contract, and before you can have a responsible conversation with the seller. Make sure you compare its cost with other properties within the locality and do some quick appraisal math for determining its value. Some sites to that can be used to get information on your subject property include Zillow.com, county or city property information/GIS information, and other sources of property data.
Contact the Seller
After analyzing the property in question and determine that it may be suitable to propose a deal to the seller, it is time to give them a call or visit them in person to find out more information. You can develop a suitable script to use when communicating in person, by phone or by email to qualify the lead. You must determine if it is the type of property you are looking for and that the seller has sufficient motivation to sell the property for a discounted price that will work out financially for you and your future customer that you will assign the contract to. If the seller is willing to sell for the price you are looking for (and it is wise to have a certain criteria decided upon before making the call), you may have a good deal on your hands. It’s a good start! But we will probably need to know more about the property before taking the next step, which leads us to……
You or someone you know will need to inspect the property to know the cost of repairs that the investor will need to pay for to flip it. You will need to have a rough knowledge on how to evaluate the possible renovations or know someone who will be willing to estimate for you . The best thing is that being a wholesaler; you won’t need to come up with an exact figure. It will still be up to the investor to determine if they want to purchase the property and are comfortable with the price. If you are interested at getting better at inspecting property and estimating costs, there are books available that can help, or you can use cost data from past work that you have paid for in order to make predictions. Remember that you need the right numbers to convince investors to buy the property.
You need to have negotiating skills to find the best deals. The reason is that most property owners, for example, homeowners, want the best prices for their homes. It means you need to strike the best deal that satisfies the seller and yourself. One thing to keep in mind is that as a wholesaler, your job is to solve problems. Another thing to remember is that no homeowner wants to sell their house at 60-70% ARV (after repair value), so you must remind the seller of how much you helping them sell their house will alleviate their problems. Remember to always be ethical and to treat people as you would want to be treated. This is the only way for you to maintain a successful and respectable business. One who takes advantage of others will not maintain the reputation needed to succeed and may even wind up in legal trouble. Bottom line, be a professional!
Sign the Sale and Purchase Agreement with the Seller
This can often be done on a short contract between you and the seller. You may want to consult an attorney to craft the right contract for your needs, or you can start with one of many boiler plate contracts that are commonly available. Some of them are as short as one piece of paper, while others are much more lengthy. No matter which contract is used, it is important that both you and the seller understand what you are agreeing to.
Marketing for Investors to Purchase the Property
After you have put the property under contract or control, the next step is to advertise the property. The best way is looking for renovators who want buy the house and repair and remodel it or flip the real estate property and sell it for a profit. You can consider using platforms such as Craigslist and local real estate investor groups to find leads for investors. This is where it is helpful to have a list of buyers who are ready to purchase properties for investment. If you don’t have a list already, it is good to start building one as soon as you can. Finding leads for buyers can be done online with a business website with opt-in form, through classified advertising, on websites that specialize in wholesale deals (such as FlipConnector), through friends, family and associates, and many other avenues.There is also software available to help you track and communicate with your leads.
Assign the Contract
The moment you find a buyer and you both come into agreement, you need to transfer, or assign, the responsibilities and rights of your contract to them. That’s the assignment of contract. You may consider seeking the advice of attorneys on the best way to assign the contract so that you will stay out of legal trouble and for the transaction to proceed smoothly.
Close the Deal and Cash Your Check
The final step is the settlement. It involves signing the necessary documents and cashing in on your check. This can be done in a couple of different ways. One is to take the contract assignment to an investor-friendly title company (or real estate attorney, depending on which state you live in), or to do what is called a double closing, where the two transactions (you/seller and you/buyer) happen in quick succession and the funds from your sale (the second transaction) can actually fund the first transaction. Check the laws of your state to determine if the double closing is an option for your business.
Also, consider asking the seller for testimonials. Testimonials enable you to have evidence of the deals that you have done and can be convincing to prospective sellers so that they will be more likely to trust you and sign a contract for your next wholesale deal.
Wholesaling real estate is becoming more and more popular these days. The reason is that many investors are looking for houses to flip for profit and the competition is fiercer than in past years. It is also one of the few investment strategies that you can use that doesn’t require any money to get started. f you want to get started in wholesaling, the best advice for you is to begin taking action to find your leads. What are you going to do today to start growing your business?