Real Estate Wholesaling: What’s it all about?
In the world of real estate wholesaling, you are the middleman bringing together the deal – and making a quick profit without all the extra work or outlay of funds. Your job is find the property, analyze what it will bring on the open market, offer to bring a buyer to the table, and obtain a signed agreement from the homeowner to sell it at a given price.
Rather than getting tied up with making repairs, putting your own money at risk, and juggling property ownership – wholesaling is a great way to break into the real estate investing field. It’s usually a faster close than the other niches, and a good alternative when you’re not 100% certain that owning an investment property is something you’re ready for.
Wholesaling vs. Investing
Some properties may seem like too good of a deal to pass up buying yourself. Before you go down this path, ask yourself:
- Does the property show signs of potential issues I may not be capable of resolving? Definitely get an inspection so there aren’t any surprises which could spin your rehab expenses out of control. Unless you are already experienced with fixer-uppers, get a reliable opinion from someone who is.
- Have I realistically calculated the true market value of the home? Sometimes when we are personally involved in a transaction, we will look past even glaring problems. Don’t lose sight of the fact that this is a business, to be dealt with objectively. Don’t make excuses to yourself that you wouldn’t make to an investor.
- Will the homeowner lower their asking price if I’m buying this myself? If the seller knows you are the end-buyer, they might want more money because there is no agent involved. Remember, you are not taking a commission or charging them any fees and you’re paying all cash with a quick close so you don’t want to get cornered into paying more.
- Does my current financial position leave room for a transaction like this? Whether you’re thinking of keeping the property as a rental (buy and hold), fixing and flipping, or another alternatives – don’t hem yourself in to the point of instability.
Find a Motivated Seller
There are dozens of ways for putting together a list of available homes that will fit into your real estate wholesaling portfolio. You can work with a Realtor for MLS access, subscribe to online sites which provide listings with details and photos, encourage referrals from friends and family, advertise in places like Craigs List and local newspapers, and even place ‘bandit signs’ in promising areas offering to buy houses for cash.
As the wholesaler, you are the one approaching the seller so it’s essential to be genuine and forthright with them. They are already going to be in a distressed situation (if not a desperate one) and they need to be able to trust you and know what they can count on. There are probably other wholesalers on the hunt in the area, so you need to stand out as someone they feel comfortable to work with. Just as your name will easily get around in this business if you are ethical and attentive, it will also go viral if you are perceived as a vulture only interested in taking advantage of another’s plight.
Lock Down the Contract
You’ll want to use a Purchase Agreement that is very clear yet concise and definitely not ambiguous. If there are options and conditions, spell them out. It is critical that all parties to a contract fully understand what it is they are signing; an ambiguous document may end up being unenforceable. Remember to include an Assignment Clause in your contract, allowing you to assign it to a third party (the investor).
Finalize the deal by delivering the paperwork and deposit (or proof of its receipt) to a title company or closing attorney. They’ll handle the rest of the details to close the transaction.
Locate Your Cash Buyer
Next, you will look for an investor to actually purchase the property for a price which includes your desired margin, while allowing them to net a nice profit. Marketing through social channels is a great way to get connected to those who buy locally. Sifting through the responses may take time at first.
When you have found an interested investor, make sure they sign the Purchase Agreement, and that it is accompanied with a deposit; generally 10% of the sales price. And, be certain they have the cash available to close the deal.
Eventually you will end up with a serious buyers list – meaning you will only need to reach out to a few investors to put a quick deal together. Ideally, for their efforts of rehabbing the property themselves and outlaying funds to buy and close, your investor’s ROI will be rewarding enough that they will return to you with repeat business in the future! And so it goes…