Wholesaling Properties – a Real Estate Niche When You Don’t Have Money or Credit
Wholesaling is a popular real estate niche, because it offers immediate profit potential for investors who want to get into the business, even with no money or credit. It has more to do with the art of putting the deal together, which entitles locating properties, securing them with a sale contract or option, and flipping them to an end buyer.
The most famous real estate moguls, like Donald Trump, have started in real estate by skillfully putting deals together, funding with properties, without using their own money or credit. It is more a matter of making the right connections and formulating a strategy.
The strategies below are some of the most popular that wholesalers use:
- Assignment of Contract – with this type of wholesaling transaction, the investor never has to own the property to profit from it – he/she deals by buying and selling contracts, not properties. After a property is located and a contract is executed with the seller, the contract is assigned to another buyer/investor for a fee. The fee can be anywhere from a few hundred dollars to tens of thousands of dollars for a commercial property.
- Double closings – there has been a lot of misinformation about double closings – most jurisdictions agree that as long as the deal is funded with a “wet closing” (where money is actually paid out even in a same day flip scenario) for the first part of the transaction, before being sold to another buyer, it is acceptable. Transactional funding lenders provide these type of funds, and they do not look at the borrower finances or credit, but the fact that there is an end buyer in place.
In double closing transactions, the dealer locates a property, signs a purchase contract with the owner of record and then markets the property as an “owner per contract” – this is defined as A to B transaction. Once the dealer finds an end buyer, he signs a contract with the end buyer for a higher price than the first contract with the owner of record – this is defined as B to C transaction. The closing is usually on the same day and the dealer walks away with the profit spread from the first to the second contract.
- Scout for properties or BirdDogging – Scout dealers look and locate properties, contact wholesalers and investors that could have an interest on these properties and collect a fee if they execute a transaction. The fee usually ranges from $1,000 to $2,000.
- “Subject To” – Under this strategy, the investor takes over the seller’s mortgage payments, with the existing mortgage staying in place – most mortgage notes have the “due on sale” clause, which is only a clause and not a law. Most lenders will never recall a loan as long as the payments are current. The title is usually transferred via Quit Claim Deed.
Since the investor has full control of the property, he/she can market it and sell it, and any proceeds from the sale will go to the investor. He/she can also offer a “Lease Option to Buy” to a prospective tenant/buyer, and collect a deposit and rent.
None of the strategies outlined above require money or credit from the wholesaler. The limit is only defined by the amount of properties the investor can locate and flip, not funding.