Do you dream of escaping your nine-to-five job?
Do you walk around the streets of Alabama and wonder how you can be a part of the multi-trillion-dollar United States real estate market, but you don’t know where to begin?
Alabama has a population of just over 5,000,000 people. That puts the state roughly in the middle of the pack in terms of population density relative to other states in America.
However, the opportunity lies in the housing units.
The national average of owner-occupied housing units in the United States is 64.4%. This means, that of the 142,153,000 houses available, roughly two-thirds are owned by families or individuals that do not rent.
Alabama on the other hand has a 69.2% owner-occupied housing rate – a number far greater than the national average. That spells opportunity.
Because, when you deal with real estate in a heavily owner-occupied state, you deal with motivated buyers, sellers, and a strong real estate market. Communities driven by owners, rather than renters are communities with an incentive to find homes. These individuals are likely families with disposable income willing to spend a premium on real estate.
That’s where you come in. The time to tap into this large owner-occupied housing market is now. And, the best way to do it is through wholesaling real estate.
In this article, we’ll discuss how to wholesale real estate in Alabama and why it could be a great strategy for you to attain wealth and financial freedom.
Wholesaling real estate, in its basic form, is the act of connecting homeowners, distressed property owners, and motivated sellers with cash buyers. Once the wholesaler locates a property with the potential to appreciate, they’ll go under contract with the seller, find a cash buyer, assign the contract over to the buyer, and then charge a small fee.
Wholesaling real estate is a wonderful way to hone your skills in residential investment properties and make cash with little to no money down.
In the following nine steps, we’ll show you how to wholesale properties in the Cotton State.
Be sure to check out our in-depth video showing you how to wholesale real estate step by step here:
Here's our simple step by step process for wholesaling real estate in Alabama:
As a beginner, the first thing you’ll want to do before you dive into the Alabama sub-markets is contacting a wholesale real estate mentor.
Mentors are professional real estate investors and wholesalers that would be happy to assist you on your journey.
There are plenty of ups and downs associated with wholesaling real estate. A mentor can help guide you and put you in touch with the right cash buyers, attorneys, and realtors. They’ll also be able to feed you properties and help you choose the best market to start in.
Should you dive into Mobile or Montgomery? What about Auburn, Tuscaloosa, or Birmingham?
Mentors can help you choose and give you a leg up against your competition.
Once you’ve secured a mentor, it’s time to do some digging into Alabama wholesale laws and contracts.
The Alabama Real Estate Commission (AREC) oversees state laws regarding real estate and its related industries. Laws governing licensing requirements, realtors, investors, and brokers all fall under the jurisdiction of the AREC.
To start, gloss through the consumer information page of the AREC website. It goes into detail about issues you might encounter with home inspections, mortgage fraud, landlord-tenant relationships, and licensing. Although you might not need to know all the specific details, it can’t hurt to familiarize yourself with laws that you might encounter down the road.
But, what about wholesaling?
There aren’t any major laws targeting wholesaling itself, however, if we focus on Alabama law regarding licensing requirements, we’ll get a sense of what can and cannot be done as a wholesaler.
Title 34, Chapter 27 of the 2021 Code of Alabama discusses laws pertaining to real estate brokers. In the ensuing sections, the law breaks down penalties, commissions, coursework, definitions, and everything in between.
Then, in Title 34, Chapter 27, Article 2, Section 30, the code discusses licensing requirements. It states the following:
“It shall be unlawful for any person… [to] provide, for a fee, commission, or other valuable consideration, or with the intention or expectation of receiving or collecting a fee, commission, or other valuable consideration from another, to do any of the following unless licensed under Articles 1 and 2 of this chapter:
(1) Sell, exchange, purchase, rent, or lease real estate situated within the State of Alabama.
(2) Offer to sell, exchange, purchase, rent, or lease real estate situated within the State of Alabama.
(3) Negotiate or attempt to negotiate the listing, sale, exchange, purchase, rental, or leasing of real estate situated within the State of Alabama.
(4) List or offer or attempt or agree to list real estate for sale, rental, lease, exchange, or trade situated within the State of Alabama.
(5) Auction, offer, or attempt or agree to auction, real estate situated within the State of Alabama.
(6) Buy or sell or offer to buy or sell, or otherwise deal in options on real estate situated within the State of Alabama.
(7) Aid, attempt, or offer to aid in locating or obtaining for purchase, rent, or lease any real estate situated within the State of Alabama.
(8) Procure or assist in procuring of prospects for the purpose of effecting the sale, exchange, lease, or rental of real estate situated within the State of Alabama.
(9) Procure or assist in the procuring of properties for the purpose of effecting the sale, exchange, lease, or rental of real estate situated within the State of Alabama.
(10) Present himself or herself, or be presented, as being able to perform an act for which a license is required.
Notice, that wholesaling is not on this list.
According to Alabama law, anyone who markets a property and acts as an intermediary in exchange for a commission would need a license. Wholesaling does not fall under that category for one very important distinction.
Wholesaling is the act of selling an equitable interest in a purchase agreement, not the actual underlying property. As long as you act as the go-between in a purchase assignment deal, you won’t need a license.
So, what exactly does this contract look like?
Here is an example of an Alabama purchase agreement. This type of contract is what you are going to be assigning over to a cash buyer in exchange for a wholesale fee.
Because you are selling the right to this contract, you won’t need a license to market it to various cash buyers or broker networks that you have.
Next, you’ll want to be familiar with assignment contracts. You can download our sample wholesale real estate contracts to use with your deals.
After you’ve learned the laws and ensured your wholesale business complies with the Alabama code, it’s time to understand the Alabama real estate market and lingo.
Download Free Wholesale Real Estate Contracts Here (PDF)
A great place to start understanding your market is city-specific realtor websites and networks. These sites not only list properties to help you get an idea of costs, open houses, and available inventory, but they also provide resources regarding financing, networking, and regulations.
Here are the Association of Realtor sites for some of the largest cities in Alabama.
Once you’ve exhausted all possible Association of Realtors websites and contacts, next you’ll want to walk the streets of Alabama and get a feel for where people hang out, go to school, and like to live.
Check out this interactive map to help guide you on your search. It includes major Alabama attractions, beaches, restaurants, hotels, and more.
Talk to local Alabamans as well. No one knows a city better than the ones actually living in it.
Next, you’ll want to build a cash buyer list.
A cash buyer list is a list of real estate investors with the requisite liquidity needed to close on a wholesale deal very quickly. These people prefer distressed properties and are willing to close all cash without any bank financing or hard money loans.
You can easily find cash buyers online, on social media, on Craigslist, bandit signs, and at REIA meetings. Get to know your cash buyer's purchase criteria very well, since that is ultimately the same criteria you’ll use when finding houses to wholesale in Alabama.
Check out this video on how to find cash buyers!
As a wholesaler, your most fertile ground for sourcing opportunities is in the motivated sellers and distressed property categories.
A motivated seller is a homeowner that needs to sell their house quickly. Usually, these individuals will forgo listing their property on the MLS or open market and take the off-market, all-cash route instead.
These people are typically in a cash crunch situation. Perhaps they’ve inherited the property from a deceased family member and they need the cash to pay for funeral bills and outstanding liabilities.
Be sure to ask the seller the right questions, it’ll make your wholesale deal even more profitable.
Aside from connecting with motivated seller leads, you’ll also want to find distressed properties.
A distressed property is a property that is severely damaged and in need of some repair. Typically, these properties can be found in foreclosure auctions or after a condition-altering event like a flood or fire.
These distressed property owners are willing to sell their property to the quickest buyer because they simply don’t want to deal with the headache of repairing the home. Sift the MLS and off-market properties to find these distressed homes - they are perfect for wholesaling.
Read Also: Wholesaling Auction Properties: The (Ultimate) Guide
So, you’ve found a distressed property – now what? It’s time to put it under contract.
This portion of the process includes a bit of back-of-the-envelope math and negotiation. Once you’ve found what seems to be a promising investment property, you’ll want to compute the Maximum Allowable Offer – or the MAO Formula.
The Maximum Allowable Offer is the maximum amount you should offer on a property to ensure you and your end-buyer make a profit.
Here is the calculation you are going to want to use:
Maximum Allowable Offer = After Repair Value – Rehab Costs – Desired Profit – Wholesale Fee
Let’s dig a little deeper.
After Repair Value – also known as the ARV – is the price your cash buyer is going to want to sell the property at after he or she conducts the necessary repairs. Typically, the After Repair Value is calculated by surveying nearby properties around the block and estimating the house’s fair market value after you take it out of its distressed state.
Next, you’ll want to estimate the rehab costs to achieve your stated After Repair Value.
A good place to start would be to contact Lowe’s, Home Depot, and other local shops to determine the price of major materials. Then, you’ll want to have a few conversations with local general contractors to get their estimates.
In estimated rehab costs, the more information you can gather the better. Details matter – in a very big way.
Next, you’ll want to calculate the desired profit and wholesale fee.
The desired profit is the profit you believe a flipper would want to make for this particular investment. You can assume they’ll want to make a percentage profit of invested capital.
For instance, if you anticipate the renovation budget to cost $50,000 and the ARV to be in the range of $275,000 - $300,000, how much would an investor be willing to pay for the property?
Given the risks and challenges associated with flipping houses, it is not inconceivable to assume an investor would want to make at least a 25% or 30% profit (see 70% rule) on any given transaction. That means, in this example they wouldn’t purchase the property for more than $200,000. Purchasing the property for $200,000 would mean they would secure a $50,000 profit – or 25% return on invested capital – if they renovate the home for $50,000 and sell it for $300,000.
Next, you’ll want to calculate your desired wholesale fee. If you are okay with making $5,000, you can put that into the equation. If you’d like to make a bit more, then you can put $15,000 or $25,000 into the equation.
Let’s see what the equation looks like now for the example we’ve presented.
MAO = After Repair Value (or $300,000) – Rehab Costs (or $50,000) – Desired Profit (or $50,000) – Wholesale Fee (or $15,000).
So, your MAO is going to be $185,000.
If you can go under contract for $185,000 or lower, you are going to make a nice profit!
Once you’ve gone under contract with your seller, you’ll want to draft an assignment of contract and assign the contract over to the cash buyer.
As mentioned earlier, you’ll want to make your assignment contract rock solid. The last thing you want is to mess up a wholesale deal with a botched assignment contract.
Seek legal advice from a lawyer or real estate attorney and discuss with your mentor – they will be able to ensure your interests are protected throughout.
Once you’ve drafted up the assignment contract it's time to close the deal. Have the cash buyer sign the document, give them the purchase agreement, and collect your assignment fee.
Then, you rinse and repeat and find another property to wholesale.
If you’d like to move beyond a typical wholesale deal and increase your deal flexibility, you might want to consider double closing and wholetailing.
A double closing is when you forgo an assignment contract entirely and instead go under contract with the cash buyer and the seller around the same time – with two separate purchase agreements.
After going under contract, you’ll then take both contracts over to the title company to facilitate the closing. The title company will then close on the purchase between you and the end-buyer and then use the funds to facilitate the closing between you and the initial seller.
Because a double close is selling the right to a property before you actually take ownership of it, many title companies don’t allow it. You’ll want to find an investor-friendly title company to work with you.
Separately, you can also consider wholetailing when necessary.
Wholetailing is a hybrid between a full fix and flip and a wholesale transaction. What you’ll do is actually take ownership of the property, do some high return on investment (ROI) renovations, such as cleaning and painting, and then re-list the property shortly thereafter on the market.
It is a great exit strategy because you are able to increase the value of the property by doing a handful of renovations and you can potentially access a larger pool of buyers when you re-list the property back on the MLS. You might even find a buyer that wants to finance and live in the property rather than use it as a flip investment.
Read Also: Wholesaling Real Estate For Beginners
Yes, absolutely! It is legal to wholesale real estate in Alabama.
Earlier in this article we discussed the nature of being a realtor in Alabama and what constitutes a real estate transaction. Remember, as a wholesaler, you are selling the equitable interest in a contract, not the actual property itself.
In general, there is no limit to how much a wholesaler can make – whether in Alabama or any other state. Usually, wholesalers will charge anywhere between $10,000 and $20,000 per transaction. So, if you manage to secure one wholesale deal a month, you could make upwards of $120,000 a year.
Unlike a standard nine-to-five job, wholesaling involves a lot of cold calling, sending out wholesaling postcards, networking, and connecting with agents, hard money lenders, and potential buyers. The deal flow will be heavily sporadic, but, on average, if you become a top wholesaler, it is not inconceivable to make well over $200,000.
Unlike a handful of other states, in Alabama you don’t need a license to wholesale. Many wholesalers are unlicensed, however, that doesn’t mean it isn’t a good idea to get one.
Title 34, Chapter 27 of the 2021 Code of Alabama discusses the requirements of being a broker in Alabama. Although wholesaling does not fall under any specific criteria requiring a license, getting one will give you access to any number of realtor resources.
It is definitely a good investment to get licensed, especially if you plan on being in real estate for a long time.
Read Also: Can A Realtor Wholesale Property?
No, but it can be easier with a coach, a mentor, and the proper training.
Closing on your first few deals can be very tricky. You need to know how to navigate the many variables associated with any given transaction.
What happens if the cash buyer backs out? What information will you need to assess rehab costs and After Repair Value? How do you even find the right distressed investment properties?
These questions – and many more – are challenging to answer at first. You’ll want a mentor and potentially a wholesale course to help guide you through the first few deals.
Check out our Pro Wholesaler VIP Program. It is a world-class program that can give you a leg up against your competition and ensure you answer the right questions and always come prepared. Many of our students are successfully earning five and six-figure profits every single month!
The Pro Wholesaler VIP Program is designed for the modern entrepreneur to learn the basics and the easy potholes to spot and avoid. It is 100% online and is used for local and virtual real estate wholesaling.
Wholesaling real estate is an extremely lucrative form of real estate investing. You won’t need much cash and the barriers to entering the industry are very thin. With the right steps, a mentor to guide you, and some grit and determination you’ll be able to wholesale properties successfully in no time.
Be sure to familiarize yourself with Alabama law throughout and always make sure your interests are protected for all your real estate deals. Although not required, you can also get a real estate license to broaden your real estate agent network. At the very least, speak with real estate professionals to help build your deal flow and cash buyer list.
Check out our brand new free training on how we help investors all across the country wholesale and flip houses from the MLS using only a laptop and a cell phone.
Now, all you have to do is get started. What are you waiting for?
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