Do you live, work, or wish to invest in the Great Lake State?
Do you walk the streets and wonder if you can get a piece of the ever-growing Michigan real estate market?
The Wolverine State has a population of just over 10,000,000 people and although the population hasn’t grown materially over the past year, there continues to be tremendous opportunity in the real estate market.
The United States national average of owner-occupied housing units per available home is roughly 64.4%. Michigan, on the other hand, has over 71% of its housing units owner-occupied. This means that the residential housing market is generally homeowners, families, and individuals looking to reside in houses as long-term owners rather than as a renter.
This spells opportunity.
A real estate market driven by motivated buyers that are looking to find a home that their families can grow into is a real estate market that is typically very strong. And, that is exactly what the trend is telling viewers in Michigan. The year-over-year growth in home value in Michigan has gone up 7% since last year.
So, how can you get a slice of the pie? Real estate wholesaling.
In this article, we’ll discuss what wholesaling real estate is and how to wholesale real estate in Michigan.
Wholesale real estate is a type of investment strategy whereby wholesalers connect motivated sellers with cash buyers looking to flip houses and multifamily properties. As compensation for making the connection, wholesalers typically charge an assignment fee for their efforts.
Generally, wholesalers find distressed properties, go under contract to purchase them, and then assign the purchase contract over to a different end-buyer for a fee. Once completed, they’ll get back out into the market and find more deals.
In the following nine steps, we’ll show you how to wholesale properties in The Empire 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 Michigan:
Before you begin your wholesaling due diligence on a particular Michigan market, you’ll want to connect to a real estate wholesale mentor. Mentors are individuals who have already successfully navigated the Michigan market. These are people who understand the Michigan laws, know which markets are profitable, and which types of houses and buyers to find.
Connecting with a mentor can make your life a whole lot easier, whether you’re a beginner or a seasoned investor. He or she will put you in the right direction and give you the necessary tools to succeed as a Michigan wholesaler.
Next, you’ll want to learn the Michigan real estate wholesaling laws and contracts. Michigan is one of the few states that limit the number of transactions you are able to partake in without a real estate license.
Chapter 339 Section 2502b of the Occupation Code states:
So, what does this mean for a wholesaler? As mentioned briefly earlier, wholesaling is the act of assigning a contract to an end-buyer. It is not the act of selling an underlying property to someone else. Therefore, as long as you maintain the strict definition of the term, i.e. selling the equitable interest in a purchase agreement, you won’t be privy to such limitations stated above.
In addition to understanding the laws associated with wholesaling, you’ll also want to familiarize yourself with the types of wholesale real estate contracts you’ll use.
The main contracts you’ll need are the purchase agreement and the assignment contract. Be sure to review it with an attorney to ensure your interests are protected.
An assignment contract is a contract you’ll have your end-buyer sign to give them the right to your purchase agreement with your seller.
Download Free Wholesale Real Estate Contracts Here (PDF)
After you feel comfortable with the laws surrounding wholesaling, you’ll want to begin your research into specific Michigan sub-markets. Glossing through realtor sites can be a great starting point. Usually, these websites contain information such as necessary documents, local requirements and laws, and different trends and research on the local housing market.
A few of the larger groups in the state include:
Another great resource is the Michigan Economic Development Corporation (MEDC). The MEDC, in collaboration with more than 100 economic development partners, markets Michigan as the place to do business, assists businesses in their growth strategies, and fosters the growth of vibrant communities across the state.
You’ll also want to simply walk the streets of Michigan and speak to locals in the area. Nothing can quite replace feeling, touching, smelling, and experiencing the actual market itself.
Next, you’ll want to build a cash buyer list.
A cash buyer list is a list of investors that are ready and able to purchase your property. These are fix and flip specialists who can close deals extremely quickly. Compile a list of these individuals so, that once you’ve found a deal, all you’ll need to do is shoot them a quick phone call to get the ball rolling.
Check out this video on how to find cash buyers!
There are many ways to find great properties to wholesale. Surfing sites like Zillow, Loopnet, and Redfin or glossing through the Multiple Listing Service (MLS) can be a great starting point. However, you’ll likely find the best opportunities by finding motivated sellers and distressed properties.
Motivated sellers are homeowners who wish to sell their properties badly. Usually, these people are in a cash crunch or have recently inherited a property from someone else. They can also be homeowners that are simply willing to forgo larger profits in place of a quick, cash offer.
You’ll also want to find distressed properties. Distressed properties are properties that are in a less-than-ideal condition. Perhaps they were placed into foreclosure after being damaged by a bad tenant, fire, or mortgage issue. These owners don’t want to renovate their properties and spend the time and money bringing it back into a livable situation. They’d rather sell their properties for below market value if it means getting a quick, cash offer.
Read Also: Finding Motivated Seller Leads: Free & Paid Tactics
After you’ve found the cash buyers and the distressed property, it’s time to put the property under contract. But, what price should you offer?
This is where the Maximum Allowable Offer (MAO) comes in.
This is the MAO formula:
Maximum Allowable Offer (MAO) = After Repair Value - Rehab Costs - Desired Profit - Wholesale Fee
Let’s dive in.
The MAO is the maximum price a wholesaler should pay for a home. Sticking to this formula will ensure that all parties involved make a profit.
So, what are the inputs?
The first step is calculating the After Repair Value (ARV). The ARV is the value of a property after you rehab it and bring it up to market value. You can calculate this value by researching the neighboring markets, speaking to agents and bankers, and determining what similar properties have sold for over the past year (real estate comps).
Next, you’ll have to estimate the rehab costs necessary to fix up your distressed property. Is the property going to need a new kitchen, updated landscaping, or a new roof? Answering these questions will help give you an idea of the extent (and cost) of the project at hand.
Then, you’ll need to determine your’s and the investor’s desired profits.
Let’s say you invest in a property with a $1,000,000 ARV, you might want to bake in a large desired profit for you and the fix and flipper due to the large size of the deal. A good rule to hold on to is to assume a cash buyer would want to make about a 25% - 30% profit on any transaction. This is calculated using a formula called the 70% Rule.
For you, the wholesaler, we’d recommend baking in at least a 15% profit.
Once you calculate the MAO, put in an offer at your calculated number. This will ensure you’ll make money once you’ve assigned the contract over to a cash buyer on your list.
Once you are under contract with the homeowner, you’ll need to assign the contract over to one of your end-buyers.
For this part, it is imperative to get legal advice. Working with an attorney or mentor, although not always cheap, can ensure you don’t fall victim to any major liabilities or illegal activity. You’ll want to make sure your assignment of contract is extremely thorough and your interests are taken care of.
Once you have the purchase contract signed and ready, it’s time to close the deal and collect your assignment fee.
For this part, you’ll need to be in touch with the closing team to ensure they have all the necessary documentation to close. Residential deals usually close pretty quickly, especially if you are just in it for the assignment fee.
Once you’ve collected your cash flow, it’s time to rinse, repeat, and find your next wholesale deal.
As a wholesale investor, two different methods you might want to familiarize yourself with are double closing and wholetailing.
A double close is a transaction where you use two simultaneous closings instead of the traditional assignment contract. What you’ll do is go under contract with the seller and the end-buyer at the same time. Then, you’ll present both purchase agreements to the title company and they’ll close on the deals. In an ideal situation, they’ll facilitate the closing with your buyer and use the buyer’s cash to close on your sale with the initial seller.
You, the wholesaler, end up happy because you’ve facilitated a buyer-seller transaction. Your seller ends up happy because they’ve received their money. And your end-buyer ends up happy because they’ve received their desired property. It is a win-win-win.
However, double closings are not without their challenges. Since you are going under contract with a cash buyer before owning the property, you might encounter some challenges from your title insurance company. Although there are some loopholes, you might have to be a bit creative by using hard money loans or transactional funding. Double closings are also a bit more expensive because you’ll be paying closing costs, legal fees, and recording taxes on two separate transactions.
Another such wholesale method is what’s called wholetailing.
Wholetailing is a hybrid between a fix and flip and a standard wholesale deal. In wholetailing, you’ll take ownership of the property, do some high return on investment (ROI) renovations, and then re-list the property shortly thereafter on the market.
It is a great exit strategy because you are able to increase the makeup of the house and, when you re-list the property on the MLS, access a potential buyer looking to live in and finance the home.
Read Also: Wholesaling Real Estate For Beginners
Yes, wholesaling real estate in Michigan is legal.
As mentioned earlier, wholesaling is the act of selling the equitable interest in a purchase agreement - not the actual property itself.
Since you are not selling an actual property, many of the laws surrounding licensing requirements do not apply. We’ll dive further into the laws in the next section.
There are no specific laws geared toward wholesaling real estate in Michigan, however, there are many laws geared towards real estate transactions, licensing requirements, and brokering deals.
A great resource is the Michigan Licensing and Regulatory Affairs (LARA). Within LARA, you can find anything from medical and cannabis licensing requirements to construction codes and childcare laws. However, the code discussing real estate licensing can be found in the Michigan Occupational Code Act 299 of 1980 and specifically within Section 25. These laws are monitored and enforced by the Michigan Board of Real Estate Brokers and Salespersons.
The law states that if you engage in the sale of real estate as a principal vocation you’ll need a real estate license. As mentioned earlier, if you engage in more than five real estate sales annually, represent to the public that you are engaging in the sale of real estate, and devote over 50% of your time or more than 15 hours per week in any 6-month period to the sale of real estate, you’ll be considered to engage in the sale of real estate as a principal vocation.
So, as long as you stick to the strict definition of wholesaling real estate and don’t act as a real estate broker as defined above, you’ll be abiding by Michigan law.
There is no perfect answer to the wholesaler’s salary question. Generally, wholesalers can make $10,000 - $20,000 per wholesale transaction. If you decide one deal every month is something you are capable of producing, then you’ll end up making over $120,000+ a year.
Not bad at all!
Understanding the ins and outs of a Michigan real estate purchase agreement is essential to the wholesaling process.
Here is the standard purchase agreement from the Michigan Association of Realtors. In it, you’ll see requirements relating to the inspection, earnest money, appraisal, and other basic rights. One important clause worth noting is the inspection contingency clause.
Contingency clauses are conditions that must be met for a real estate contract to become a binding legal document. There are many types of contingency clauses that protect all parties involved in the transaction.
Some of these include:
For example, an appraisal contingency allows the buyer to cancel the contract if the property appraises below the stated purchase price. A Clear Title contingency allows the buyer to back away from a contract if there are liens or disputes found against the asset being transferred. An inspection contingency typically allows the buyer to terminate the agreement if the inspection results are unsatisfactory.
When a contingency isn’t met, either party may be able to legally cancel the contract.
No, you don’t need a license to wholesale real estate. However, it might be a good idea to get one. Having a license will give you access to a wider network of sellers, buyers, and investors.
You can also earn real estate sales commissions when you represent buyers and sellers as an agent. It’ll also give you MLS access where you can not only buy properties but also sell them if you go the wholetailing route.
Read Also: Can A Realtor Wholesale Property? The (ULTIMATE) Guide
No, but it can be. Getting a coach, a mentor, and the proper training can make the wholesaling process much easier. At Real Estate Skills, we offer the Pro Wholesaler VIP Program, an elite course that can help set you up for success. It is a great place to start your journey. Many of our students are successfully earning five and six-figure profits every single month!
It is a world-class program that can give you a leg up against your competition and ensure you come prepared!
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.
Michigan is a vibrant community with a strong real estate market. Wholesaling real estate throughout the market can be a great way to access wealth, like many other real estate investors in the area, with little to no money commitment.
Find yourself a real estate mentor, familiarize yourself with the Michigan statutes, laws, and codes related to real estate investing, and connect with cash buyers and motivated sellers to find the right deals for you.
Speak to real estate agents and lenders in the state of Michigan about real estate deals, valuations, and methods. As a new investor, you’ll want to listen to podcasts that discuss networking, cold calling, and how to find cash buyers. Talk to attorneys about assignment of contract laws and specifications you’ll want to consider. Once you feel ready to make an offer on an investment property, calculate the MAO to ensure you’ll make a profit - just like you would do for any investment property.
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 dive right in, start wholesaling houses, and kick start your wholesaling business!
Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.
Just enter in your name & email below for Real Estate Investing Golden Nuggets!