Wholesaling is when you find a property, get it under contract with the owner, and then sell the rights of that contract to another investor who wants to renovate the property. With Wholesale Real Estate Investing, the goal is to always create what I call “Win-Win-Win Scenarios." Get ready because we're about to take a deep dive into how wholesaling real estate works!
You create a win for the seller of the property because you are getting them out of a sticky situation. For example, the seller can be facing foreclosure and need to sell their home quickly to avoid ruining their credit for years. Maybe the property is owned in a trust with 6 different owners, and instead of putting the property on the market and evaluating 20 different offers, they may just want to work with you, with no commissions involved.
You also create a win for the real estate investor you’re selling the wholesale contract to. This investor wants to renovate the property and get a profit. A majority of the time, their profit will be larger than your wholesale fee (what you get paid) but your wholesale fee can be larger at times. As long as your investor (the person buying the deal) makes the return on investment that they need, then they should not care about how much money you make from the wholesale deal. For example, let’s say you get a property under contract at $250,000, and your cash buyer will buy the property at $300,000. Well, then you can get a $50k wholesale fee for finding that deal & getting it under contract. Keep in mind that the investor is taking on more risk by either using their own capital or borrowing capital to buy, fix, & flip the deal. They have to make a profit on the deal, and in order to run a great wholesaling business, you want everyone to win. Don't forget this!
You’re also creating a win for yourself. You found the deal! You got it under contract! You did some of the hardest work! Also, what I believe to be the MOST IMPORTANT WORK! No investor (your cash buyer) can make money without the DEAL. When you get the wholesale deal, the ball is in your court. You can wholesale the property, or you can renovate it. All in all, you create a WIN for yourself by taking home a wholesale fee where the average is $10,000 per house. A wholesale fee of $10,000+ for 2 weeks of work, or less, is not bad especially when you can scale up and do volume!
Wholesaling can be a little tricky when starting out because it feels like there's so much to do! I made the wholesaling process simple for you by breaking it down into 5 steps here:
“Begin with the end in mind” - Stephen Covey, Author of the 7 Habits of Highly Effective People.
Always begin with the end in mind! When you wholesale a deal, a cash buyer is the company/person that will buy your property from you. These are the real estate investors you will talk to when you have wholesale houses for sale. You need to begin with the end in mind by knowing exactly what types of properties they like to buy.
Here’s a list of qualifying questions you can ask Cash Buyers in order to get their buying criteria:
These are the questions you need to ask your cash buyers in order to understand their buying criteria and know the exact properties they like to buy. Now, you need to find cash buyers. So, how do you find them?
You can find Cash Buyers by utilizing these 4 strategies:
Great job! From Step 1, you know what your top cash buyers like to buy with confidence because you took the time to communicate with them. Now, it's time to FIND the deals and make OFFERS on the properties your cash buyers want to buy.
Here are some of the best ways to find real estate wholesale deals:
As mentioned above, there are a multitude of ways to get wholesale deals. What's most important is that you stick to one or two strategies, and then systemize and automate those marketing streams completely before going to the next one. This how you build a sustainable wholesale real estate business that makes you wealthy.
Let’s say you use the MLS (Multiple Listing Service) to find deals. The MLS is the best database of leads out there! Any home that is on the market is listed on the MLS. A lot of investors say they hate the MLS because they are unfamiliar with this lead source. However, if you want deals on demand and with predictability, then I highly recommend the MLS as a source for wholesale real estate deals.
Now, that you know your cash buyers buying criteria, you can search directly on the MLS for the properties that fit their criteria.
Whatever wholesale contract you go with, be sure that this important language is in there:
The contract is always the “law of the land.” Meaning, you have to abide to what is written on the contract and what you and the seller agree to on that contract. The only way that a contract can be changed is if it something is crossed out, and initialed/signed by both parties acknowledging the change. Even then, I recommend using addenda that are signed by all parties if any changes need to be made to the wholesale contract.
The three most common ways to wholesaling a real estate deal are:
Assigning the contract is when you transfer the rights to buy the property to another investor for a wholesale fee. Your name is then taken off the contract and the other investor replaces you in the contract. You may have heard of “how to invest in real estate with no money.” Well, here is one of the best ways to do it! You can get a property under contract, assign it, and make $10,000 in a week or two without spending $1. Isn’t that great?
Double closing is when you close on the property in your name and then close once again with the investor that wants to buy it from you. Most of the time you do not need any of your own cash to purchase the property.
In a double closing situation, you line up 2 escrows back to back, so you immediately close on the seller’s property in your name, and then immediately, sell the property to your investor cash buyer at a surplus. When done correctly, you can use all of the investor’s funds, without having to use any of your own capital.
Some escrow companies, and investors, are not too keen to doing a double close with only one person’s money. In this particular situation, you can always close on the first property with your own capital and then close immediately with the investor’s money, and then, the investor will own the property. This can be difficult if you do not have the capital to outright buy the deal, so there are actually companies that will provide this sort of transactional funding for you. The transactional funding company may charge you a couple of percentage points on the money you borrow, but at least you get the wholesale real estate deal done!
The third way you can close a wholesale deal is when you do an Entity Assignment. This is when you create an LLC, get the property under contract with the LLC, and then assign the membership rights of that LLC to the new investor. This is particularly useful when dealing with a seller who refuses to assign the contract, or if you're dealing with legalities that do not allow you to assign or double close on the deal.
Make sure your hard work goes rewarded! In almost a decade of wholesaling property, we’ve seen the average wholesale fee right at $10,000. Now, imagine if you just did one wholesale deal per month...that’s an additional $120,000 a year! What about 2 per month…that’s an additional $240k per year!
The best house flippers who renovate property actually make it a goal to wholesale property every month to keep consistent cash flow coming into their real estate investing businesses! A lot of renovations can take at least a few months to complete, so by doing wholesale deals that typically close in 2 weeks or less, it provides a steady stream of capital to their investing business!
Once again, I recommend wholesaling to anyone who wants to get started in real estate. You can do it with $0 and it's basically risk-free when done correctly. Be sure to always include a contingency in your wholesale contract that allows you to back out if unforeseen circumstances happen, and also make sure your contracts are assignable! Review this step by step wholesaling process and you'll be in great hands!
Yes, wholesaling real estate is legal. As an experienced wholesaler and real estate investor, I know that some are skeptical about wholesaling and real estate investing. From coaching aspiring and professional wholesalers over the years, I’ve heard every excuse under the sun why wholesaling shouldn’t work. But, guess what? They ARE all excuses… not reasons. Wholesaling is legal and can work in each and every real estate market.
Many who think wholesaling is illegal are thinking about the process in the wrong way. For example, those who think wholesaling is illegal usually believe that a wholesaler is trying to act as a real estate agent or broker in the transaction, but this is not the case. A real estate wholesaler is not selling a house or a piece of property. See, selling a piece of property is actually the job of a licensed real estate agent or broker, however, a wholesaler is only selling the equitable interest in a contract to buy a property. Do you see the difference?
To repeat, wholesaling real estate is legal because this is the process of selling the equitable contract rights to buying a property, and not selling the property itself! Be sure to not get it twisted because many get confused on this concept. Also, be sure to take everything you hear about wholesaling being illegal with a grain of salt because usually everything stems from this common misunderstanding we just cleared up!
Yes, you can wholesale real estate without a license. As previously mentioned, a real estate wholesaler is not doing the work of a licensed agent or broker. In fact, many who get their start in real estate investing begin by wholesaling since it can be done without using any money. In addition to not having to use any capital (or a nominal amount), there's a very quick turnaround time from when you get a property under contract to when you are able to sell the wholesale contract. This is a big positive about wholesaling because you can make money quickly as opposed to waiting months to buy/sell property as a real estate agent.
In Summary, The 5 Steps To Wholesaling Real Estate Are:
Hope you enjoyed this article on wholesaling real estate step-by-step! If you'd like a free in-depth video training on the best way to get started wholesaling, then check out our free wholesaling training here.
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