What investors love about wholesaling properties is the fact that you don’t any money to get started, you don’t have any risk in getting started and the process of closing your first deal can move as quickly as 30 days.
Oh yea, I forgot to mention that you can generate multi-thousand-dollar checks in your spare time as a real estate wholesaler!
All of these factors make wholesaling the favored path to getting started for beginners.
Yup, there are virtually all upsides to this exit strategy of investing in real estate in Westminster, Maryland – and all over the country for that matter.
To give you a bird’s eye view of this kind of real estate investing, we’ll review the simple steps involved in this lucrative real estate investing strategy.
Simple Real Estate Wholesaler Steps
Step 1 – Find Deals
If you don’t have a plan to get a steady stream of leads month after month, then you will fall into the same feast and famine trap that so often afflicts those in the real estate business.
You need to put a plan in place made for the market where you are going to be doing business.
Likewise, you don’t want to put all your eggs in one basket and become unnecessarily reliant on one strategy or one person to send you leads.
When a third party is involved that is not buying the property outright (as when you are assigning a property), there’s an associated risk of the transaction not closing. Realtors may have missed better offers by stronger buyers while waiting for the investor to complete the transaction to an end bargain buyer.
A good question to ask, is what kind of sellers make the best group to work with?
The answer is clear: You want to find sellers who did not earn the equity in the property, and who are not emotionally attached. Naturally, an inheritance comes into mind, but there are many reasons people find themselves in for owning property.
As you advertise and meet with sellers, understanding their history with the property will be as important as understanding their core motivation.
Step 2 – Evaluate the Property
Learn how to buy right, and you’ll have no problem getting transactions done because bargain buyers will want what you have to offer. You need to evaluate the street scene, and the Seller, as well as the property.
At times, it will be hard to stick to the numbers because you’ll want to do the best you can for the Seller. At the same time you need to be aware that you don’t want the Seller’s problem –– the house –– to become your problem because you paid too much and have limited your exit strategies.
Buy cautiously, buy smart, and stick to your numbers.
Step 3 – Make An Offer
Making the offer is something that good investors work toward from the initial buy call. Each investor has their own way of getting the information they need to make a decision. Likewise, each investor has their own way to approach a Seller with the offer.
Some are methodical in setting expectations throughout the process and will make an offer over the phone after the appointment, but only after they’ve done extensive research and have contacted potential buyers.
Others like to get out to the house, meet with the owner, and do it face-to-face so that they can lock up the deal fast. The differences really come down to not only what’s going on with real estate in your market, but your personality.
Some investors like to have their exit strategy in place before they get the house under contract, that way they can be sure to meet the 123 expectations they have set with the Seller. Others like to lock the property up first using the contract, then determine the exit strategy trusting that their buyers list will come through for them.
Step 4 – Negotiate the Deal
You have two simple rules to follow here:
1) If you’re not embarrassed by your offer, then you’re offering too much; and
2) If you make an offer and the Seller jumps at it, you’ve probably left money on the table.
If your business is to wholesale property, your approach is going to be the same but you will have to buy lower, perhaps at 55 to 60 percent of FMV.
The reason is that you will need to leave “enough fat on the bone” for the bargain buyer who is going to take the risk to “fix and flip” the property. Expenses for the bargain buyer include covering the purchase, the rehab cost, the cost of carrying the property, the financing, the utility costs and so on to be able to come out with a profit.
For you to be a successful real estate wholesaler you have to leave the majority of the profit to your buyer. Your buyer is taking the risk: You need to make sure that you are helping to set up that buyer for success, not failure.
The happier customers you have, the more properties you will be able to sell because people will recognize that you know what you’re doing, and that you can be trusted. When they realize this, they will come back to you again and again and buy more properties from you.
Remember, when focusing on wholesaling, you’re not looking to hit home runs, but many singles, doubles and even a few triples. The wholesale business is a volume business, so set it up accordingly.
Besides purchase price, contract terms are another important aspect of negotiating a transaction. In wholesaling, the single most important clause that you need to include in the contract is the ability to assign the contract. Be sure to add the words “and or 143 assigns” after your name in the buyer section at the top of the first page of the purchase and sales agreement.
Sometimes sellers will be uncomfortable about this clause and push back. Some of this concern can be alleviated from the beginning of the process when you first meet with the Seller and describe your business.
Additional contract terms should include clauses that allow you to get out of the contract, such as an escape clause for appraisals, for inspections of septic and inspections of roofing and so on. If inspections don’t go well you can back out of the deal. More on this later.
Step 5 – Securing the Contract
Some investors have been known to get the contract signed at the first appointment while others take more time and like to get the paperwork finished at their office. There’s no rule here, it all depends on how you want to run your business.
An important step that is often missed is to be sure that copies of the contracts, addendum and other associated paperwork be given to the Seller for their records. If at the first appointment the seller is willing to sign a contract for your offer price (or a slightly higher negotiated price) then by all means sign the contract at the first appointment.
Then send them a copy after you get back to the office and have a chance to make copies.
Step 6 – Finding the Buyer
If you don’t have a buyer, then you don’t have a transaction . . . at least one that’s going to put money in your pocket. If you are planning to build a business that uses wholesaling as its primary exit strategy, then you will need to cultivate a list of buyers.
To begin, place ads in the Classifieds of your local newspaper or Craigslist that state your need to liquidate several properties and that you’re looking for buyers. Go to your local REIA meeting and network. Contact local mortgage brokers and partner with other investors.
Yes, that’s right. In this business you will want to work with your competition . . . Of course, they need to be people and businesses that you trust. In the wholesaling business your competition carries a different name . . . “Bird Dogs.”
Building a huge buyers list of hundreds of buyers will not happen overnight, but if you commit to networking locally and using Internet marketing strategies, (more on this later) you will cultivate a buyers list that you can use time and time again when yo u have properties to sell.
Step 7 – Assigning the Contract
Another name for wholesaling is “assignment” in that you “assign” the contract to a bargain buyer that will close on the property. Draft an addendum that protects your interest so that you can collect your fee (or use ours).
While you can get paid outside of closing (P.O.C.), you will want most of your assignment fees and profits to be paid out at closing off of the HUD1 from the title company as a way to avoid any misunderstandings should the deal fall out.
Likewise, each buyer should be vetted. The degree that you dive into someone else’s work is up to you. In this industry, never take anyone at face value. Make sure they earn your trust just like you are earning theirs.
If you sell a house to someone who has it falsely appraised and strips it of any equity and leaves it rotting on the street as a vacant foreclosure they cannot be trusted: Stop selling them houses immediately.
For this reason, ask to see what they’ve done on their other houses. Check on the work, meet their contractor, and make sure that they really do the rehab work they say they do.
If you go watch their progress, see what they are doing, what issues can up they didn’t expect, what the expenses are, then you are learning without the risk. This is valuable experience that you can apply on the next deal.
Here’s another reason: If you continue to show up and create a relationship with that buyer then they will work with you again on the next deal. They will begin to trust you and look for you to wholesale them another house.
Step 8 – Seller Communications
You should keep the Seller informed every step of the way. If you’ve changed your mind about wholesaling the property and instead wish to buy it to rehab and sell or keep as a rental, tell them.
Remember all they want is for the house to sell. If as a wholesale deal you find an end buyer, tell them. If the buyer falls out, tell them. Make sure that they have the contact information for the title company you are closing with so that they have another source to verify the information you are giving them.
This process is all there is to getting started and cashing your first multi-thousand-dollar check as a real estate wholesaler.