Wholesaling properties is a fantastic way to get into real estate investing with little or no money. On paper, the process is simple: find a bargain property, get it under contract and sell to a bargain buyer. That buyer will either buy the property to rehab and sell, or buy the property to rehab and use as a rental. By learning how to wholesale, the new investor will learn many essential skills that are crucial to building a successful real estate investing business.
So as a wholesaler what kind of money can you make? Remember, you’re going out getting the lead, locking up the property and then finding a buyer. What you’re not doing is taking the risk of owning the property . . . along with the risk of rehab, managing contractors, finding tenants, or taking a risk betting on the market. For your role in wholesaling property, you will be paid on average anywhere from $5,000 to $15,000 per transaction. Count on making about 10-20% of the value of the property you are wholesaling. Of course, this depends on your market and the quality of the deal. At SREC we’ve seen plenty of transactions where we made less, as well as plenty of transactions where we made more, but $5k-$15k is an accurate range.
There are eight main steps to building a successful wholesaling business:
- Marketing - If you don’t have a plan to get a steady stream of leads month after month, then you risk falling into the same feast and famine trap that often afflicts those in the real estate business. When investors fall into a pile of cases, they usually get so focused on what they have in hand that they stop advertising. Once those initial transactions have closed, there’s nothing to follow. You need to put a plan in place made for the market where you are going to be doing business.
- Property Evaluation - 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, the Seller and 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.
- Making 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. 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 expectations they have set with the Seller. Others like to lock the property up first using the contract, and then determine the exit strategy trusting that their buyers list will come through for them.
- Negotiating - Two simple rules: 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. 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. 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
- 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. 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.
- 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. 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, you will cultivate a buyers list that you can use time and again when you have properties to sell.
- 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. 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.
- Seller Communication - 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. You can avoid a great deal of trouble if you make a consistent effort to keep the Seller in the loop.
For those investors who focus on wholesaling properties full time, it’s a volume business. The numbers add up quickly, and if you put the right system into place, you can easily get multiple deals competed month after month. Wholesaling is a great way to learn about real estate investing while building a business that will lead into doing more sophisticated and lucrative deals. It’s also the best way to make fast cash in real estate. Depending on your buyers, you might be able to close transactions in as little as seven to 45 days. Finally, understanding how to wholesale properties keeps your business agile when considering different exit strategies. The more ways you know how to make money off of every “buy” call that comes into your office, the better your chances are of building a business that supports the lifestyle you want.
To learn more about wholesaling houses, or to kick your own real estate investing efforts into high gear, click here .
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