What are wholesale real estate deals?
The process of making wholesale real estate deals involves the wholesaler first finding a distressed home. The wholesaler has no intention of fixing the place up. The wholesaler then puts the property under contract and tries to sell the home for a higher price than they have it under contract for.
As with any type of property investing, there are pros and cons to wholesaling; one of the pros is that you can get into this type of real estate investing with very little upfront capital.
How to do it
1. Find a Property to Wholesale that is Under Market Value
Usually, the type of property that you are looking for will be a distressed property as those will be the ones that owners are motivated to sell quickly.
Real Estate Wholesale Groups & Real Estate Investment Groups
Wholesale and investment groups hold meetings between real estate pros and investors.
You can find information about these meetups with a simple Google search.
Attending these meetings will give you a great opportunity to network and get yourself in the loop for essential connections for lead sources and potential buyers.
Make sure that you also sign up to receive emails that contain useful information including properties that may meet your wholesaling criteria.
Try sites such as craigslist, FSBO and HomesByOwner.com. These sites are really good sources for properties that will be sold by the owner. Just type in the city or location you are looking for and then you can use keywords to refine your search, keywords such as, ‘sold as is,’ or ‘must sell.’
A Bird Dog is an industry term for someone who scouts out deals for you. An ideal candidate might be a college student who is looking to earn extra cash by scouring the local neighborhood for potential deals.
Farming out this grunt work will save your time which can be spent on other important areas of the business such as meeting property owners and buyers and negotiating deals.
For this scouring method to be successful it is dependent on two important factors, the thoroughness of the individual doing the scouring and also the neighborhood that is being searched.
In some markets, it can be very difficult to find a property this way so choose your area wisely.
2. The Contract
When you find a property that looks like the right deal that will enable you to make a healthy profit of at least a few thousand dollars you must now persuade the owner to sell the property to you and sign your contract. The way you go about this is the key step to secure the property to wholesale and make a profit.
The seller needs to know and be comfortable with several things including the fact that you aren’t actually buying the property yourself and that a third party will be the one buying it outright.
Make sure the contract explains the basics of the nature of the deal and be sure to check your contract wording with a local attorney who is familiar with the local real estate laws.
3. Find a Cash Buyer
After finding the right property and securing the contract you now need to find a suitable cash buyer before the contract expires. Likely your buyer will be an investor who will be buying the property to fix up and resell.
It’s good to have a list of potential buyers in place well before you get to this stage, by now you should have a list of potential buyers as a result of your meet ups and networking activities. Likely you will have sourced a property that meets the criteria of the buyers on your list. Be sure to get that information when you first meet up with and network with your potential buyers.
4. Negotiate the Deal
Wholesaling profit is nice and simple to calculate in that your profit will be the difference between what you have the property under contract for and the price that you eventually agree with the buyer after negotiations are complete.
Help the buyer to make a reasonably quick decision by explaining that others on your buyers list are also interested in the property. Then you can even give them a deadline to work to.
Keep in mind that you may incur costs in the process such as those paid to an appraiser, marketing and other fees.
Once all parties are in agreement you will come together and the deed will be transferred to the new owner this signifies the completion of your wholesale deal.
All closing costs will be shared by the buyer and the seller unless otherwise arranged and the new buyer finally gets the keys.
We mentioned at the outset that there are pros and cons to this type of real estate investment. The negative side is that there are some legal gray areas that you need to understand and these might be different depending on the legislation in your chosen market. It is illegal in some states to market a non-owned property.
A Good Strategy
There are times when wholesaling is an even better strategy than purchasing outright including when, the property’s actual market value is difficult to assess, there are potential problems with the property that are beyond your power and skill set to resolve, and this one is perhaps the biggest factor, when you have no money to invest yourself.
This article has mentioned several challenges with wholesaling such as finding a motivated seller, and a suitable cash buyer. There is also the challenge of presenting a professional front to all the parties involved and convincing them of your credibility.
With each step in the process, there is something that can greatly help. A professional looking website designed especially for real estate investors.