The Wholesale Real Estate Contract is the backbone of Wholesaling Real Estate. If your Wholesale Real Estate Contract is weak, meaning it has loopholes for the OWNER to back out, then you lose all your time, money, and not to mention you most likely will be sued.
The Wholesale Real Estate Contract must be solid, but also very clear and precise. Being clear helps the owner understand it better. A Wholesale Real Estate Contract that is precise make it solid. You want to close all seller LOOPHOLES (contract outs).
Wholesale Real Estate Contract Loopholes
Loopholes allow the seller to get out of contract. However, if the seller sees a loophole and needs to back out, then most likely he will also sue you. You definitely do not want that. You can be forced into bankruptcy, and seller can come after your assets, if you did not follow our class about Protecting Your Assets in Wholesaling Real Estate.
Real Estate Wholesaling and everything about real estate mean money, money, money! And you know you want to get your way into this business, gather some money and make your first of many real estate investments. But you feel you don’t know where to start, or maybe you need a capital you don’t have to begin. If this sounds just like you, let me tell you I have the solution right here, and it is real estate wholesale
Wholesaling in real estate is the name given to a very specific branch of this business where a person, called real estate wholesaler, find a property selling at under market value to get a contract from the seller to then assign that same contract to a final buyer.
What is a Wholesaler in Real Estate?
The person acting as middleman in the transaction. His/her role is to take the weight off the seller’s and buyer’s shoulders. Buyers won’t waste their time negotiating with sellers or identifying properties with a bright future.
How Do You Make Money in Wholesale Real Estate?
The key is finding distressed homes or sellers motivated to sell fast as is, so properties are offered at under market values. The intention is to offer the same property in the same conditions to expert candidates (often investors or contractors) for a higher value, considering the potential property that will turn out after performing the repairs or renovations needed. That price difference (minus all expenses incurred to carry out the transaction) is wholesalers’ profit.
Does Wholesaling Real Estate Work?
Yes! It absolutely works! Real Estate Wholesaling is an excellent alternative for those who can invest more hard work and time than money to begin. The best part? Wholesaling is pretty much risk-free. Why? Because of the tiny financial efforts, it may require and the safety a good contract can offer you.
Your biggest challenge will be finding properties selling for under market prices, developing unbeatable negotiation skills and identifying cash buyers who may later be part of your seasoned buyer’s list. If you can commit to put all your efforts on this, success in wholesaling real estate is assured.
What is Real Estate Wholesaling and House Flipping?
Some people confused the purpose of these two branches in real estate despite they are totally different. Again, the wholesaling transaction involves a wholesaler finding a distressed home and getting it under contract to assign it to final buyer. When the buyer finishes the purchase, so does the wholesale.
On the other hand, House flipping requires a good capital, longer time, experience, and expertise. But in exchange, investors can resell properties at higher price and make juicy profits.
We can say wholesaling opens the door to house flipping. Wholesale is basically a low-risk transaction; therefore, incomes are good, but never as great as those from house flipping. The advantage is that when done properly and at bigger volume, wholesaling revenues will build up in a shorter term, resulting in a very lucrative business.
Pros of Wholesaling Houses
Now that you already know what is a wholesale in real estate, do you need more reasons to fall in love with it? Find below the top three benefits of this real estate practice:
1. Wholesale Real Estate Allows You To Make Money Fast!
The reason we all are here for! DINERO RAPIDO! (Fast Money)
If you follow your process diligently, you can be sure your transactions will have a happy ending. After your offer is accepted, the wholesale deal typically takes 30 to 45 days to close, sometimes even less.
The key to make more and more money is to correctly estimate the property’s after-repair value (ARV) to contrast this your offer to the seller and your offer to the end buyer. Always make sure to get into deals that can offer good income margins for you and future buyers.
2. Wholesale Real Estate Requires Little to no Investment & NO Experience required
If a low credit score or limitations to access capital has been the biggest obstacles keeping you from entering in the real estate world, wholesaling is the path you needed to take. The wholesaler is not responsible for funding the purchase. Instead, his/her duty is to handle the transaction and assign the contract to the end buyer. This means your financial situation or even a bad credit score are no limitation to wholesale.
Also, no real estate license is required to wholesale. You can begin your wholesale journey with free/inexpensive classes, without having to pay licensing fees. Throughout the wholesaling procedure, you’ll find some payed advertising and mailing methods where little money is required. But you can always find ways to minimize your expenses.
3. Get Familiar to the Wholesale Real Estate Market, MLS, and FSBO Sites
After getting yourself into several wholesale deals, you’ll see how your expertise on negotiation, basic marketing, legal documentation, CMR, and other areas improve. With time, you’ll know what to look for and what to avoid in every case. All these skills are perfectly useful in other areas in real estate you may want to try later.
Cons About Wholesale Real Estate
As any other business, wholesale comes with risk. Despite being minors, it is important for you to be aware of them. For instance, you better know that:
1. Incomes Are Not Guaranteed in Wholesale Real Estate
Unlike any other regular job, wholesalers won’t have a paycheck at the end of every month. Your incomes will arrive just after the deal is closed. This is what happens when you become your own boss or dare to start your own business: it will do just as good as you do.
You must also consider that the typical bonuses and benefits are not part of wholesaling either. This may be scary for some people, but seeing the half-full glass, you have the opportunity to leverage from the “rainy days” and fund your needs on your own, get you some savings for “dry days”, and accomplish your goals.
2. No Buyer, No Deal, No Money
That’s right! The hardest part is to find the right kind of buyer this business requires. Knowing you can add them to your list and have them lined up in case of a sudden change of plans is a great relieve.
3. You Should Work Hard on Your Buyers’ List
Creating connections and having a list is not enough. Your job is to keep yourself in the top of their list, having you as their favorite option when thinking about buying a property. Completing a few deals and a little good advertising is great to have a contact. But knowing their preferences and giving them what they want will send you to the top. Respect each buyer’s field of expertise, budget, choices, and requests and focus on filtering the properties accordingly.
How to wholesale real estate in a successful way
Find below the features a successful house wholesaler must have.
Work on Building the Right Mindset. Mindset is not something everyone is born with. Instead, is something you build with time. Cultivate your talents and abilities with consistency and dedication to see the fruits of your work. This is valid for this business and for ANYTHING you want to accomplish in life. So, write it down!
Recognize What and When to Delegate. See yourself as an entrepreneur because that’s what you are. Recognize the value of your time and choose to dedicate it to tasks that really need you. Trying to do everything by yourself may lead to work overload, stress, and mistakes. The las thing you want is missing great opportunities. So, organize your duties and outsource/delegate minor time-consuming tasks to see your performance (and incomes) improve.
Technology is Your New Best Friend! Technology offers so many accessible, free tools to keep all your wholesale business organized, available wherever you go and with more accuracy than physical records. Talking about accuracy, CMR are lifesaving software and apps for real estate business these days, allowing to keep and manage all your communications from one place.
Your Wholesale Real Estate Business Plan to Success
If you already decided wholesaling at its best is your goal, follow the recommendations below to build a successful business plan.
Step 1. Master Lead Generation
This business is fabulous as you may see, but it’s nothing without the leads. From going through your neighborhood looking for great deals to creating email marketing campaigns, advertising flyers, or digging on Craigslist. There are different ways to find great people, use any of them. Here, consistency is the real key. Keep looking!
Step 2. Learn the basic wholesale realestate math
Please do not be afraid! No exams will be taken. You just need to consider current conditions and work required, as well as the property after repair value (ARV) to make the right offer to both, seller, and buyer.
That’s why having a reliable contractor’s opinion does so much in this business. You’re dealing with expert buyers who know better than anyone what needs to be done and the money they can make out of the property. So, your offer must assure a good profit for you and for them, while being fair to the seller as well.
Step 3. Get your buyers list together
We can’t emphasize enough on this! Each transaction will let you know your client’s preferences. Take time study them and build a strong database with the right information. With time, you’ll see how having a short, curated list of regular clients is way better than having long list of just names.
How to find cash buyers for wholesaling in real estate
Speaking of the importance of having a curated buyers’ list, we can say that almost 50% of the success in real estate wholesaling comes from having a solid database of cash buyers. Probably the other 50% comes mostly from lead generation. I guess this gives you a clear idea of where your efforts should be directed, right? Find below some proven methods to find these buyers:
Go online: again, Craigslist and similar websites with thousands of ads can help you find owners and landlords who may be interested in receiving your wholesale offers. For this, we recommend visiting the Housing section and check the ads selling and renting houses.
Create a lead capture forms for your website. Explode every chance your website has for you. Create short forms to capture visitors’ personal information. Also work on your website to increase traffic and thus, get new leads frequently.
Work on your networking. A great approach is building good, strong relationships with all parts involved in the real estate business in your local area. As an active member of that community, it is quite likely that you meet potential buyers, and even mentors and partners to help you grow.
Visit courthouse auction sessions. Why? Because buyers must have all cash to courthouse auctions. So, this is the perfect place to spot them regularly and make great connections with amazing candidates. Remember to share your business card!
Partner with hard money lenders. It is very easy to partner with hard money lenders, as they know this is a win-win association. Lenders can give you excellent referrals of cash buyers as they must know several while serving. And if this buyers decide to buy from you and don’t have the amount, for sure they will need to request the remaining amount to the lender.
How real estate wholesalers increase their profits
We believe there’s always room for improvement in everything we do. If we do better, be sure our incomes will do better as well. And who doesn’t want to increase their profits? Let’s see what we can try to grow the numbers in our bank account!
1. Earn the Seller’s Trust
There are so many options out there, so why should the seller go with you and not somebody else? Because you will be the one who shows empathy to the case, the one making a clean presentation, keeping an honest communication, letting the seller now you know and understand their pain points. The one who presents the best, the most logical way out of their problems.
2. Make Honesty Your Policy
This is related to the previous recommendation. You can be sure about this: if you make your position and your intentions clear, and explain the little risks you’re facing, any seller would love to work with you. Clear all doubts, answer all question with the truth. even if you don’t know the answer, let them know you’ll work to find it. It is well known that people buy from people they trust in.
3. Have a Plan B… and Even C?
Never out all your eggs in one basket! Remember that saying? Well, never trust only one option as people can retract and you don’t want to waist all your time an effort for nothing. If you dedicate time to stay in touch with all buyers in your list, it is quite likely you find a second option quickly if the main buyer steps out of the deal. How you stay in touch is up to you (meetings, coffees, social media). But let them know you’re there for them, so they are there for you when needed.
4. Communicate All the Way till The End
Keep everybody informed and involved during the whole process. Let the buyer and seller know about the progress, what has been done so far, keep them happy with the great news while building great relationships for future deals. It also says a lot about your customer service.
5. Follow Up After the Closing
You probably don’t see the logic on this, but this is a great moment to get feedback about your services and use this insight to grow your business. It won’t take too much, a quick email, text or call works fine. It also helps to keep their memories fresh and probably recommend your services.
What is Wholesaling Closing and How to Do It
The closing is super important, it’s actually the day when you get your cut, when you finally collect the fruits of your hard work. If you want to get to it, make sure you try any of these 2 methods:
Method 1: Assigning the Real Estate Wholesaling Contract
This method is the most widely used and the one we’ve been mentioning so far. As the name suggests, the wholesaler gets the seller the contract assigned from the seller and then, sells the contract to the final buyer (not the property itself, that’s why your credit score is not relevant to wholesale).
Any contract can be sold to another party (at least indicated otherwise). The wholesale transaction allows the end buyer becomes the new owner of such distressed property. For this purpose, your contract (handed by you to benefit you ALWAYS) does not prevent you from assigning or selling the property.
This contract assignment does not imply you are selling or purchasing the home, so your name never appears on it. At the end, you were the middleman, the finder, and you’ll receive the corresponding fee for that.
Method 2: The Double Close When Wholesaling Houses
If the seller doesn’t like the idea of signing an assignment contract, or if local legislations does not allow to do so, the double close is the only route available. The double escrow or simultaneous close is a wholesaling technique. Unlike the previous method, your company will become the new owner for a breve period.
The first sale from seller to wholesaler is the A-B transaction. Then, the wholesaler can resell the property to the investor in what’s call the B-C transaction. The process is not too different than the first. But sometimes, the B-C transaction can take up to 60 days. You must take extra precautions in such cases.
Wholesale in real estate is a term you’ve probably heard way too much. Maybe, you’ve heard all the good things about how wholesaling allows making good money with little to no investment. Well, that’s all true! And while it is not rocket science, you certainly should follow these step-by-step instructions to start with the right foot and make money fast!
It is called wholesale in real estate the process of getting a distressed home under contract for a limited time to then assign it to another buyer.
Your intentions as a property wholesaler are not to fix and flip the property. Instead, you market it for a higher price than the one owners requested in the contract.
This strategy is beneficial for those looking to get into real estate but don’t have the money to do it. You just need to be careful not to fall into legal confusions or tricky contracts.
Success is guaranteed if you follow this next 7-step proven guide to wholesale real estate
Step 1: Find a Property to Wholesale
Not all properties are wholesale material. The key to wholesale is finding properties with under market value. These are typically those needing some repairs, or whose owners need to sell quickly. Distressed homes can be sold for more than what you put it under contract for.
It is super important to always mention you will pay in cash and buy as it is. The biggest pro about wholesaling real estate is the low investment needed to start. You can find homes to wholesale for free or for inexpensive rates.
How to Find Properties to Wholesale
Let’s talk about the most widely used methods to find the right properties for wholesale.
a. Real estate wholesale groups and investment groups
When we talk about these groups, we mean organized frequent meetings and social media groups on Meetup, Facebook, or LinkedIn, between real estate professionals and investors of all kinds. They are perfect to create valuable connections with potential lead sources, partners, and mentors. Usually, member receive weekly emails loaded with high-quality information about your area.
This way, you can be up to date regarding what is wholesaling real estate, what properties are available for sale, prices, what neighborhoods are selling better and more. Actually, most of the properties listed in these emails come from desperate sellers that may be interested in your wholesaling alternative. All this data will nurture your property wholesale business.
b. Websites for Wholesale Real Estate Professionals, Investors, & Flippers
There are several websites you can visit to find some distressed properties to sale. for instance, Craigslist, FSBO and HomesByOwner.com are well known among wholesalers. Make sure to apply location filter and use the right keywords to obtain the best results in your research. Phrases like motivated seller, distressed property, fixer upper, sold as is, must sell or estate sale are commonly use for post in this niche.
c. Hire an Assistant / Property Finder to Wholesale Real Estate
Do you already know what is wholesale real estate “bird dog”? This is the alias used in the industry to name the property finder, a part time worker hired by the wholesaler. He/she doesn’t need any special real estate knowledge, but tons of energy and part-time availability (college students are regularly hired for this) to find good properties by cold calling, scouring neighborhoods, and knocking on doors.
This is a great option to identify great opportunities for property wholesaling that won’t consume your time. The best part is that your assistant will always keep hunting as they are not hourly-paid employees. They receive a fee when a house they found is sold.
d. Use Bandit Signs
What is a real estate wholesaler? Well, it is the person who puts those bandit signs in the street. You’ve probably seen one, or many doing this!
And yes, this means you need to invest some money to get these signs made and put up, but they are a great way to attract property owners in need of fast cash and doesn’t see putting their home for sale with real estate agencies as an option.
e. Mails and Flyers
You can hire direct mailing services or purchase online mailing lists to make sure the flyers, postcards and mails you send really get to your distressed seller audience.
f. Visit Court for Records
You can go to court and request to look at divorce, public tax, and probate court records to identify recently inherited properties and past due homeowners, respectively. They are great candidates to add to your mailing list.
Step 2: Convince the Owner to Sell to you
It is time to make you offer and present your best arguments on why you are the right option to get that sign. Here is how you can do it:
Let the owner see why you are not a conventional real estate agent, approach them in a delicate way, earn their trust, and make them feel comfortable before you try to move forward with the transaction.
Take the weight off their shoulders.
Once you know about the problems driving them to sell their property, tell them about how this decision can alleviate their pains.
Make sure to emphasize how the process will imply no stress on them, as you are taking complete care of it (contract, inspections, appraisal, and closing).
Also, highlight they won’t have to face any upfront costs.
Explain the reasons behind your offer. Let the seller know how the current conditions of the property will require repairs and additional expenses from the future owner, making your offer is totally fair.
Get that signature! Find an attorney to create a contract for you or add clauses for each case to a generic purchase contract. Despite wholesaling to an agent is completely legal, clients don’t feel ok about agents making a profit from their property right away. Therefore, agents usually assign the property to a partner.
Step 3: Build you Wholesale Dream Team
If you decide to dedicate yourself to the property wholesale industry, you better get your team built to save time and money in the long run. You will need:
An appraiser: this member will make sure the price you are paying will give you room enough to make profit later. Also, an experience buyer would request an appraisal before placing their offer.
A title company: when looking for a title company, there are two important thing to take care of: first, is being crystal clear about your wholesale intentions and second, make sure the title company if they deal with assigned contract. This partner will help you run a title search and check there are no liens on the property you are negotiating.
A reliable contractor: despite you’re not going to deal with any repairs when wholesaling, this team member is vital. A contractor can go with you and check the property out to define its real conditions. This way you can show future buyer an idea of the potential repairs or renovations needed and back your price.
Step 4: Determine Potential Renovation Needs
To continue with the previous idea, you must assess the renovations needed in the property you plan to wholesale. These costs are a determining factor when defining your cut in the deal. If the house has a great potential after few renovations, this allow the investor to get more money for the property, and so do you.
The greatest part is that you already have the ideas and budget you contractor gave you. This gives you the back up you need when presenting your option to investors. Let them know about the potential of the property. Use this as a negotiating tool to increase your benefit.
Step 5: Find a Buyer to Buy You Wholesale Real Estate Properties
As this is not a regular real estate transaction, you are not going to look for a regular buyer. When wholesaling, you must look for someone interested in buying a cheap property and make the repairs and renovations needed. These commonly are investors or contractors. They know better what to do with a property to turn it into a dream, higher-value place.
You need to find the right buyer the fastest possible to meet the settlement date in the contract. Experienced wholesalers already have a list of potential buyers. If you’re new to this game, you can start building your database (CRM) repeating processes from the previous steps, including:
Using wholesale websites to advertise your property.
Send flyers with property info around the neighborhood
Email investors you meet and group meetings, networking events, and social media groups about your property.
Step 6: Negotiation, a Critical Moment
This is probably the most expected step in the process, the moment of truth when you get to know what your profit will be. The difference between the wholesale price and the price under contract (plus all costs incurred to buy it and sell it) will determine your profit.
Make Sure This is a Good Deal for You
As you did with the seller, you must now convince your buyer of the value you propose. For this, make sure you use your contractor’s estimates to show the potential the property has.
The buyer must make a good faith deposit to the wholesaler or the title company and held in escrow until the property goes to settlement.
Make sure your price also covers all the expenses you made to carry out this deal (team fees, marketing, even gas).
In general, we talk about a good deal when profit is $2000 and above. If you think you can’t make that much, better consider not to take it.
Step 7: The Closing
The closing is a ceremony celebrated at the title company office, on the date set in both contracts. In this meeting, the deed is transfer to the new owner, who also receives the keys of their just-purchased property. Closing costs are buyer and seller responsibility.
This final step is the reason why you must choose an investor-friendly title company, to keep all partied satisfied with the wholesale deal. Depends to state legislation whether each assignment is considered or not two separate transactions and taxes charged.
Wholesale Realestate FAQ
If you already know what is wholesale in real estate, but still have some doubts, find the answer to the most frequently asked questions below.
Who is Real Estate Wholesale Right for?
Wholesaling properties is perfect for several people, including those who:
Want to get into real estate and don’t have the money to begin. This is because no real estate license or education is required to start.
Can use their excellent negotiation skills
Have a good eye to find distressed properties
Have a good eye to find motivated sellers
Can get familiar with contracts and possible modifications fast
This area may be time consuming, but you can tell from your rewards when you’re doing wholesales the right way.
Is It Legal to Wholesale Real Estate?
According to the real estate wholesale definition, this is completely legal procedure. This is because the wholesaling involves finding a property and making an offer for it, which depends on you to diligently sell it to an investor. The wholesale transaction is completed when the final buyer purchases the property.
Each state has their own regulations and rules. It is advice to find a local attorney to clear out any legal concern before performing wholesale in your location and avoid any infraction. For instance, Maryland laws (PHIFA) is against the “stop foreclosure” direct mail pieces. They consider to be misleading because wholesaling does not avoid falling in foreclosure if ultimately, the owner will no longer be the owner.
What You Need to Know About How to be a Real Estate Wholesaler
From the previous 7 steps, you must work hard to become an expert in two areas: finding buyers and profit estimation.
Finding buyers is crucial as they are the ones closing the deals and making you money. Wholesaling websites like Craigslist is the fundamental initial step. Group meetings is also a good way to get to know potential investors and later send them and others some advertising material. Follow this order, start by finding a target audience and then invest money on advertising to make it worth. After a few deals, you’ll get to know your investors preferences to get into the deals you know they’ll like.
Your profit is the whole point of wholesaling. Make sure you make the right math before you spend too much time, energy and resources on a property that can’t make you the profit you were expecting.
Clauses in Your Wholesale Realestate Contract
Your clauses are nice wording that must benefit you in every step of the way and even save your skin before any incident. Make sure to include the following clauses:
Out clause: this one makes sure you are not obligated to purchase the property if you can’t find an investor, aka “partner” on time.
Assigning clause: this one allows you to wholesale a property to any person or business entity, and the owner doesn’t have to be aware about it. This way, you can sell the contract without putting any money to buy the house first.
Final, Short, Important Tips About Property Wholesaling
Keep your assigning contract as simple as possible.
Do not offer legal advice about the contract to the buyer or seller unless you are a licensed attorney.
Do not introduce yourself as a brokerage unless you are licensed as one.
Stay neutral and consult an attorney if any questions arise.
