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.
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.
