Wholesaling real estate is the perfect introduction to the real estate industry. Wholesaling involves finding a home that is perfect for a flipper, landlord or a developer, putting the property under contract and then assigning the contract to an end buyer or double closing to the buyer at a higher price. You make a profit in the difference. It’s a quick way to make capital compared to other forms of real estate investment and there is little to no money involved on your end – only profit.
In this article I’ll go through the process of wholesaling a home and will touch on some caveats as well as the legality of wholesaling. Making money through real estate this way is perfect for learning more about your area, making contacts in the industry and you don’t need any special certifications or requirements. You could start tomorrow!
The Process of Wholesaling Real Estate
1.Finding a Property for Wholesale
The first step is finding homes to put in front of buyers. There are a number of ways you can find a home. First, you can drive around your neighborhood and other close-by towns and cities. This is known as “driving for dollars,” and I go into more detail about it here. Basically, you’re looking for homes that are in poor shape that would be perfect for a flipper to fix up and sell for a profit.
You can also look online and work with real estate agents. It never hurts to open up your network. The one issue with finding a home online is that it’s out there – you might have competition with other wholesalers and flippers.
Another option is hiring help. Hire someone who could do the house hunt for you and drive around town. It requires a huge amount of time and commitment looking for pieces of property for wholesale. If you are a busy person or need to work on other contracts, having a teammate can help lighten the load.
And lastly, sometimes it’s better to not find the home first and instead make connections with flippers initially. That way you can find out exactly what they’re looking for, what their budget is and then find the home. This can help protect you from getting involved with a home that may end up not having much interest from buyers.
I have put together other marketing strategies that can help find more properties to wholesale. Check our real estate marketing blog.
2. Signing the Property for Wholesale
Once you find a home that you think could be good for wholesale, it’s time to introduce yourself to the homeowner and find out if they’re willing to sell. Chances are, if the house needs to be updated or it is in bad shape, they will be more likely to sell. Homeowners of houses in poor condition tend to be distressed – they’ll want to sell quickly.
There are two options when it comes to selling the contract to the end buyer or investor.
First, you need to sign a contract with the homeowner, that can be assigned to another buyer.
Most contracts are assignable, unless the contract specifies it can’t be done. But to have a piece of mind, I like to write on the contract the following “buyer and/or assigns.”
When you assign the contract, the title company will put your fee on the final disclosure at closing, so both parties (homeowner and buyer) can see how much you are making from the deal.
Some buyers will think you have made too much and that may keep them from buying the property. That’s why it is important to build good relationships with your buyers before closing to make sure the deal works with your initial price, and collect a good deposit from them, so they will think twice before backing out from the deal.
The other option is the double close. This involves buying the home and selling the home in the same day. This way the buyer has no way of knowing your profit.
3. Assessing the Property for Wholesaling
It’s important to include what renovations will be necessary for the home. How are the pipes? Does the property need a new roof? You’re presenting this property to buyers. They want to know what exactly will be involved if they make the purchase. The more information you give them the more confident they’ll feel in making a deal with you.
Keep in mind that you don’t have to know how much it will cost to renovate the house, you can say to the end buyer what the property needs based on your initial assessment when you saw the house.
The costs of renovating the house will depend on each buyer’s contractors and material they will use. So when I wholesale deals, I just tell them what the property needs, and they are responsible of estimating their own repairs.
4. Finding a Buyer for Wholesaling
Finding a buye involves knowing and researching active flippers and landlords in your area. To reiterate, the best way to not have to panic when searching for a buyer is finding buyers for wholesaling, first. Then, you find the property. However, if you’d like to find the property first and then the buyer, there are many avenues you can go down to find one.
First, you can use social media. Facebook groups like “Flip the Zip: Houston” or “Texas House Flippers” could be a good option if you are a Texas resident. Search for local groups – you’ll be amazed about what you can find. There are also meet ups you can join in person. I give more tips for networking here.
Second, you can market the property on real estate sites or on sites like Craigslist or myhousedeals.com. The only problem here is you can be toeing the line. Only licensed real estate agents and brokers are technically allowed to market property that is for sale.
Some states are putting more restrictions, so some investors are putting an option to buy the house from the seller or homeowner and then selling that option to another buyer, which is legal, so you wont get in trouble.
Also, putting in the contract that you are allow to market your property to other investors or partners will be okay and make sure the home buyer also approves of that as well.
5. Closing the Deal
The last step is closing. Once you close you’ll get cut a check for your fair share. Once you have the hang of wholesaling, you can do many deals in a year and make quite a bit of money.
Legality
As I mentioned earlier, there are some risks with wholesaling, mainly with marketing a home when you do not have a real estate license. The legality varies from state to state, so make sure to check your state laws before moving forward. The way to make sure you’re 100% in the clear is to either 1) become a broker yourself, 2) buy the property outright and do a double close or 3) disclose it in the contract. Before you start wholesaling, you can check your local real estate clubs or network with other wholesalers to learn the local laws.
What if Things Go Wrong?
So you’ve bought a home for wholesale but unfortunately can’t find a buyer! These things happen sometimes when wholesaling real estate. You don’t want to go back to your homeowner and tell them you couldn’t complete the transaction and you may not be in a financial spot to sell the home. The best way to move forward would be to find another wholesaler you can get on board. Yet another reason to join Facebook groups and meet ups to make connections. You never know when you’ll be in a pickle.
In conclusion, wholesaling is a great way to dip your toe in the real estate industry waters. You’ll learn how to make deals, find out what flippers are looking for and make great connections. You don’t need a ton of capital to get started and it’s easy to make a quick deal. My last words of wisdom would be this: do your research. Meet fellow wholesalers and buyers first, do quite a few drives for dollars before approaching a homeowner and learn your state laws. With anything, there will be a learning curve.
What questions do you have about wholesaling? What part of the process struck you as the most interesting? Share with me in the comments! I also have another piece on this topic – The 4 Foundational Blocks of a Successful Wholesaler.