Wholesale real estate is a rewarding business venture anyone can start. All you have to do is educate yourself on how to wholesale real estate and motivate yourself to stick with it. Wholesaling real estate is one of the easiest ways to get into the business and make money with little upfront investment.
What is Wholesale Real Estate ?
You are probably wondering what is Wholesale real estate? The truth is, it is nothing like other forms of wholesaling. When you wholesale real estate, you are not buying or selling anything. Instead, you are acting as a sort of middleman for the transaction.
You find properties and get them under contract. Once you have an agreement to buy the property, you find a seller willing to make the purchase, and you assign the contract to them. Or, depending on the situation, you might elect to do a double closing.
How Much Does It Cost to Wholesale Real estate?
Depending on how you run your business, there will be some marketing costs. You also have to pay an option fee, typically $100, on the property if you want the option to cancel the contract.
You want to take as many pictures as possible of the house, so your buyers can have a good idea of the repairs, so they can do a quick estimation of how much would it cost to purchase the house.
When I buy properties from wholesalers, I already know how much it would cost me to repair the house, I just need a quick inspection to make sure there are no additional issues, but I already have an idea, if the wholesaler does a good job taking lots of pictures
Make sure to schedule an open house quickly after the contract is signed because you typically only have ten days to back out of the deal if you have an option.
Additionally, most sellers want an earnest money deposit on the property. Earnest money is security for the seller to hold the property for you while you get ready to purchase the property. The earnest money is made out to the seller in the form of a check. You can negotiate the amount with the seller, but typically earnest money is between one and two percent of the purchase price.
When I got started, I didn’t have a lot of money so what I did, instead of giving option money, I put $10 to $100 in earnest money and I had a 45 days closing window, to have several open houses in property was vacant or bring my top buyers to take a look at the house if it was occupied.
Keep in mind, if you back out after the option period, the seller does have the right to keep your deposit. However, until you close, the earnest money is held by the title company.
Protecting an Earnest Money Investment
There are some ways to protect your earnest money deposit investment. When you find a buyer, negotiate a higher deposit with them. The title company holds the end buyer’s earnest money. So, if they back out of the deal, you are not out of the earnest money you will lose to the seller.
Is Real Estate Wholesaling Legal?
It is legal to wholesale properties, and you do not need a real estate license, but you do need to follow the laws in your state. It is important not to represent yourself as the property owner or as a real estate agent unless you are one in which case you have to disclose that information.
When you wholesale properties, you are not selling the home, you are selling the right to purchase the property from the buyer as you currently have the property under contract. Some states require you to include a phrase on the original agreement when you sign it. For example, in Texas, you have to list your name as the seller and add the phrase “or assignees.”
How Do You Find Properties?
There are several ways to go about looking for properties. Some are more effective than others, and some methods may cost you money. Depending on the area in which you are looking for properties, some options might be better than others.
Going Door to Door
First, you need to identify distressed homes in the area. this can be accomplished by driving your target subdivision.
Recently, I went back and research all the properties that I purchased in the last 3 years and I found out 85% of all homes where built before 1970, and 10% of homes built between 1970 to 1980 and 5% after 1981.
Of course, you can find newer homes, but as I was looking for equity and distressed, so newer homes were too pretty for me. You can use subject to strategy to acquire these homes, but I did not feel comfortable enough to wholesale those deals to a buyer that I did not have a prior relationship.
The subject to deals that I put under contract I decided to keep them for cash flow and rent them out instead of selling them.
You can go door-to-door if you are brave and talk to owners. However, be prepared to be turned away more often than not. Furthermore, people might be apprehensive about opening their door to a stranger, and they might not want to do business with a random person that shows up at their home.
Putting Up Signs
You can put signs up telling people that you buy properties. If you want to go this route, know, your signs might get taken up and get a call from the city.
Signs are a great marketing tool, but there are some risks like potential fines from the city and upset neighbors. But if you are ok with theses risks, you can get great deals from it.
Bandit Signs was the marketing that brought me the most deals when I got started wholesaling. I don’t use them anymore but helped me get my first deals
Sending Mailers
Sending out mailers is another way to get in touch with potential sellers. Make sure what you are sending out is professional and eye-catching because most people will throw them away.
Research Properties that are in Distress
One of the better options for finding properties to wholesale is to check with local tax offices to see what property owners owe money. If a property owner is going to lose their home in a tax auction, they are probably looking for a way out. So, they might be willing to sell to you at a reasonable price, so they at least get something out of the home before they lose it at an auction.
FSBO
There are sites where sellers can list properties they want to sell themselves without hiring a realtor. Check these sites as they are an excellent place to find deals. Often these people need to get out from under the property.
Check Classified Listings
Classified listings or sites like Craigslist are excellent places to find properties that are for sale by owner. When you use these tools, you also have access to a way to contact the seller. You know they want to sell the property, which makes it a lot easier to get the property under contract than merely going door to door.
Talking to Sellers
When talking to a potential seller, always be professional. If the person you are talking to owns a property that is in distress, be considerate. Let the seller know what to expect. Some wholesalers prefer not to tell the seller what their intentions are, but that can backfire and lead to legal issues.
Let the seller know that you have a network of buyers who are willing to buy their property. You have something they need, a buyer. So, they are getting a service from you, and most sellers are happy to work with you if you are honest and fair.
Furthermore, most wholesale transactions do not have agents involved. If there are no agents, the seller does not have to pay seller commissions in closing. So, most sellers will not mind you receiving some compensation for your work.
Finding Buyers
There are plenty of investors and land developers who know how to wholesale real estate, however they are focused on purchasing properties. So, they are usually more than happy to work with real estate wholesalers. Especially, if you consistently bring them high-quality properties for a reasonable price.
It is a good idea to create a database of potential buyers before putting your first house under contract. Having contacts who are willing to buy properties if you have another buyer back out gives you peace of mind.
Contact Home Builders
Many home builders are looking for older properties in major metropolitan areas so they can build on the lots. These builders are great contacts, and if you bring them deals in areas where they are currently developing, they will likely buy them from you.
Attend Real Estate Networking Events
Networking events for people in real estate are pretty easy to find. Start attending these events and making contacts. Let them know what areas you work in and find out what areas they are interested in so you know where to focus your efforts.
Contact Investors
Another great option is targeting investors. You can find investors who are looking to flip houses or rent them to tenants. There are plenty out there, though, who are happy to purchase a home for a good deal, so do not be afraid to talk to them.
Contacts You Need When Wholesaling Real Estate
If you desire to become a real estate wholesaler, you need some contacts in the industry. Working with the same people over and over will help you build strong business relationships, which will lead to greater success.
A Title Company
The title company is one of the most critical components when you wholesale real estate. You want one that works with investors and is familiar with assigned contracts. Finding a title company should not be difficult, though. There are a ton, and they are always competing for business.
You can call a few to introduce yourself. Ask about turn around times on title reports, because many investors want to see the title report before committing to the purchase.
A Surveyor
If a property does not have a survey, you will likely need one. Investors want to see a survey, especially if they plan on demolishing an existing home and building something else.
I normally don’t recommend to get a survey when wholesaling a house, but having one handy is important if the buyer is asking for one.
I normally tell the buyers when they ask for a survey, “I can coordinate the survey for you, but you are responsible to pay for it, as they will invoice you directly
Construction / Remodeling Companies
When you wholesale, you typically do not repair properties. After all, you are not the owner or end buyer, so why would you. But, it is good to have contacts who can give you prices and companies you can refer to the buyer to do repairs if they are needed.
Tools You Need to Wholesale Real Estate
You are going to need a tool kit to start your business. Some of the things you will need or likely want are below:
- A purchase contract – You should
always carry a purchase contract with you. You never know when you might come
across an opportunity. - A website – Having a website gives
you more credibility. It is also a great way to collect information about
potential buyers and to share information on properties you currently have
under contract. - Social media accounts – Social
media accounts are another great way to stay in contact with your buyer pool
and to create a buzz about properties. - Business cards – You should always
be on the lookout for buyers and sellers. So, it is wise to carry business
cards with you. - Car magnets – Your vehicle is like
a moving billboard, so why not use it to advertise your business. Car magnets
are a great way to attract attention and make contact with people who want to
buy or sell a property.
What are the Risks to wholesale real estate
As with any business, there are some risks when you wholesale properties. You might not be able to find a buyer for a home, which will result in a loss of the option fee and earnest money deposit.
Another possibility is that you spend a lot of time looking for a property before you get one under contract. Properties also take time to close, so waiting for a closing to get paid if you do not have another income source is brutal.
How Much Money Can Wholesalers Make
The amount of money you can profit depends on the transaction, the purchase price, and the amount the buyer is willing to pay for the property. You can expect to make between $5,000 and $10,000 on most properties. However, there is the potential to make a lot more or less.
When you are first learning how to wholesale real estate you may want to accept the first offer you receive instead of taking the time to shop for different buyers. Later, if you have multiple buyers interested in the property, you may want to take bids and “sell” the property to the highest bidder.
Stay Committed to Succeed
Wholesale real estate properties is an excellent way to get into real estate without a lot of upfront money. Real estate wholesaling is not a get rich quick scheme, though. It is a lot of hard work. It takes time and knowledge to be successful. However, it is a great way to make money, and it is an exciting business venture.
If you decide to go this route, stay the course. Anything worth doing takes time and effort. So many people start and end up quitting before they see the pay-off of their efforts. They realize wholesaling is work, and they lose hope. But, if you remain focused, your efforts will eventually pay off.