Learn wholesaling in Four easy steps to understand the process in a simple way.
When I started in real Estate my first strategy was wholesaling.
The beauty of real estate wholesaling is that you don’t take ownership of the property. Once the property is under contract, you find a cash buyer and assign the contract to them for a fee, once the property is closed you get paid.
There is no risk and you can do it with no money down or small down payment. When I started I put the properties under contract with no money down, but as the business grew I put $5 as earnest money for each property, not bad right.
Here is the breakdown of wholesaling in four easy steps.
1. Build your buyers list
This is a list of cash buyers/ (rehabbers and landlords) who will buy your wholesale properties. You can start building this list as soon as possible.
You can start creating the cash buyer list by going to local meeting and collect business cards from investors. Also, you can run online classified ads in Craigslist, Ebay Classifieds or Back Page that says something like this:
Cash Buyers Wanted
Wholesale Properties at 40 to 50% Discount
Call Now 555-123-456
OR
Wholesale Properties for Sale
Handy Man Specials with lots of Equity
Call Now 555-123-456
When investors begin calling, get their information. Take their name, number, email, number of properties purchased in the last 12 months, and save the information in a database. We use Podio and you can start an account with them for free.
Tell the investors that you do not have properties at this time but you have other properties you are working on and as soon as you have them under contract you will give them a call.
As Soon as you find a deal call them or send them a text.
Email will work as well, but I guarantee they will be bombarded by other wholesaler emails. Also, by calling you can start building a relationship with them. You only need 1-5 great buyers to buy all of your properties
Once you have a database of 500 people, approach other wholesaler and ask them if they will be ok to swap 500 leads, then you have 1000 leads. Do the same thing with another wholesaler to swap cash buyers, to build your list very quickly. This is the fastest way to get thousands of buyers, but remember you can do great by just having a few cash buyers, but if you want to grow your list exponentially, this is the most effective method.
2. Find the right property
Start marketing to find the right property. The more you market, the more the phone will ring.
There are free ways to market or paid ways. The free methods, it will require a lot of your time, but no or little money, and the paid ways, will not require much time, but it will need money.
Once you find the right property, which is in distress and it has lots of equity you can negotiate the price with the seller.
Complete the purchase contract. You can use the State approved contract, that most realtors use or you can use a contract that a a local supply store or local real estate investment association can provide.
Make sure you put the following information
- In the buyers name section write your name or company name followed by “and/or assigns”.
- Put a 30 to 45 days closing
- Write on special provisions: “Subject to Property Inspection by Business Partner”
- f you would like to put earnest money $1 to $10 you can do it to make contract stronger.
Step three: Sell the Property
Every time you get a deal under contract, email your list or call them. Remember, the faster you find a buyer, the faster you get paid.
This is how a wholesale real estate transaction might look like.
Let’s say the house once renovated is worth $100,000, this is the after repaired value (ARV)
The famous wholesale formula ARV * 70% – Repairs – Your Fee = Maximum Offer.
You calculated repairs are $15,000 and you want a fee of $10,000. So by Using the formula $100,000 * 70% = $70,000 – $15,000 = $45,000. So if you have the contract on the house for $45,000, you can sell it to a cash buyer for $55,000.
This is a great deal for the cash buyer as he will be all in for $70,000 and will profit the difference of $30,000 minus closing costs, realtor fees, and other miscellaneous costs. For this price point the profit for the cash buyer may be around $15,000 to $20,000. This is based on previous projects we had.
Step four: Close the Property and Get Paid
For things to go smooth or at least if this is your first deal you must use a investor-friendly title company. Believe me that a title company with no experience in dealing with investors can do more harm to your deal than good.
An investor Friendly company will walk you thru every step of the process.
At this point is extremely important to be in contact with them regularly and the seller as well. Also keep inform your buyer about the closing date and any delays you may have
Good luck Wholesaling houses, it is always fun and thrilling sometimes, but the best part is when you get paid
I hope wholesaling in four easy steps can help you understand the process in a simple way