If you are a beginner real estate investor, you’ve probably heard about flipping houses. A similar concept is wholesaling real estate. However, instead of flipping houses, you’re flipping contracts. What this means is that you find motivated sellers, negotiate a below-market sales price before you ultimately find a buyer to sell the purchase contract to. This positions you as the middleman between the buyer and the seller. As the wholesaler, you make a profit once the deal is finalized. The profit, in this case, is the difference between the contracted price with the seller and the amount paid by your buyer.
Wholesaling is a great option if you want to get into real estate but don’t have a lot of cash. An advantage is the time it takes to wholesale, which is much shorter than flipping houses. Not only that but unlike house flips, you don’t have to make any repairs or renovations. As a result, you take on significantly less risk. However, the process of wholesaling real estate step by step isn’t without its challenges. Some of the downfalls of wholesaling real estate include confusion about its legality and complicated contracts.
With that said, are you interested in learning more about what it takes to get into wholesale real estate? Here is an easy-to-follow guide on how to wholesale real estate step by step:
How to Wholesale Real Estate in 6 Steps
Step #1: Look for a Motivated Seller (or Distressed Property)
Your job as a wholesaler is to find motivated sellers that have distressed properties they want to sell quickly. These kinds of properties are best for wholesaling real estate since they are easier to purchase under market value and sell for more than you put it under contract for. Start to market yourself as a wholesaler via direct mail, internet marketing, door knocking, signs, posters or whatever method best suits your time and budget. You have the options of looking for a property seller via investment groups, online real estate sites (such as Zillow, Airbnb, or Mashvisor) and/or an assistant. We go over these in greater detail below:
- Real Estate Wholesale & Investment Groups: Get involved in a group, as it gives you a great opportunity to network and meet with real estate professionals, agents, partner, mentors, etc. These clubs provide information on real estate in terms of what is being bought and sold in the area and for how much. This information will give you valuable insight on how to wholesale houses and essentially how to start a wholesale real estate business.
- Real Estate Websites: There are sites that can help you find distressed properties and motivated sellers who are looking to quickly sell. Such sites include Craigslist, FSBO, HomesByOwner among many more. You can narrow down your search by including the most popular and relevant keywords such as: “motivated seller,” “distressed property,” “must sell,” etc. Mashvisor also has short sale listings as well as foreclosures and bank owned homes which are known to have motivated sellers.
Check out the Mashvisor Property Marketplace right now and find the perfect property for wholesaling.
- Assistant: Another way to find motivated sellers is to work with an assistant dedicated to helping you narrow down your search. The real estate term for this kind of assistant is a bird dog. A bird dog can help you save time finding real estate properties so you can focus on connecting with other real estate investors. An assistant can identify the best real estate deals by searching neighborhoods, knocking on doors, and cold calling property sellers.
Step #2: Negotiate a Deal with the Seller
Once you’ve got the marketing down, start talking to property sellers and negotiate. Be sure to negotiate your price low enough to leave room for your wholesale fee. Also, make sure to leave enough profit to make the deal attractive to your property buyer. Below are the specific steps you should take to close a deal with the property seller:
- Approach the Owner: Meet the property seller in a professional manner. Wholesalers are not typical real estate professionals. For this reason, it is essential to gain the homeowner’s trust. This can be done by being on time, courteous, and professional.
- Make an Offer: Discuss the benefits of selling the property to you. Focus on the pain points you are looking to alleviate that are motivating the homeowner to sell in the first place. An example is helping a homeowner avoid defaulting on a mortgage they no longer can afford. You should also emphasize how you will handle the contract, property inspection, the appraisal, and the closing process. Moreover, inform the homeowner that they won’t have any upfront costs. Additionally, let the property seller know of any repairs that need to be done prior to resale. This is important because the money spent on repairs will help you justify the offer you make to the property owner.
- Sign: As a wholesaler, you can get the help of an attorney or real estate agent to help you draft the contract. However, most wholesalers write their own contracts by editing a generic real estate purchase contract or using a wholesale agreement template. This is a great option for you if you want to add your own clauses.
Step #3: Look for a Property Buyer
Once you have the property contract signed, look for an end buyer. The end buyer most likely won’t be a first-time home buyer. Instead, it will be an investor or contractor who will buy and repair the real estate property. Effective ways to look for property buyers include:
- Call or email all of the investors in your real estate network and let them know about your new deal
- Advertise on free online classified sites such as Craigslist
- Market your property via signs located near the premises
- Distribute real estate flyers throughout the neighborhood and in investor meetings
Basically, you will want to market your deal to as many prospective buyers as possible. Keep track of your prospective buyers by building a buyer’s list which is equivalent to your “book of business.” Ultimately, you need to find an end buyer quickly since there will be a settlement date on the contract that needs to be adhered to.
Step #4: Negotiate a Deal with the Buyer
This negotiation is critical since it determines your profit or how much money you will make off the deal. Again, the profit is derived from the difference between what you purchased the property for and what you’re wholesaling the property for. To ensure a quick sale, inform the buyer that you have other buyers interested in your property. Ensure that the buyer leaves a good faith deposit to be held until the investment property goes to settlement.
Also, during this negotiation phase, ensure that all of your costs are covered such as:
- Appraiser fee
- Contractor walk through fee
- Title fees (if you paid them)
- Marketing fees (i.e. bird dog wage)
In general, aim to make at least $2,000 profit off of each wholesale deal.
Step #5: Assign the Purchase Contract to the End Buyer and Collect a Deposit
Now that you’ve found an end buyer and agreed on a purchase price, it’s time to assign your wholesale contract over to them. You can do this by executing an assignment of contract agreement. An assignment agreement is usually a one pager which states that you (the wholesaler) are assigning interest in the original purchase contract over to your end buyer for a certain amount (the assignment fee). Let’s say that your original contract with the property seller was for $100,000 and your end buyer agrees to buy it for $110,000. In this case, you would fill out an assignment agreement where you assign all of your rights in the original contract to your end buyer for the amount of $10,000. Don’t forget to collect the deposit from your buyer after the assignment agreement is executed.
Step #6: Close on the Wholesale Property
The closing of the wholesale deal is also known as the settlement. This is where you and all relevant parties meet, sign all of the necessary documents, and transfer the deed to the new owner. It is also where you and the end buyer pay all closing costs. The settlement basically concludes the wholesale deal.
To Sum it Up
When it comes to your real estate investment strategy, knowing how to wholesale real estate is a great option. This is especially true if you don’t have a lot of money and want to make a quick sale with minimal risk. The wholesale business is also an ideal way of making money in real estate without owning property. It shouldn’t have to be difficult to manage, grow and scale your wholesale real estate business. All you have to do is take the first step!