Wholesale real estate is a process where you find a motivated seller who is willing to sell their house below market value. You then get that property under contract and assign that contract to a cash buyer for a higher price.
Instead of buying the house yourself, a cash buyer will purchase the contract from you. And you will receive a fee in return. This is called an assignment fee.
There will be two contracts, one between you and the seller and another between you and the purchaser. Once both contracts are signed, you can take the contracts over to an investor friendly title company or attorney who will complete the entire closing process.
Wholesaling real estate is suitable for most beginners because it requires little to no capital or experience.
Michael is a real estate wholesaler. He looks for the best real estate deals, stays updated with the latest offers and hangs out with real estate investors.
One day, he finds out that his friend Bob wants to sell his home before it goes into foreclosure. Bob wants $100k for the house.
Michael and Bob both agree to a Purchase and Sales contract saying that Michael or his partners will buy the home within X amount of days for $100k cash.
Michael goes to his buyers list and contacts real estate investors to see if anybody wants to buy the house. One of the investors is interested and wants to see the house. Let’s name him Ross.
Ross agrees to buy the house for $110k because it looks like a great deal. As per the contract that Michael and Bob signed, Michael OR his partners can buy the house. So, Ross and Michael agree to an Assignment of Contract saying Ross will buy the house for $110k cash and pay for all the closing costs.
Now Michael can hand over both real estate contracts to the title company or a closing attorney for further processing.
As per the contract Bob will get $100k, Ross will buy the house for $110k and Michael will earn a profit of $10k without ever buying or fixing up the property.
Before You Start Investing
The entire wholesaling process we have discussed is quite simple but does require effort on your part.
There are many things that you need to keep in mind while you are wholesaling real estate.
Considering Michael sold a house at a profit of $10k without even buying it, you may be wondering, “is this legal?”
The answer is YES. Just make sure you know the correct way to wholesale real estate. Make sure you don’t need a license to wholesale in your state. In the great state of Texas where I close my wholesale deals, wholesaling is completely legal.
Also, have purchase and sales agreements along with assignment of contracts that will protect you from liability. For this, I recommend you consult an attorney.
Wholesaling Real Estate Time Frame
The above example stated that Michael and Bob agreed to a contract stating that Michael will buy the house for $100k cash in x amount of days. This is very important to note. In this case, assume Michael has agreed to close the deal within 30 days.
What if Michael is not able to find a buyer and close the deal within 30 days? If the sale of the home is not concluded then Michael can either ask Bob for more time, or he can walk away from the home with no consequences. Michael has invested little to no capital on this property.
In this case, Michael did not have to forgo his profits because he had taken the time and put in effort to build his buyers list. He was easily able to market the property to his buyers and quickly closed this deal. You, like Michael, will need to work hard in marketing yourself and building a network of cash buyers. People that are willing to buy from you without any issues.
Cash Buyers List
The example above showed how quick and simple the wholesaling process can be. But, this was only possible because Michael spent a great deal of time putting together a cash buyers list.
He searched for buyers online, networking and through marketing himself as a wholesaler. As soon as he had a house under contract he contacted his list of buyers and was able to find a cash buyer quickly and easily.
How to Wholesale Real Estate the Right Way
Wholesale real estate guide:
Time needed: 30 days.
How to wholesale real estate?
You need to know and understand the legal aspects before you begin.
• Do I need a real estate license? • Should I use a title company or attorney? • Where can I get a PSA and Assignment of Contract? • What clauses should I include in the contracts?
Set your Goal
To be successful in the real estate industry as in anything in life; make a plan and set a goal.
For example your plan could be:
• I will build a real estate team which consists of a VA, closing attorney, title company, real estate agent, contractor, real estate investing CRM, etc.
Your goal in turn could be:
• I will flip X amount of properties every month worth Y amount
Execute your plan while keeping your goal in mind and begin the process.
Finding your first property
The first real task would be to find a property. Look at various places where you can find a house for sale at a deep discount. This will make it easier to find a cash buyer fast and make a large assignment fee.
Here are some of the places where you can find properties:
Once you create and grow a cash buyers list. It will be easy for you to sell the houses you get under contract.
Last but not least you will have to close the deal. As we mentioned above, there is a lot of paperwork that the title company or attorney will have to complete. Once the contracts are signed and paperwork completed, the title company or attorney will give you your check and the transaction will be completed.
After you close your first wholesale deal, you can celebrate because you just closed your first deal as a real estate wholesaler.
Keep in mind that in wholesale real estate you will not close every deal as planned. There will be many obstacles that you will face during the process. It’s all about how you work to overcome them that will make you successful in the long run.
Wholesaling Real Estate Tips
During this entire wholesale real estate guide, we have told you to learn this and do that. Now, the main question is what are the things that you need to learn to put together better deals.
Here are some suggestions that will be handy:
The first thing to learn to make a better deal is to know the ARV of the home. You must estimate your ARV as accurately as possible.
Negotiating. Just like the buyer will negotiate with you, you will have to negotiate with the seller for a better price.
We are sure this guide to wholesaling real estate will be helpful to you. There are a lot of things that you need to learn as a beginner. If you are willing to put in the work, you will surely obtain success.
The last and most important thing is to take action. Now that you know wholesale real estate and how it works, it would be a good idea to attend a REIA meeting. This will allow you to meet new like-minded people which will help you achieve success in the real estate industry.
The South Texas Wholesaler
J.R. Medrano is a real estate investor who specializes in wholesaling inherited homes. He has been wholesaling real estate in the Corpus Christi, TX area for the past 6 years. If you would like some honest advise about wholesaling houses. Feel free to contact him at anytime.