Hey there, Cody Sperber back at ya. Today’s topic is learning to wholesale from rags to riches. I am going to tell you how to start with nothing and end up with 7 figures. This is my favorite no money down investing strategy, because this is how I started and I am so excited to share with you something that is absolutely changed my life.
First, we’re going to start by defining:
What is wholesaling?
Wholesaling, in its simplest form, is putting a piece of real estate under contract at a significant discount, and then flipping that paper work to a cash buyer at a discount creating a spread between the two and earning my profit as a wholesaler.
Back to the Drawing Board…
Let’s say you’re the wholesaler. You spend your time marketing to generate distressed seller or distressed property leads. Now, the motivated sellers in this category absolutely have to (without a shadow of the doubt) sell right now. They have to have an extreme motivation.
Because of that motivation, you’re going to be able to negotiate with them and put their house under contract at a significant discount from retail. Now it’s really important that you get it under contract at a big enough discount because it’s going to setup the rest of this transaction.
When you put a piece of real estate under contract, you gain what’s called equitable rights in the property. This gives you the right to remarket the property in order to flip it and earn your profit.
There are 2 groups you can remarket to:
1. You’re going to market to your current database of cash buyers and one of them is going to step forward…
2. You’re going to market in the real world and draw a cash buyer.
Whichever way, you’re going to negotiate with them and put it under contract at a significant discount.
The difference between a discount and significant discount is critical when it comes to profiting for investors. Usually you must acquire the property from a motivated seller to receive such a significantly discounted property.
Evolution of a Wholesale Deal
New investors always ask me how this wholesaling fit in your overall investing model or the overall strategy, and I always answer with:
“It depends on whether or not you want cash now or cash later.”
See, when I first started, wholesaling was 100% of my investing strategy because I had:
- No money
- No credit
- No experience
- No real networks
As I got better at marketing and in structuring deals, and had some of my own cash that I generated from wholesaling, I was then able to go out and start buying properties to flip as well as to build wealth and build my rental portfolio.
At the end of the day, I highly recommend that wholesaling always remain around 20% of your overall investing strategy, so you can continue to earn quick cash with little risk and focus most of your attention on the “buy, fix and stay” method as well as the “buy, fix and sell” strategy for bigger pay days and long term wealth building.
Now let’s talk about the evolution of the wholesale deal…
6 Steps of Evolution in a Wholesale Deal
I love teaching my students my six simple steps to earning quick cash because it helps them picture the wholesale process from a higher level overview:
1. To decide if you have a legitimate lead, you must determine: if it is a “buy, fix and stay,” a “buy, fix and sell” or a “wholesale lead.”
This is going to be depending upon a number of different factors:
- What’s your current educational level?
- Do you even understand how to rehab properties?
- Do you understand how to own long term rentals? Do you want to deal with tenants and toilets?
- What are your current short term and long term goals?
- Do you want to earn cash now or quick cash, or you try to earn cash flow overtime and build long term well?
- What are your current financial resources? Do you have any money or not have any money?
2. Start running your numbers so you can position yourself to be able to make an offer at a significant enough of a discount.
3. Use your wholesale purchased contract. Once you’re able to work a deal, put it under contract with the phrase “and/or assignee (which I will explain in a minute).” Even though you haven’t’ closed on it yet, you now control the equitable rights of this property.
4. Figure out what your “as-is, cash only” sales price is going to be. In other words, what are you going to put the house for? Then begin marketing the property to find your cash back-end buyer.
5. Decide whether you’re going to assign or double close it. At this point, depending on how much of a spread you’re going to earn, you need to choose whether or not to assign or double close (which I explain in a second).
6. Turnover all the paper work to your closing agent and they’re going to walk you through the closing process.
How to Make Money as a Wholesaler: The 2 Different Methods of Closing
There is actually two different methods that most wholesalers use to close out a transaction and get paid:
1. Assignment of contract is a wholesale strategy that is one of the many forms of the “no money down” deal. Now in my buy side purchase contract, (you know the one between me and the original seller) is where you’re supposed to put your name or your company’s name.
I also have a little phrase that says, “End or assignee”. This gives me the right to assign my contract to another buyer for a fee. The concept is to put a property under contract at a significant discount using your purchased paper work, and then flip that paper work to the final cash back-end buyer for a fee using a one page assignment form.
Once you find that cash back-end buyer that wants the deal, you simply have them assign your one page assignment form and then give all that paper work that you have assigned to your closing agent. At this point, you’re basically out of the deal because you just assigned your interest or your rights to that contractor, to that property, to your new cash back-end buyer. Your assignment form should display whom the new cash end, back-end buyer is, the amount of the assignment fee you’re going to receive at closing, as well as how that pay out should occur.
Assignments are a great way to flip a contract as long as you do not care that everybody in the transaction is going to see how much money you just made. If you feel like the motivated seller or the cash back-end buyer is going to get frustrated with you because you’re making too much money at their expense, then you’re not going to want it close using the assignment, you’re going to want it close using the double close method.
2. Double close is also a known as the simultaneous close or the double escrow. I use this method if I want to keep my profit confidential or if I want to keep my seller from learning who my final cash back-end buyer is.
A double close happens in four steps:
- I’m simply going to put a property under contract at a significant discount from a motivated seller using my buy side paper work, and we’re going to call this acquisition transaction (the A-B side).
- Then I’m going to start marketing the property for sale during my agreement to fund closing period for a cash back-end buyer. When I find one, I’m going to put it under contract with them using my sale side paper work. We’re going to call this separate transaction (the B-C Side), so you can see there are two transactions going on. One is acquisition (the A-B Side and one flip) and the other is selling it to the cash back-end buyer (which is the B-C Side).
- Then I’m simply going to open up two escrow accounts at the same title company that’s comfortable with double closing. Now maybe in your state you’re not using a title company, you’re using an attorney, you got to make sure that they’re comfortable with this double closing method.
- On the schedule closing date, I’m going to use the final cash back-end buyers money to flow through the B-C transaction over to the A-B transaction, and pay for the motivated seller and cash them out, whatever is left over is my profit as the wholesaler. I’m going to get the spread and the deal is going to be completed.
Even though this is all disclose, this all happens simultaneously without the buyer or the seller really knowing anything about the details of the transaction, that’s why we do the double close method. But I do have to warn you, it’s much more expensive to complete this type of transaction because you’re paying two sets of closing cost. Only do the double close if you’re making a big enough spread to justify the extra cost, or if you truly care that the buyer or the seller is going to see what you’re making.
Real Life Examples
Okay. Now it’s time to transition out of the classroom into the real world, where I can show you how to go out and play all those things I just thought you how to do, so you can earn profit as a wholesaler. Here is an example of a wholesale flip idea while you use the assignment method.
This is a cozy little three bedroom, two bath house in Mesa, Arizona.
I was contacted by a local real estate agent that saw my online marketing and knew that I was an investor, and he told me that he had a client whose mother died and a son just wanted to sell her house, her the old home fast for cash.
There was true motivation there and that’s the type of deals we’re looking for. I did my research. I realized that the home had some good equity in it and I negotiated a purchased priced of $80,000. I immediately put the property under contract using my buy side paper work. Once I have the under contract, I had equitable rights. That gave me the ability to start marketing it to my cash buyer database, which I did for $90,000. One investor step forward and said, “I’ll take it for $90,000.” At that point, I simply filled out my one page assignment form.
I turnover all that paper work over to my investor friendly closing agent. I closed the deal three days later. The investor got to be able to buy the property for $90,000 and they were able to rehab the property and flip it so I left enough so called meat on the bones that they had a lot of equity still left in the property that they were able to earn the profit that they wanted. The motivated seller was able to get their $80,000, and I got my $10,000 assignment fee. Not bad for only one week’s worth of work, wouldn’t you say?
Now I want to show you a real world example, where I show you deal that I use the double close method to get paid. Now here is a house at 19211 North 92nd Ave. Peoria, Arizona.
This is a three bedroom, two bath house, and this was the secondary home of a couple that lived at a state. The husband was sick and the wife decided that she wanted to sell because they didn’t want to use the property anymore. She had her daughter who was locally here in Arizona contact me. The daughter informed me that the house was on free and clear but there was a real motivation there because the father was sick and that’s what I’m looking for.
I did my research and I realized that the house was worth about $160,000, so I made an all cash offer for $100,000 which was accepted because they were really motivated. I immediately begin marketing the property to my cash buyer database for $115,000. In this scenario, I didn’t want the motivated seller to see that I was making $115,000, so I chose to do the double close method. Once I found my cash back-end buyer, I put the property under contract using my sale side paper work for 115. I turnover all my paperwork to my investor friendly closing agent. In a few days later, we closed the transaction using a simultaneous close and I was cut a check for $15,000 in profit.
I absolutely love wholesaling real estate and it has changed my life. I once had no money and no credit, and now I amass a small fortune, flipping houses in my spare time.
I hope I can make a difference in some of your lives as well.
Keep an eye out for out for the next lesson in Wholesaling for Fast Cash, until then…
PS - Some Cliff's (or I guess I should say Cody’s) Notes to leave you with...
- Determine if you have a lead based on your business strategy.
- Negotiate a significantly discounted price with a seller in a distressed situation.
- Remarket to people on your buyer’s list and in the real world.
- Decide to use an assignment contract or a double close based on whether or not individual profit should be private.
- Monitor the closing process to make sure it is done correctly and on time.