How To Wholesale Real Estate
One of the first strategies that new investors want to learn is how to wholesale real estate. That’s because wholesaling real estate gives you an opportunity to make a lump sum of money in a relatively short period of time. When learning how to wholesale real estate step by step, you start by finding distressed properties, or distressed people, and negotiating with them to buy their property at a discount. Before you actually have to close and pay for the property, you try and find a cash buyer willing to pay you more for the property than what you negotiated with the original seller. If you find a cash buyer willing to pay more, you simply assign your rights in the contract over the them for a wholesale fee. In other words, you are strictly the middle man!
There are two sides to the real estate wholesaling equation, buyers, who are other investors and motivated sellers.
1. How to Wholesale Real Estate – Find Your Buyers
While it seems like finding your buyers first is putting the cart before the horse, it is the logical first step when learning how to wholesale real estate. Before you spend time looking at properties, you want to talk to investors and find out what they are in the market for. There’s no sense burning up gas and wasting time on a property no one will want. This concept is called "Reverse Wholesaling" and enables savvy real estate wholesalers the ability to focus on finding properties for ready and willing cash buyers.
Where do you find investors? The first place to look is investor meetings. If you don’t know of any investor meetings in your area, go to NationalREIA.com and click on “Find a REIA.” There are meetings in every state and there is probably a meeting in a city near you. You can also look in your local paper to see if there are any investor meetings listed in the events calendar. Also, meetup.com will help you find any investor groups in your area. If there are no investor meetings in your area, consider starting one with the main focus on learning how to wholesale real estate.
Ask investors what areas they like to work in and what types of properties they buy. Tell them that you sometimes come across properties that fit those parameters and ask if they’d like you to contact them if you run into something that might be a good fit. Most investors will gladly give you their contact information.
2. How to Wholesale Real Estate – Find Your Sellers
Once you know which areas your investors favor and the types of properties they are looking for, it’s time to scout the neighborhoods. You want to learn your local market – average retail price of a property, average rent, what a typical house in the neighborhood looks like. If all the properties in a neighborhood are three bedroom, two bath and a one car garage, you don’t want to look at a two bedroom, one bath with a carport. You want to look for houses that fit the parameters that your investors are looking for.
Once you find a property and more importantly, a motivated seller, sit down and find out what the seller needs to get out of the deal. I have been surprised more than once by people who gave me a lower price than I had planned on negotiating for. Sometimes you need to negotiate the price. You don’t need to hardball anyone. There are a lot of houses on the market. Someone who is not a motivated seller today may become an extremely motivated seller a month or two (or a year) down the road. Be friendly, polite and professional. If you don’t come to an agreement, leave the door open and make sure you allow room for the seller to “save face” should his situation change.
How to Wholesale Real Estate – Putting the Deal Together
The price you offer has to have enough room in it to cover closing and holding costs, any repairs, your wholesaling fee and a nice profit for your investor.
When you have a deal, write up a contract subject to inspection and allow yourself as much time as you are able to negotiate to get the inspections done. Why? You are going to use this time to sell the deal to an investor. Always make your contracts assignable. You are going to find an investor for the property and it is much easier and cheaper to assign the contract than to have to go through a double closing.
Put the deal out to your investors immediately. Most wholesalers use an email system such as the M5 marketing system, Constant Contact or Aweber. They can broadcast an email to their entire list at one time. You can put pictures in the email or have a link to a webpage with pictures of the property on it.
Give the details an investor will need in order to make a decision: Address, asking price, estimated retail price or rent, number of bedrooms and baths, square footage and estimated repairs. Don’t “puff” the value on the retail price of the property. Investors know the value of homes in their areas. You will lose credibility quickly with your buyers – a situation you definitely don’t want.
Experienced investors can make a decision quickly. When you have a taker for the property, have him put up a deposit with the title company and assign the contract to him. You can take your assignment fee up front or at closing.