The Easiest $10,000 I Ever Made (And How You Can Make It Too!)
How To Wholesale Real Estate (Part 1)
When I first started investigating how to become a real estate investor, I heard stories of people flipping houses using none of their own money or credit. Being a realist, I just could not imagine owning a house without having to have a TON of cash or getting a loan from a bank. The thing I didn't realize yet was there is a difference between owning real estate...and controlling real estate. Luckily for me I met a guy named Matt who sat me down one day, got out a piece of paper, and mapped out his entire business model. Less than 2 hours later I had a complete understanding of how to make money as a real estate wholesaler.
The concept was really simple. Basically, a real estate wholesaler is someone that hunts down discounted properties then pairs them with cash investors looking for good deals. The results are BIG paydays for the wholesaler!
Obviously the logistics are a little more complicated but the overall process looks like this. You (the wholesaler) put out some marketing that searches for distressed sellers (job loss, facing foreclosure, moving out of state, inherited an unwanted property, tired of being a landlord) or distressed properties (you know...ugly houses). You negotiate to buy the property at a significant discount from retail value and for all cash. Once you and the seller agree to a sales price, you place the property under contract for purchase and include a little phrase that says "and/or assignee" right after the buying entities information (more on why this is important in a minute). By getting a contract to purchase the property you gain what is called "Equitable Rights". This along with the terminology "and/or assignee" in your contract gives you the right to re-market the property to find a buyer willing to pay more than what you originally contracted to buy the property for. So that is exactly what you do... market the property to find a cash buyer willing to buy the property at a discount from retail. The difference between significant discount (what you and the original seller agreed to), and discount (the price you and your back-end cash buyer agreed to) is your profit as the wholesaler. Now there are two ways to close a transaction out and get paid. One is called the "Assignment" method. The other is called a "Double Close" method. Both have certain advantages and disadvantages.
- Is where you simply allow your back-end cash buyer to step into your shoes as the buyer for a fee. This "assignment fee" is sort of like earning a commission as a real estate agent, but because you are a principal in the transaction you DO NOT need to be licensed to wholesale properties this way!
- It is also the easiest way to wholesale a deal. Once you find your cash back-end buyer you simply need to fill out a one page assignment form "assigning" your rights to the original contract over to your end buyer. You just sit back and wait for the deal to close. Once it does, you will get paid your assignment fee out of escrow.
- It is also cheaper than the "Double Close" method. With a double close you end up paying two separate sets of closing costs, but with assignments your back-end cash buyer will only have one set of closing costs.
- The major disadvantage is the fact that everyone in the transaction will see what you are making. This can get weird if you are making a HUGE profit (for basically doing nothing and taking no risk). I always recommend the assignment method if I am making $10,000 or less in profit.
- Is where you "use" your back-end cash buyers money to fund your purchase from the original seller.
- Think of it as two transactions (A-B and B-C). In the A-B transaction you are buying the property from the motivated seller. In the B-C transaction you are selling the property to your back-end cash buyer.
- Major benefit is the fact that no one in the transaction sees what you are making. I always recommend you use the double close method if you are making more that $10,000 or if you are worried about the other parties in the transaction knowing what you’re making.
- Major downside is the fact that you will have two sets of closing costs.
Becoming A Real Estate Wholesaler Is Easier Than You Think!
Now I know right about now you are probably saying to yourself that this sounds too good to be true. I thought the same thing. But the truth is YOU can become a real estate wholesaler and with my help... you can get up and running in no time! Let's take a look at one of my most recent wholesale deals where I "Assigned" my rights to another buyer for a $10,000 payday.
CASE STUDY- 602 W. 5th Street Tempe, AZ 85281
Background Story - On August 7th I got a call off of one of my “Absentee Owner” postcards. The sellers name was HA and he was a 60 something year old Asian guy who had a property he owned since 1998 that he wanted to sell. The property was a little house built in 1925 that was right next to Arizona State University. My intern Josiah (yes I have an intern because I just couldn’t pass by the opportunity to have some free labor ;-)) answered the phone and talked with HA for about 10 minutes. Josiah asked HA “What was happening in his life to make him want to sell his property to us today?” This question was designed to uncover HA’s real motivation for wanting to sell. HA told him that the was getting old and didn’t want to deal with a property that was so distressed and needed major repairs all the time. Also throughout the conversation Josiah completed my “Seller Intake Form” which gathers all the necessary information I will need to eventually analyze the deal. After he jumped off the phone with HA, Josiah began his online research and when he was done he notified me we had a new lead and that it was ready for my review.
I processed all the information and decided the property was worth around $110,000 in its current condition, but if it was completely remodeled it could be worth up to $200,000. I sent Josiah over to the property to do a “Drive By” and take some pictures. When he got back I had all the information I needed to call HA. So I made the phone call to introduce myself. We talked for a while and I eventually made a verbal offer of $45,000 just to see what HA would do. He told me that he needed to speak to his wife and that he would call me back the next day. The next day he did call back and he told me the offer was too low and that I need to raise it. I asked him what the lowest he would accept is and he would not answer. He told me to think about what the most I would offer him was and to get back to him. So the next day I called HA back and told him I could only pay $55,000 because the property needed a full remodel. Once again he told me that he needed to talk with his wife and get back to me. The next day I followed up with him and he told me the offer was too low and that I needed to rethink my offer and raise it. Frustrated I once again asked him what is the number he would accept and he told me “to raise my offer and get back to him."
“Sometimes a motivated seller will not provide you the information you need to quickly get a deal done. When this happens you have to stay calm and stick to your game plan. Do not rush the deal or bid against yourself. Realize that professional negotiators focus on building rapport, agitating the sellers pain points, providing solutions, and telling the sellers HOW they can do business with them."
O.K. back to my story. The next day I called HA and told him the absolute most I could pay was $65,000. He asked if I could meet him near the property at a local Starbucks. I agreed and the next day we met. HA was a very nice man and informed me that he and his wife would accept an offer of $70,000. Even though this was more than I wanted to pay, I knew I could sell the property to a rehabber or landlord because it was so close to ASU. So I agreed with two conditions. Condition 1 was that HA pay all closing costs. Condition 2 was that I have a 30 day close with a 15 day inspection period. HA called his wife, then agreed, and since I came to the meeting prepared, we filled out the Purchase and Sale Agreement right there in Starbucks.
I NOW CONTROLLED HA’S PROPERTY!
As soon as I got back to the office Josiah uploaded HA’s property to my wholesaling website (ArizonaPropertySuperstore.com) and sent all the acquisition paperwork to our investor friendly closing agent to open escrow. We then sent out a mass email and text blast to my cash buyer database (about 250 local cash investors) using my Mobile Marketing Machine software. We advertised the property for sale for $92,500 cash or hard money only. Within minutes I received a response to my text blast from a local investor that immediately went and drove the property. He called me when he was out in front of the house and told me he would take it for $80,000 cash and close within 10 days. I told him I would let him know by the end of the day and since no one else made me an offer I accepted and sent over my one page Assignment Form which he immediately signed and sent to escrow along with a $2,500 non-refundable earnest deposit.
BOOOOOM... I was 10 days away from making $10,000 as a real estate wholesaler and I barely worked 2-3 hours on the deal!
On August 20th we closed the deal and I was cut a $10,320 check ($320 was my earnest money refund), HA sold his unwanted problem property, and my end cash-investor was able to pick up a discounted property that he will remodel and rent out as student housing.
Here is a copy of my real estate wholesaler assignment check --->
Hope this post helps motivate you to get out there in your local market and start learning how to wholesale real estate for quick cash. On my next post on how to wholesale real estate, I will break down a recent deal where I used the Double Close method to make over $29,000 in less than 3 hours worth of work!!! See you then.