Wholesale Real Estate: The Guide to Making Money

Real estate investing is a very enticing method of investment to earn income and for wealth creation and Wholesale Real Estate is a great way to do it. There are many ways to enter the world of real estate investing such as buy and hold, fix and flip, and rental income properties.

In all these methods, the investor needs to buy a property which requires putting in lots of money in the form of down payment while the rest of the money is financed by a lender.

However, there is a method of investment in real estate where you can earn huge profits without even buying and selling a piece of real estate. It is called real estate wholesaling and it is gaining huge popularity among large numbers of investors in recent times.

What is wholesaling real estate?

The concept of wholesaling in real estate is a little bit different as it is practiced and understood in FMCG products. Here, the wholesaler happens to be the person who comes to know about a distressed property available at less than its market value.

This wholesaler does not intend to buy and later sell the property at a profit. He merely puts the property under contract and then takes it to other investors who may be interested in buying the property.

Wholesaler gets his commission in this deal while the owner can sell his property.

Pros and cons of wholesaling real estate

Even though the concept of wholesaling real estate holds great attraction in the minds of many investors, it is not the most common method of real estate investing.

The small numbers of individuals involved with real estate wholesaling is a clear proof that it is a business idea that has its own pros and cons.

What are these pros and cons? Let us find out:

Pros of real estate wholesaling

• You earn money without investing anything
  
  
• It helps you earn money quickly provided you can spot distressed properties for investors
  
  
• Wholesaling paves the way for you to become a real estate investor later on
  
  
• It does not require looking after the affairs of a property or tenants
  
  
• Wholesaling does not involve risks for the individual

Cons of real estate wholesaling

• You cannot expect a regular income month after month. In fact, your income depends upon your ability to find distressed properties and interested investors.
  
  
• It is simple but not effortless. You need to master comparative market analysis so that you can spot a property that is available at less than its market value.
  
  You also need to develop a strong network of brokers, realtors, and investors to be aware of all real estate deals.
  
  
• Constantly finding new deals can be a struggle for wholesalers.

How do I start wholesaling real estate?

Just because you do not need capital to start wholesaling real estate, it does not mean you can think of succeeding as a wholesaler without having a complete knowledge of your housing market.

You must have full understanding of comparative market analysis (CMA) to spot a lucrative deal.

Also, you need to cultivate a list of all buyers and investors interested in increasing their portfolio. This is because you will take your deals to these investors to earn your commission when the investor agrees to buy a property.

List of things to do when you plan to start on a career in real estate wholesaling

• Study your housing market as much as you can
  
  
• Get a deep understanding of CMA to be able to identify distressed properties
  
  
• Build a list of buyers and investors in your area
  
  
• Actively search properties available at less than their market value
  
  
• Learn the art of drafting contracts for wholesaling

Steps to wholesale real estate

Now that you know what real estate wholesaling is, it is time to understand the steps involved in the process of wholesaling. You don’t have to buy, fix, or sell the property. All you have to do is to actively search for distressed properties and then find buyers for these properties after putting them under a contract.

Step #1- Find property at less than fair market value.

There are many ways to find off market properties.

• Yellow letters
• Bandit signs
• Post cards
• Real estate meetups
• etc.

Keep reading below for how to find these properties.

Step #2- Approach the owner and convince him to sell his property.

When you are talking with the owners, you want to make a win-win situation. This is where you seek to help the owner and not just try to get the deal.

Make sure you negotiate with the seller to get the best deal for yourself and help the seller with their needs.

Step #3- Sign a contract with the owner.

The contracts you need are explained below but this is a very important step.

If you do not get the property under contract, you miss out on the deal.

Step #4- Get down working with your team that includes an appraiser, a contractor, and a title company.

Title Company searches the title and gives its report to go ahead with the transaction. Appraiser confirms the fair market value of the property to reassure you of a profit through reselling.

The contractor gives you an honest estimate about the repairs that you can tell the prospective buyer about when selling the deal to him.

This knowledge of repairs will make sure that the buyer does not fool you about high repair costs to buy the property at a lower price.

Step #5- Find the right buyer for the property.

Your buyer will be a shrewd investor instead of a first-time home buyer. You need to find a buyer quickly as there is a final settlement date in the contract that you have signed with the owner of the property.

It is not easy to find a buyer to wholesale a property. You may not have a long list of potential buyers when starting as a real estate wholesaler.

Here are 3 easy ways to gain exposure to potential buyers.

1. Advertise the property on Craiglist
2. Send emails about the property to investors
3. Print flyers with information about the property and distribute them among common people

Make sure to give your contact number so that you start to receive queries from interested buyers.

Step #6- Negotiate the deal with your potential buyers.

You will get a chance to talk about the property with many interested buyers. This is where your negotiation skills will help you in selling the deal at a high price to a buyer.

You know the price the seller is demanding. Add up costs you have borne on utilizing the services of various professional.

Add these costs to the rice demanded by the seller and then add your own commission to the amount. This is the base p[rice below which you cannot fall when negotiating with potential buyers.

For example: The price at which you have got the consent of the seller is $100000.

You have spent $5000 on utilizing the services of a broker, appraiser, Title Company, and a contractor.

Add the two and then add another 20% as your own profit from the deal. This gives you the base price of $126000 below which you cannot go when negotiating with potential buyers.

Do not worry as investors will ultimately make a much bigger profit from the property through renovations and sale in future. They only try to secure the deal at a low price.

Step #7- Close the deal with the buyer.

This is the last step in completing the wholesale of a property.

On this date, all three parties namely the owner, you, and the buyer assemble at a place which is usually the office of a title company and sign the transfer deed in the presence of an attorney.

How to find wholesale properties?

Once you understand the steps involved in the process, it is time to search for properties that you can wholesale. You will find it hard to not just find such a property but also to wholesale it to an investor.

Your aim is to identify properties that need repairs and those whose owners are motivated sellers.

Most people who decide to become wholesalers try to find properties without spending a dime.

• Yellow letters- It is a letter usually handwritten by investors and real estate agents. It is so called because it is written on a yellow colour legal pad paper. You can distribute these yellow letters to indicate your willingness to buy wholesale properties.
  
• Flyers- Flyers are printed papers that can be sued to express your desire of finding wholesale properties. You can place these flyers at strategic places to get a good response from the readers.
  
• Bandit Signs- These are marketing tools used by investors to get information about lucrative real estate deals.
  
• Business Cards- Distribute business cards telling others about your skills as a wholesaler of real estate.

However, it is far easier to get down to distressed properties when you develop a network of contractors, vendors, brokers, and realtors to be aware of such properties as they usually do not come on to the market for a sale.

You can join real estate wholesale and investment groups to get details of distressed properties.

There are also websites where motivated sellers post information about their properties. These websites are Craiglist, HomesByOwner.com, and FSBO.

You can search for wholesale properties on these websites after applying the filters of area, price, and property type.

One method that is used by many seasoned wholesalers is hiring an assistant for this work. The job of this person is to keep an eye on properties that are available at less than their market value.

These property finders will do cold calling, knock on the doors of homeowners, and scout for distressed properties in different neighbourhoods.

What contracts will you need when you wholesale real estate?

The all-important instrument that makes you eligible to sell the property of the owner to an investor is the contract that you sign with him.

In a wholesale contract, there are three players. These are seller or the owner of the property, Buyer A that is you, and finally Buyer B who pays the money to you and buys the property.

The contract you sign with the seller is called Purchase Agreement. It is advisable to take help of a real estate attorney when drafting this purchase agreement with the owner of the property.

You are entitled to assign or sell the contract to the real buyer or investor. To sell the agreement to the investor, you must finalize an assignment agreement with him.

This is how you hand over the baton to the investor and become free from all legal obligations towards the seller.

Once you have signed the assignment agreement and the investor has paid your commission, you are free to focus upon a new deal.

N.B Explained about finding the property elsewhere so no need to elaborate on it again under the steps.