If you want to start making money in real estate quickly, it’s time to consider wholesaling. Closing a wholesale deal for the first time is a major accomplishment for any investor since the wholesale process is different from more traditional types of real estate transactions.
Not sure how to get started? Our easy-to-follow guide on how to wholesale real estate step by step has everything you need to ensure your first wholesale deal runs smoothly.
The Anatomy Of A Wholesale Deal
The reason a wholesale deal differs so much from rehabbing and buy and holds is because the wholesale investor never actually owns the property. Sounds strange, right? Fortunately, it’s not as strange as it sounds once the approach has been broken down. Below we will review how to wholesale real estate step by step, which will help even beginner investors get a better grasp of the process.
A wholesale investor is both an expert marketer and a savvy networker when it comes down to it. For instance, a wholesaler builds relationships with other professionals in the industry to create a buyers list. They then utilize their marketing skills to find wholesale properties in their desired market. Once they’ve secured a property, they contact a buyer from their buyers list and assign the property’s contract to that end buyer.
Wholesaling has become common practice for many very successful investors, which begs the question: How does a wholesale investor make money?” Simply put, when a wholesaler assigns his or her contract over to the end buyer, they are given an assignment fee (similar to a finder’s fee), which is usually a small percentage of the property’s value.
Still sound confusing? It won’t be after you consult with our seven-step beginner’s guide to closing a wholesale deal.
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How Does Wholesaling Work In Real Estate?
In real estate, wholesaling serves as a versatile exit strategy that can suit several different investor personality types. For starters, the wholesale process is known to have one of the shortest completion timelines compared to other investing strategies for starters. When done correctly, an investor can receive their assignment fee in less than a month (sometimes in as little as a few days). For this reason, wholesaling can be a great fit for investors who prefer to make profits in the least amount of time possible.
Another appealing aspect of wholesaling is that investors get to have complete control over the volume of wholesale deals they process over a given period. For example, those who want to pursue wholesaling full-time can pursue a high volume of deals, while others who wish to wholesale on the side can process as many deals as their schedule allows.
Finally, wholesaling serves as a great entry point for beginners who want to learn how to invest but have no prior real estate knowledge. In the process of delivering a wholesale deal from beginning to end, a beginner will become immersed in skills vital to any investing operation such as marketing, networking, minding due diligence, and coordinating a real estate transaction. They will also be sure to learn the ins and outs of the real estate market as they hunt for wholesale deals. Beginner investors who have limited access to capital, or are still working to build their credit, can also participate in wholesaling. Find out why in the following section.
Do You Need Money To Wholesale Real Estate?
If you have ever felt discouraged from getting started in real estate investing because you don’t have a lot of cash or have a less-than-perfect credit score, you should know that you can get your start wholesaling real estate today. Because a wholesaler assigns purchase contracts directly from sellers to end buyers, they are not required to purchase the property themselves. Because of this, meeting the various eligibility requirements of financing, such as income level or credit score, doesn’t pose as a barrier. For these reasons, wholesaling is a great way to gain valuable skills and learn about the real estate market while saving up money and building up your credit score.
Even experienced investors might turn to wholesaling to finance other types of real estate deals. For example, an investor who prefers to make all-cash offers on their rehab deals might turn to wholesaling to replenish their personal capital in a short amount of time. For these reasons, understanding how to wholesale real estate step by step is a credible way to segue into other types of investment strategies.
How To Wholesale Real Estate Step By Step
Now that you understand the various benefits of becoming a wholesaler, you may be wondering exactly how the wholesaling process works, and what kind of skills and resources are required to successfully complete your first deal. The following wholesaling real estate step by step guide will help answer your questions:
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Mind your due diligence
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Build a buyers list
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Market to motivated sellers
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Get a property under contract
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Find your end buyer
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Assign the contract
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Close the deal and cash your check
Mind Your Due Diligence
The first step to any wholesale deal involves researching and strategizing. Spend time educating yourself on the overall process so you know what to expect before you start searching for properties. Reading through this wholesale real estate step by step is a great place to start, but additional resources can be helpful as well. A great place to start is by attending a real estate event in your area. Network with other investors, and sit down with someone who has experience wholesaling in your area. This will help you get a better feel for the process, and it could lead to a helpful industry connection down the road. As you learn what to expect, you will be better prepared to conduct local market research and devise a business plan.
Build A Buyer’s List
A buyer’s list is essentially a category of potentially interested investors, entrepreneurs, and homebuyers. Building a list of usable names will certainly put your networking skills to the test, but it will be well worth it. A strong buyer’s list will make sure you always know where to go with deals. Buyers can be found in a few places ranging from direct mail to bandit signs, though one of the best ways to build a list is through personal connections. Connect with other real estate professionals to expand your network, and don’t forget to jot down the contact information of anyone you see as a potential lead. Daniel Chan from Marketplace Fairness suggests “the best way to build a dependable buyers list is to network with other investors and real estate professionals. This way, investors can find potential buyers who are interested in purchasing wholesale properties”.
Market To Motivated Sellers
After crafting a solid buyer’s list, it’s time to start searching for motivated sellers. A motivated seller is any homeowner eager to get rid of their property. This situation can happen for several reasons: they could be behind on mortgage payments and hoping to move, or maybe they recently inherited a property they aren’t sure what to do with. Whatever the reason, motivated sellers are your best bet at getting a property under contract for a good price.
To find motivated sellers, try targeting lists of delinquent taxpayers, homeowners in pre-foreclosure, and absentee owners. Once you have created target lists, design your marketing campaign. A great tip is to try and join wholesaling and other real estate investment groups. I recommend searching Facebook for groups to join or asking around your existing network for leads. There are even real estate investing websites you can search for to find leads.
Finally, as important as digital leads are, there is still something to be said for direct mail. Over time, direct mail has been proven to be one of the most successful marketing strategies for motivated sellers. The key is to be consistent with your mailers; most investors will not see success until the fourth or fifth mailer.
[ If you want to learn more about the best way to contact motivated sellers, check out this script. ]
Get A Property Under Contract
When you successfully acquire a motivated seller, agree on the correct price and terms for the property at hand. Approach them carefully to negotiate a contract, and remember to highlight how you are simplifying the selling process for them. A good approach is to highlight the areas of the deal you are taking over, thus easing the burden of property ownership. Ensure you are on the same page as you finalize the negotiations and include all information in the agreement. It can help educate yourself on the legal process of a real estate transaction at this time. Some investors will even consider working with a legal professional to ensure they leave nothing out.
Find Your End Buyer
As soon as you get a property under contract, the real work begins. Your end goal at this stage will be to assign that contract to an interested buyer. If all goes to plan, it will be one from the list you created earlier in the process. Put together a list of comparable properties, estimate the potential cost of repairs, and get a title report done. Then, start reaching out to potential buyers from your list. The more potential buyers you have at this point, the better.
Keep in mind that different types of properties will attract different types of buyers. Properties requiring significant restoration may attract rehabbers, while homes in need of a few minor repairs may be suitable for a rental property investor. Familiarize yourself with different real estate exit strategies to better understand what type of buyer your deal will warrant. Remember this as you advertise your property, leverage your network, and market the deal.
Assign The Contract
Once you’ve identified the end buyer, create an assignment of contract agreement. Be sure to agree upon your assignment fee and deposit amount, and include this information in your final agreement. While the contracting stage may sound complicated, it is actually relatively easy to navigate. Your final contract should state that you are assigning the contract for X amount of money. In doing so, you will make sure all parties are on the same page (and that you are paid accordingly).
Close The Deal & Cash Your Check
On the day of closing, make sure your end buyer is present so they can sign the appropriate documents. They should arrive with the correct forms and payment to purchase the property, including your assignment fee. Once the title company accepts the payment, they will cut you a check for your fee amount. Finally, if you plan on completing more wholesale deals in the future, consider asking for a testimonial for your portfolio. Congratulations, you just completed a step-by-step guide to wholesaling real estate.
Bonus: Building A Backup Plan
Having a backup plan will pay off. Wholesaling is considered relatively low-risk, but something could go wrong between finding a seller and entering a contract. Possible backup plans include purchasing the property yourself and rehabbing it so that you can later flip it or rent it out. This requires that you have the financial means and willingness to buy a wholesale property in case anything goes awry. Having this option will give you the peace of mind and confidence to execute deals.
Wholesaling With No Money
Wholesaling is often advertised as the best way to get started in real estate because on paper, you don’t need money to get started. In reality, there are a few things you should know before attempting your first wholesale deal. You don’t need funds to secure the real estate contract — but if you struggle to find a buyer, you could ultimately be responsible for the earnest money deposit, title fees, or other costs. In these cases, you would need to put money down to complete the deal.
If you want to get started in wholesaling without money, you need to be diligent about negotiating and building a buyer’s list. Before you even secure a contract, you should have an idea of how you will assign it to an end buyer. The process involves a lot of communication, negotiation and time. If executed correctly, you can wholesale with no money and walk away with your fee. However, it takes some care to get right.
Wholesaling Vs. Flipping
When looking at wholesaling vs. flipping, there are a few key differences to keep in mind: profit, cost, and time. While both strategies are a great way to make money in real estate, investors can generally profit more when flipping houses. With that being said, there are more costs associated with flipping houses. As mentioned above, wholesaling does not actually require purchasing a property. This means investors can get started with no money of their own. Flipping, on the other hand, requires the capital to buy the property and execute the renovations.
When it comes to time, both strategies require quite a lot from investors but in different ways. Wholesaling depends a lot on communication and networking. Investors need to constantly work on their buyers list, and negotiate with sellers to secure properties under contract. Flipping a house requires time to analyze the deal, oversee renovations (and pay subsequent holding costs), and market the finished product. As you can see, the day-to-day responsibilities are dramatically different, and require a different type of commitment.
At the end of the day, both wholesaling and flipping are two relatively beginner-friendly ways to break into real estate investing and turn a profit.
Summary
By following our guide on how to wholesale real estate step by step, you’re already miles ahead of most beginner wholesalers. That’s because many individuals make the mistake of throwing themselves in without minding their due diligence and educating themselves on the wholesale process. By immersing yourself in research on the art of the deal before you get started, you’re already setting yourself up for success.
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