Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

A Step-By-Step Guide To Wholesaling

Written by Paul Esajian

As you start your journey to becoming a successful real estate investor, you have probably heard of all the different ways you can make money. One of the more popular avenues, particularly among new investors, is through wholesaling. With wholesaling, the costs to get started are minimal and the risks are almost nonexistent. Nonetheless, it doesn’t mean that everyone knows the best way to get started. Just like any other investing niche, there is a process for acquiring leads and ultimately closing deals. Wholesaling is a great way to get started, but you had better know what you are doing.

The concept of wholesaling is to assign a contract on a deal and to get paid for it from the buyer. This may sound complicated, but the process of finding a deal is much easier than assigning it. Like most things in the business world, it starts with finding good deals and lead sources. The first thing you need to do is to pick a source to focus on. This could be anything from owners in pre-foreclosure to absentee landlords you find on Craigslist. Some of these sources may cost you nothing but a few hours at the local town hall or online. Of course, there are those you have to pay for too. Let your budget be your guide, but some of the best leads are the ones you don’t have to pay for.

After you have your leads, you need to reach out to them. Depending on your personality and, again, your budget, you can do anything from direct mail to door knocking. You should probably have thick skin if you are going to knock on doors, but this could also be the best way to get homeowners to talk to you. If you do opt for direct mail, you should be prepared to mail your homeowner multiple times. Only then will you see the results you want.

Getting your phone to ring or homeowners interested in talking to you is nice, but not your ultimate goal. Most new investors are very intimidated in the process of talking to homeowners in an attempt to get them to sell their house. For the first few calls, you should have a script that you use to ask all the questions you need answered. What do they owe on their mortgage? How quickly can they close? What is their goal for selling? These, and many more, questions should be answered in the initial phone call. The more homeowners you talk to, the more comfortable you will become. Eventually you will need to take the next step and meet with the homeowner. This means you should know as much as you can about the process, the property and even the homeowner. They are going to ask you a ton of questions. The more prepared you are, the more likely they will sell to you.

While you are at the house, you should bring a notebook and list any and all items that will need to be updated or repaired. If you are not versed in property repairs, you should bring a camera and take as many pictures as possible. You can bring a contractor, but this may make the homeowner feel a little uncomfortable in your initial visit. Take as many notes and pictures as you can of the interior, exterior and neighborhood. The condition of the property and the amount of repairs will go a long way in determining your value and the offer you make.

As uncomfortable as it was to talk to a new homeowner, making an offer is that much more difficult. After you have a few days to look at the repairs and to evaluate the comparable sales and listings, you should be able to come up with a number that is low enough for a fellow investor to make money. If there is no equity in the property, the owner really doesn’t have much negotiation power to lean on. If there is some equity, it will be more difficult to get your number. Either way, you need to accentuate the negatives with the property and the positives in selling. Whatever offer you make has to be supported with repair estimates, comparable sales and the impact on them if they don’t sell. The number may be a shock, so it is best to give them a few days before you follow up.

If they agree to the deal, move to get a contract in place and everything signed as quickly as possible. You should definitely use your attorney to write up a strong contract that protects you and allows you to assign it and get out of the way. Once the contract is signed, you can reach out to your investor buyers and present the deal you have. If the deal is strong enough, you will have numerous buyers knocking down your door. Once you pick one, you can assign the contract, collect your negotiated fee and step out of the way.

Wholesaling is a numbers game. You will probably talk to many homeowners before you get a deal. Once you assign a few deals, you can build a pipeline and have more money to invest in leads, if that is the route you want to go. If you close enough wholesale deals, you can eventually make enough to use your own capital to fund your next purchase. It will take some time to get there, but if you are committed to the business it will happen before you know it.