Wholesale Real Estate Contract: A Guide For Beginners

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Wholesaling is an excellent entry into the profession of real estate investing. It offers powerful wealth-building benefits and does not require significant capital to get started. The conundrum for many investors, however, are the intricacies of the wholesale real estate contract.

This is especially true if you’re new to the investing business, and not familiar with many of the contracts and legal forms required. Even real estate agents, dipping their toes into investing for the first time, can find the wholesale contract a bit of a challenge.

Because there are numerous misconceptions about selling contracts and wholesaling in general, the following breaks down the in’s and out’s of a wholesale real estate contract.

What Is A Real Estate Wholesale Contract?

A real estate wholesale contract is a legal document between a real estate wholesaler and a seller, essentially giving the investor the right to buy the property. As a wholesaler, you are essentially setting up the game for others to play. Your job as the middleman is to locate a potential deal, secure the rights (much how a real estate agent would), and then assign the contract to a real estate investor. The concept of a wholesale is similar to a purchase agreement, but the mechanics are much different.

It is also worth noting that a wholesale real estate contract may be carried out in the reverse order. Otherwise known as reverse wholesaling, this process will actually have the investor seek out a buyer before they even have a property lined up. In doing so, the investor will already have a buyer lined up the second they initiate a wholesale contract. Additionally, seeking out the buyer first will give the investor an idea of what type of deal to look for. The primary benefit of conducting a wholesale real estate contract in reverse ultimately has to do with efficiency. If for nothing else, time is the most valuable commodity of an investor and having a buyer lined up will save them both time and money.

To better understand how a real estate wholesale contract works, wholesalers will need to first familiarize themselves with the basics of a purchase and sale agreement. The framework of this legal agreement, which provides the right to buy and sell a property, will include—but isn’t limited to—the following:


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Real estate wholesale contract

Wholesale Real Estate Assignment Contract

When you sign a wholesale real estate contract to purchase a property from a seller, you now have an equitable interest in the property. Under what is known as the doctrine of equitable conversion, this enables a buyer to become the equitable owner of the property while the seller maintains the bare legal title to the property under the terms of the agreement.

Although you won’t have the title to the property, you’ll be able to control it using a contract. On that note, it’s important to mention that every state and county will have its own laws on wholesaling and the formalities of the real estate wholesale contract.

The next step will then be to assign your contractual rights to an investor, which will require an Assignment of Real Estate Purchase and Sale Agreement. This contractual document will basically state the new buyer is assuming your responsibilities, including the purchase of the property to the agreed-upon terms in the purchase and sale agreement.

It is vitally important the new buyer is informed of the stipulations and layout of the original contract, agreeing to all prices, terms, conditions, and contingencies. That’s why wholesalers should attach a copy of the purchase and sale agreement to the Assignment of Real Estate Purchase and Sale Agreement. This will ensure the new buyer is not only aware of the original sales agreement but has a copy that discloses all addenda that were made in the deal.

As part of a real estate wholesale contract, wholesalers will collect a profit for their work. The terms of how they get paid will be included in the Assignment of Real Estate Purchase and Sale Agreement. Generally speaking, wholesalers are typically paid a deposit when the Assignment of Real Estate Purchase and Sale Agreement is signed; the rest of the profit comes after the transaction closes. As a reminder, it’s best to have an attorney review the documents and contracts to ensure they’re correctly written for what you’re trying to accomplish.

Pros Of Wholesale Real Estate Assignment Contracts

Several benefits come with assignment contracts for wholesaling real estate. From turning quick profits to learning about the real estate market quickly, here are a few of the advantages of wholesale real estate contracts to keep in mind:

  • Easily turn quick profits: Wholesale real estate contracts are able to make you profits within 30 days or less. Commonly, savvy wholesalers close around 5 – 10 deals per month. Once you have the experience in finding motivated sellers and building a buyers list, you will be able to repeat the process and turn these kinds of profits yourself.

  • No credit check requirement: Even with bad credit, you will still be able to wholesale real estate. Since wholesalers are assigning the contract to another buyer, they are not the ones who have to go through a credit check. Only the buyer will have to go through credit checks to fund the property.

  • Learn about real estate investing quickly: While wholesaling may sound intimidating for beginner investors, it is the perfect opportunity to learn quickly learn the ins-and-outs of the real estate market. Wholesaling is a combination of real estate transactions and will teach you many of the skills you will be using later in your investment career. These skills include legal documentation, calculating ARV, negotiating, marketing, and much more.

Cons Of Wholesale Real Estate Assignment Contracts

Now that we’ve covered the several advantages of wholesale real estate contracts, it is equally important to note the disadvantages it may have before you dive in. Some of the cons of a wholesale real estate assignment contract include:

  • No guaranteed income: While wholesaling is a great way to earn profits quickly, steady income is not guaranteed. Once you find a distressed property, it still may take some time to find a buyer for it. As a wholesaler, you are constantly trying to find the best deal for all parties involved, and the best option may not come to you overnight.

  • Building a buyers list take time: As one of the key components to wholesaling, building a dependable buyers list may take an ample amount of time. You will want a sizable list of potential buyers before offering anything to the seller. In doing this, you reduce the risk of not making a sale at all. A common practice for wholesalers is working with repeat buyers who have been known to reliably make deals in the past.

  • It can be hard finding distressed properties: Wholesaling often requires you to find distressed properties outside your local market. Unfortunately, there is no way to automate this process and the research will have to be done yourself. You may have to find distressed properties through newspapers or by driving around neighborhoods to find unkept homes. Other strategies include direct mail and social media marketing campaigns.

Wholesale Contract Template: The Wholesale Purchase Agreement

In order to make sure that all parties are clear on the specificities of a given contract, the agreement must be as direct and informative as possible. Luckily, this process can be streamlined with the help of a template. While the following is not a downloadable wholesale real estate contract pdf, it can serve as a detailed outline for investors. Use the template below as you get started, and do not be afraid to add more information as you go along. When it comes to real estate wholesaling contracts, the more informative and clear the better. Here is a wholesale contract template to get started:

  • Parties involved: The names of both buyer(s) and seller(s), including signatures from all parties listed on the title.

  • Description of real estate: The property’s address, legal description and property type.

  • Personal property included in the sale price: Anything not attached to the building or the land. In most cases, this will include home fixtures.

  • Purchase price and financing: The purchase price, deposits and financing terms.

  • Where deposits are held: Outlines the manner in which deposits are held.

  • Financing contingency: Outlines the financial terms or if paying by cash.

  • Conditions of premises: Highlights the physical condition of the property that will be presented to the buyer.

  • Inspection contingencies: If the property does not meet the standards of a buyer, as listed from the conditions of premises, this will allow for an inspection period to occur (typically 14 days), in which point the buyer can back out.

  • Statement regarding lead-based paint: Disclosure related to lead-based paint.

  • Occupancy, possession and closing date: Establishes a deadline for the closing date.

  • Deed type: Confirms the type of deed to be conveyed.

  • Marketable title: If the seller is unable to pass title or the buyer is unable to obtain title insurance, this option will reject the purchase and return the deposit.

  • Adjustments: This will vary by state, but typically includes modifications for taxes, water, sewage and other charges.

  • Buyer’s default clause: This outlines the rights of the seller if the buyer defaults on the agreed upon terms of the contract.

  • Seller’s default clause: This outlines the rights of the buyer if the seller defaults on the agreed upon terms of the contract.

  • Risk of loss and damage: Protects the buyer in case of damage to the property while under contract.

  • Addenda: Common disclosures and addenda of the contract.

Wholesale buyers list

Real Estate Wholesaling Contracts & Marketing

The one thing every wholesaler will need to begin considering is a wholesale buyers list. Success in wholesale only works if you have investors in place to call upon. Therefore, a wholesale buyers list with ample prospects will serve as an invaluable tool.

Everyone you come across is a lead. Whether it’s through casual conversation at a coffee shop or dedicated real estate networking events, the people you interact with have potential to become a customer. In order to go from interacting with people to incorporating them into your business dealings, and eventually into a sale, it takes marketing. A wholesale buyers list acts as your audience; give them what they want. When adding to your bank of prospects, it’s important that you take down information on your lead, which will typically include:

  • Buyer’s First & Last Name

  • Phone Number

  • Email Address

  • Buying Criteria

  • Type Of Funding

  • Personal Information

  • Source Of Referral

Generating Wholesale Leads

Once you have the basic information on your contacts, it will then be time for the real estate lead generation campaign to begin. The three most common types of lead generation outlets are through networking, marketing campaigns, and social media/web presence. For those looking to get started, the following breaks down each individual marketing strategy for generating wholesale leads:

  • Networking: One of the cornerstones of real estate investing is networking. This process of meeting contacts with the thought of working together down the road is what has fuels the industry for years. Although it may appear like a slow process when first starting out, real estate networking can significantly improve an investor’s results.

  • Marketing Campaigns: A real estate marketing campaign aims to get both your message and word on your business out to the public. In most cases, a marketing campaign will consist of tools like email, direct mail, and even business cards to reach your target audience.

  • Social Media: Online marketing has the power to pull the shades back on you and your business and expose your brand to millions of people. With access to such a vast and diverse audiences, the one outlet almost everyone uses is social media. Whether for business or pleasure, site likes Facebook, Twitter and LinkedIn are home to billions of active users on a daily basis, which is a goldmine for wholesalers. Done right, social media has the ability to produce endless streams of leads to your wholesale buyers list.

Summary

A wholesale real estate contract is the central component to an investor’s wholesaling strategy and the factor that plays the most significant role when looking to get paid.

So even if you’re not a complete wholesaling expert—and born with a legal mind—make sure to dot your I’s and cross your T’s to ensure this complicated, though powerful, form of investing doesn’t leave you in the dark.

Ready to get started building your real estate business and take control of your financial future?

Wholesaling real estate is one of the best strategies that can help new investors familiarize themselves with the real estate industry. Learn how to get started in wholesaling— even with little to no capital— with our new online real estate class hosted by expert investor, Than Merrill.

So if you’re considering real estate investing, register for our FREE 1-Day Real Estate Webinar and get started learning how to start a successful investment business today!

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