Article by Dwan Bent-Twyford
This is our personal favorite. The great thing about wholesaling real estate is that you don’t take ownership of that property. Once you have the property under contract, you assign the contract to another buyer who will close on the property in your place. There is no risk, and you can do it with little or no money down!
Some investors call it “wholesaling real estate.” Others refer to it as “flipping properties.” Regardless of the term you use, the bottom line is the same: You can make big bucks from property you don’t own! Let’s look at how easy it is:
Step one: Find a property
If you are advertising correctly, your phone will ring off the hook. Find a property with sufficient equity and get busy. Let’s use the example of a property worth $100,000 that you negotiate down to a buying price of $55,000. You fill out your sales contract with the homeowner as the seller and you as the buyer.
We like to use contracts from the Board of Realtors. They are easy to use, and
homeowners are familiar with them. Call your local Board of Realtors to see if they sell contracts to the public. If not, most office supply stores sell real estate contracts.
One of the first lines on the sales contract is a place for the buyers’ name. Put your name and the words “and/or assigns” after it. This will allow you to assign the contract to the rehabber.
To make the contract binding, you have to leave a deposit with the homeowner at the time of signing. We typically leave a $10 deposit. This way, if we are unable to wholesale the property, we are not out a lot of money.
$10! Who would take that? Everyone! When we first started asking homeowners to take a $10 deposit, we thought we’d get kicked out of the house. To our surprise, no one gave us any grief.
If you say it like this: “We typically give a $10 deposit and close in 45 days. That won’t be a problem, will it?” They always say, “Okay.” The only reason a homeowner won’t take $10 is because of the way you present it. Speak with confidence.
Step two: Start building your buyers list.
This is a list of rehabbers who will buy your wholesale properties. [Here is a recap from a previous article: How to Build Your List of Buyers] First, run an ad in the paper that says something like:
Handy, investor special
Great deal for rehabbers!
Thousands below market—Won’t last!
When investors begin calling, get their information. Take their name, number, fax, and email, and put that information in a database. Then the next time you find another deal, you’ll have a list of buyers. Run your ads for sixty to ninety days. Even if you sell your property the next day, keep the ads running.
Tell the investors that the property sold; however you are working on another, and ask if you can you call them once the deal is finalized. They will always say yes. Our buyers list has close to one thousand names. We have been collecting them for years.
Every time we get a deal under contract, we fax and email our list and boom—the deal is gone. Remember, the faster you find a buyer, the faster you get paid.
Step three: Negotiate a deal with your rehabber
This is how a wholesale transaction might look. Say the house is worth $100,000 in good condition. The homeowners are distressed—either they are behind in their payments or facing foreclosure. They have to move quickly.
Say they owe $50,000 on the property, and they need $5,000 to move and pay deposits for their new place. (Remember, you know this because you have asked them what they are seeking as a result of your assistance.) You offer them $55,000, and they accept.
The house is worth $100,000 in good condition. You figure it will take approximately $15,000 in repairs to get it to market condition. You have a rehabber lined-up, and you know he’ll pay 65% of the retail value. You decide to sell it to him for $65,000, making $10,000 as your assignment fee.
The new price is $55,000 to the homeowners and $10,000 to you for putting the deal together. The rehabber will fix-up the property and make the difference between the $65,000 and the $100,000 fair market value.
If the rehabber does a good job on the property and keeps rehab costs low, the potential profit is $15,000 to $20,000. Not too bad either!
Step four: Prepare for closing
Using your investor-friendly title company, move towards a closing. The beauty about title companies is that they do all the work for you. All you have to do is find the deal, wholesale it to your rehabber, and go to closing. The title company does the rest. Folks, it’s that simple!
Wholesaling real estate is fun, and the money is quick. Can you see why we love it so much?