Wholesaling houses is one of the best ways to break into the world of real estate investing. In a nutshell, wholesaling is the process of finding a deal and passing it along to an end investor. Doing this allows you to stay clear of any risk and not tie up capital for the length of the rehab. When you wholesale real estate, you are offered ease of entry to the business, but it does not guarantee success. Like anything else you do in real estate, there is a fine line between success and failure. You need to have a baseline of knowledge about the process and everything it entails. Without it, you could end up spinning your wheels. Here are a few basic concepts you need to know before you start wholesaling real estate.
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What Is Wholesaling?
Wholesaling houses is an exit strategy where investors find a discounted property, get it under contract, and then sell it to an interested buyer for a profit. Wholesaling houses is a strategy that has become synonymous with today’s quickest method of turning a profit, with some investors wholesaling properties in as little as a few hours. Learning how to start wholesaling real estate involves taking a closer look at the process. Investors will find discounted properties, usually ones below market value, that they can then control through the use of a “purchase and sale agreement.” While under contract through said agreement, the wholesaler will then locate a subsequent buyer willing to purchase the contract.
When investors sell a contract, they aren’t selling the property itself; they are actually selling their right to buy it to someone else. Under what is known as the doctrine of equitable conversion, once a real estate agreement is signed by everyone involved in the wholesale deal, the final buyer becomes the equitable owner. The seller retains the bare legal title to the property under the terms of the agreement. On the other hand, a double closing will have you purchase the subject property and sell it immediately after the acquisition (without rehabbing it).
What Is Reverse Wholesaling?
When you reverse the wholesaling process, you look for buyers first before finding deals. Reverse wholesaling differs from traditional wholesaling in that you already have a good indication of what your buyer pool wants. It is your job to then locate the property and match it with the buyer.
Flipping the contract in reverse wholesaling can be easier since you already know the buyer has an interest in the property.
On the FortuneBuilders Real Estate Investing Show, Jeff Rutkowski discusses the current state of the real estate market and provides tips and strategies about the process of reverse wholesaling. Listen to the podcast here:
How To Wholesale Real Estate In 5 Simple Steps
Investors ready to learn how to start wholesaling houses will be happy to know the process is not complicated. Here are a few simple steps to get started wholesaling:
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Research your local market before getting started.
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Curate a buyers list for your area.
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Secure a financing source that works best for you.
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Begin searching for potential wholesaling properties.
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Decide whether to sell the contract or work on a double closing.
1. Do Your Homework
As with anything else in the real estate industry, the more prepared you are, the better. A great place to start is by familiarizing yourself with an overview of the process of wholesaling houses. Then, it is a good idea to conduct the appropriate research on your local market. Get an idea of what home prices look like, where different neighborhoods are, and what types of properties are available in your area. Doing your homework now will help build a strong foundation for your future wholesaling endeavors.
2. Work On Your Buyers List
Before investors start searching for their first wholesale deal, it is a good idea to get a buyers list in place. As a wholesaler, your sole purpose is to act as a middleman between sellers and buyers. That’s why it’s a good idea to know where to find buyers before securing a property under contract. Building a strong buyers list will help make sure you know where to take any deals you find.
There are several ways to build a buyers list, including attending real estate events, networking, email marketing, and social media. Many successful wholesalers also rely on bandit signs, which share your contact information throughout a given area. Remember, it is in your best interest to know who you are selling to before you ever find a deal.
3. Line Up The Capital
Another step to take before you can start wholesaling houses is to secure financing. Identifying a great property won’t help your business if you are unable to purchase the contract. Align your services with a private or hard money seller to get started. By doing so, you’ll be able to secure financing quickly and smoothly when your first deal comes around.
4. Find Wholesale Real Estate Deals
Once you are ready to find wholesaling deals, there are several strategies you can use. A great place to start is by searching for distressed properties in your market area. These are perfect because sellers are often eager to get rid of the property, and more often than not, you can secure the deal under market value. To find distressed properties, you can search online real estate sites, like Zillow or Realtor.com, ask your network, or even look on Craigslist. You can also find distressed properties by searching public records in the area. Look for cases where someone has recently inherited a property or homeowners who are behind on payments.
5. Determine Your Exit Strategy
There are two ways to profit from a deal as a real estate wholesaler: selling a contract and executing a double closing. Wholesalers who opt for selling a contract simply match up sellers with buyers without ever owning the property and profiting from the process. This is the most common strategy in wholesaling.
Wholesalers can also execute a double closing, which involves actually taking possession of the property. For investors, this means they will be responsible for all the costs associated with closing the property. For this reason, investors will only utilize a double closing when they find a buyer willing to pay a lot more for the property. All in all, choosing the right strategy will depend on the wholesaling deal at hand.
Do You Need A License To Wholesale Real Estate?
You do not need a license to wholesale real estate; you need to be the principal buyer in the transaction. It is helpful to have specialized knowledge of the home buying and selling process, but no assessment is required to begin. That said, obtaining a real estate license can have several benefits for investors interested in wholesaling. With a real estate license, investors can access the MLS, a great source of property leads. Obtaining your real estate license can also open investors up to several networking opportunities, which could be helpful down the road.
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How To Start Wholesaling Real Estate: 4 Beginner Tips
If you want to become better at wholesaling real estate, here are a few universal tips I highly recommend trying out for yourself:
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You Need To Market To Find Deals
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Networking Is Critical
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Know Your Numbers
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Convert Leads To Deals
1. You Need To Market To Find Deals
You don’t necessarily need to break the bank when you get started in wholesale, but you do need to have capital on hand to find deals. Wholesale deals are different from regular rehab deals you may find because there is an extra layer involved. There has to be enough meat on the bone to entice an end investor to buy it from you. To make a profit, you need to find deals at a low enough price point that makes sense for everyone. This may require you to spend money on marketing to find deals. You don’t need to roll out a full-scale marketing campaign, but deals will not just fall into your lap. Between bandit signs, targeted marketing, and social media exposure, there are a handful of ways to search for properties without breaking the bank. Before you get going, you should accept that you need to spend some money to find deals.
2. Networking Is Critical
If you want to be successful in real estate, you need to put yourself out there. Whether you are wholesaling, flipping, or looking for rental properties, you need to increase your local exposure. This is especially critical when it comes to the wholesale side of the business. Good wholesale deals are hard to find. Some of the best ones will be through word of mouth from your personal contacts. Accumulating those contacts takes time and dedication, especially when building a fledging wholesale buyers list. Every local networking meeting or real estate investment club is an opportunity to increase your profile and meet new people. The more people you know in the business, the greater their chances of thinking of you the next time they have a specific deal. You should have business cards ready to hand out at all times. Some of the best contacts you make will often come from informal settings. Field trips for your children’s school, office projects, and even happy hours at your favorite bar can be a chance to talk about real estate. To find good wholesale deals, you need as many different options as possible.
3. Know Your Numbers
A common mistake that most new wholesalers make is not fully knowing and understanding the numbers. Think about the wholesale process for a minute. You need to acquire the property low enough where an end investor still sees potential. Depending on the property, there will most likely be a list of repairs and expenses required. If you are not an expert in repairs, you should leave that to a contractor or someone that knows what they are doing. Additionally, there are carrying costs that need to be paid for as long as it is owned. Taxes, insurance, utilities, and other miscellaneous items will quickly add up after a few months. Finally, you need to have an idea of what comparable homes are going for in the area. Doing work and making improvements is great, but it may not yield as large a price increase as you may think. Even though you may think there is a significant profit, it may not be what your investors are looking for after all is said and done. Before you even make an offer, you need to know the numbers.
4. Convert Leads To Deals
Like anything else you do in real estate, you need to take advantage of opportunities that come your way. Getting leads and talking to homeowners is great, but you need to turn those into deals. You need to dedicate time to learn how to talk to homeowners and what to say when you do. In most cases, they are selling because you can alleviate a problem for them. They will probably sell whether it is to you or someone else. How you talk to them, answer their questions, and deal with problems makes all the difference. Having your phone ring off the hook is great, but it doesn’t do much good if you don’t close deals. Once you close a deal or two, the process becomes much more manageable. Until you get to that point, you need to go through a period of trial and error. It will take a while until you know just the right things to say to a homeowner. There will occasionally be a lost lead along the way. After you figure out a routine and a method of converting deals, wholesaling will become that much easier.
How Much Money Do You Need To Start Wholesaling Houses?
Fortunately, you do not need much money to start wholesaling houses. You will not need to take out any loans, and you will not need excellent credit to get started. However, it is critical that you set aside a budget for marketing. As we mentioned before, marketing is one of the most important parts of wholesaling because it will help you find deals, locate buyers, and assign contracts. When you are first starting, take advantage of free marketing channels like Craigslist to try and get the word out.
If you are having trouble getting enough money together for a proper marketing budget, consider finding a partner to work with. Of course, this means you will have to split your profits, but a partner can bring in some much-needed capital as well as expertise.
How Much Do Real Estate Wholesalers Make?
The amount of money that real estate wholesalers make is completely dependent on how good they are at finding the right deal. The name of the game is securing a property for less money than the investor is willing to pay for it. The larger that gap, the more money you can make. When you become more experienced and skilled at finding great deals, the potential for raking in profits explodes.
It isn’t easy to pinpoint what an average deal looks like, but it is not uncommon to make $5,000 to $10,000 per transaction if you can find the right deal. The more money you make wholesaling houses, the more deals you can make, and so on.
How Much Should You Offer For A Wholesale Deal?
You should offer roughly 60 to 70 percent of a property’s after repair value (ARV). Prepare to negotiate, but remember that the purchase price directly impacts future profits. Estimate repair costs and a holding timeline to help maximize your margins.
Is Wholesaling Houses Worthwhile?
Wholesaling houses is worthwhile if you are able to consistently find properties, develop a solid buyers list, and assign enough contracts to meet your financial goals. Often, the job is what you make of it. Many investors find it appealing because you can get started with no money. At the same time, many will say wholesaling is a waste of time. This is because it can take a lot of effort, networking, and research to assign your first contract. Remember that with experience comes ease, and the more contracts you assign the more comfortable you will feel. Overall, wholesaling can be worth it if you are willing to put in the effort. If it sounds like too much, there are numerous other real estate investing strategies you can try.
Summary
Wholesaling houses is a great way to generate income and build a network in the real estate industry. Before taking a leap of faith, spend some time learning the process. By researching your market and building a strong buyers list, you can help ensure your wholesaling efforts are successful. The best part is investors who master this strategy will find it can jumpstart their real estate businesses.
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