What is Wholesale Real Estate Investing?
Wholesaling Real Estate is the process of flipping a property without ever actually buying the property. Here is the typical three part process for wholesaling a property.
Step One: Finding a Motivated Seller.
As a Wholesaler the first thing you need to do is find a property to “buy”. Wholesalers use a variety of marketing tactics and techniques to find motivated sellers. Here are a few of the most common:
· Cold Calling a Lead Source
· Placing “Bandit Signs” for sellers
· Using bench ads
· Sending direct mailers
· Online advertising for buying homes
Once the Wholesaler finds a homeowner that needs to sell their house fast they place an offer on the property to purchase the home.
Finding a Homeowner that needs to sell their house at a price that a Wholesaler can make money, can be tricky. Try marketing to potential sellers by identifying a pain point. (foreclosure, divorce, tired landlord, ect)
Step Two: Making an Offer.
You’ve found a homeowner that is interested in selling their home and now it’s time to give them an offer. As a Wholesaler you need to calculate an offer that is low enough to be able to selling later to an end buyer as a discounted property. The goal is to give the homeowner a good price for their house that’s also low enough that an Investor can add value without going over the areas market value.
If you pay too much for a home that needs work you won’t be able to sell it to another Investor. Investors look for home that they can add value to then resell for a profit.
We recommend that you use a State Issued Contract to make your offers. They're many "Guru" Contracts & Agreement available, but you can't go wrong with the typical sale and purchase agreements that your local agents use.
Step Three: Selling the Property to an “End Buyer”
If the homeowner accepts your offer then it’s time to sell the property to an end buyer. An end buyer also known as a “cash buyer” or “Investor” is the person or company that will actually purchase and close on the home. The goal of the Wholesale deal is to make a profit by acting as the middleman in the transaction.
The end buyer is often times a seasoned Real Estate Investor that will update the home and resell it to a retail buyer for a premium price.
Here’s an example of a profitable Wholesale deal:
The Wholesaler gets a property under contract from a Motivated Seller for $100,000. They remarket the property to a Cash Buyer for $110,000. When the deal closes the Wholesaler will make $10,000.
This is a very simplified example, but this is the desired outcome of every Wholesale deal.
In conclusion, Wholesaling Real Estate can be a very lucrative business model. There are minimal costs to get started and very limited liability on the transactions; it’s a good way for any novice investor to begin their Real Estate Investing career.
If you have questions or would like to learn more about Real Estate Investing, Wholesaling and Investment Tactics, feel free to contact us today.