Should I Start Out Wholesaling as a Real Estate Investor?Posted on October 1, 2014 by
Many people present wholesaling as a great way to gain capital for investing in real estate. One of the toughest things about getting started investing in real estate is saving enough money to invest. There are ways to invest with little money down, but you are still going to need some money to buy properties. Wholesaling may be a way to get started investing in real estate without much money. Wholesaling may not make you super rich, but it will teach you a lot about real estate investing and I think is a great place to start. For one, because that’s how I started, and two, I’m still doing it.
What is wholesaling real estate?
Wholesaling real estate involves an investor (“wholesaler”) buying a property or getting a property under contract and then selling the house or assigning the contract as quickly as possible. The investor may wholesale the property to another investor who will then fix up the property and rent it or flip it. The key to a successful wholesale deal is finding properties cheap enough where there is still room for a profit for the end buyer.
How can you find properties to wholesale?
I think a wholesaler’s biggest opportunity is to find off market properties. I call it the “Direct to Seller” method (no banks, no Realtors). Off market properties are houses that are not listed for sale, but are still for sale. The owners may be too far away, too busy, or too beat down to list the homes. The owners still want to sell the home, they just need the right person to find them and make an offer.
The only way to make money in wholesaling is to find properties that people will sell to you for WAY below market value – that is the only way to create a spread where you can make money and sell it to somebody and they can still make money on it too.
Here are a few possibilities for finding off market properties.
Attend REIA meetings
You may find investors or wholesalers with off market properties at REIA meetings. Meeting other wholesalers at the meetings is a great start because you may be able to partner on a deal. Investors looking to get rid of homes at the meetings may be a fantastic opportunity. You can also find buyers at REIA meetings, which is also very important to a wholesaler.
Send direct mailings
I personally send out direct mailings and have done most of my deals thru sending letters to home owners. I create my own lists of who to send to by driving for dollars, but you can also buy lists of the following home owner types: absentee owners, pre-foreclosure owners, eviction notices, divorce, probate, inheritance, free and clear, etc. Your letter should say “I want to buy your house” and include your phone#.
Advertising for off market properties
Many investors also advertise that they buy houses on websites, on bandit signs, newspapers and billboards. At minimum you should have a website with a capture page – that way you can put your website address on your business cards, on flyers, in newspaper ads, and on Craigslist. Be sure to put your phone# there also and either always answer your phone or have a voice mail service set up for sellers to leave a message. Go to my website to see who we use.
It is not easy to become a successful wholesaler
It takes time and a lot of effort to buy homes off market. If it was easy, all investors would use these tactics, but it is difficult and very few investors try to market “Direct to Seller”. If you want to be serious about investing in real estate and think wholesaling is your way in, market to sellers; you will get the best deals and you will learn how to find and negotiate great deals for other investors and eventually for yourself when you get enough money to start buying properties to hold or flip. That’s the goal I hope.
Getting a contract on a house to wholesale
As a wholesaler you have two options; get under contract on a house and flip (assign) the contract, or buy the house and sell it right away (double closing). Many MLS listings will require proof of funds or a prequalification letter. This is a reason why it may be tough for wholesalers to buy off the MLS. Most REOs and HUD homes will not let you assign a contract; you will have to buy the home (or double close). If you are wholesaling because you don’t have money to buy an investment property, it may be tough to buy a home to wholesale.
If you are wondering what it means to assign a contract it is pretty simple. You make an offer; the offer is accepted by the seller and the contract has a clause that allows it to be assigned. That means another person can step in and become the buyer. A wholesaler can actually sell the contract to another investor before they ever have to buy the home. It’s an Assignment of Contract. At closing, you get your Assignment Fee.
How to use a double close to wholesale a house
When a wholesaler does need to close on a property to re-sell immediately, there are ways to buy the home without using their own money. The first thing you need is a great title company that will do a double close. The seller sells the home to the wholesaler. The wholesaler then immediately sells the home to the end buyer and the title company uses the end buyer’s money to pay the original seller. The wholesaler gets paid the difference in between. Please check your state laws to make sure this strategy is legal in your area.
How does a wholesaler find buyers?
Once a wholesaler finds a house to sell or assign – and has it under contract, they need to find a buyer! Usually the margins are very tight on wholesale deals and there is not room to pay real estate commissions. The wholesaler must find their own buyers to make the most money on wholesale deals.
As I mentioned earlier a REIA meeting is a great way to find investor buyers. You can also check recent sales to find who bought houses for cash as they are most likely investors. I just received a letter from a wholesaler who found me because I bought a house for cash. Try to hang out wherever investors who buy houses hang out. Investor meetings, Trustee sales, auctions, tax sales are all great places to find investors. Also – post your property on websites, bandit signs, online classified, and even direct mail to buyers.
Practicing real estate without a license
As a wholesaler you must have the property under contract to sell your interest in the property. You cannot bring a buyer and seller together and take a commission or any other type of fee. This would be considered brokering a real estate deal and you must have a license to do this. It is against the law to practice real estate without a license. So what makes Wholesaling legal is that you are a principal in the deal because you are on contract with the buyer and have beneficial interest. Always keep yourself covered. Either get on the purchase contract or get on the Assignment contract. You don’t get paid a commission – it’s either an assignment fee, or it’s profit from a double close.
It takes hard work and time to become a successful wholesaler. It is not a get rich quick business, but it can be a way to get started if you have no capital and really want to invest in real estate. I think the biggest benefit to learning to wholesale, is it teaches you how to find and negotiate great deals. If you can find great deals, there will always be buyers willing to invest in them. And once you are buying for yourself, now you know how to find and negotiate great deals which is a skill that will pay you over and over for life. If you are new and have little funds, credit, or experience – then wholesaling is a great place to start. Be sure to visit – www.HowToWholesaling.com – for FREE information on how to get started.