Real estate wholesaling is very popular among beginner real estate investors because it does not require any official education or a license, and it can earn you a very quick profit without the need for a significant cash to be able to invest.
In short, real estate wholesaling is the process of finding a real estate property, negotiating a deal with the seller, signing a contract to purchase the investment property at a discount, and then finding a buyer who is willing to buy that investment property at a slightly higher price.
To pull off a successful wholesale deal, the price under which you sign the initial contract with the seller to purchase the investment property has to be below the fair market value, and the price at which you sign the contract to the actual buyer has to be slightly higher, and the final value of the property post renovation should be high enough for the buyer to make a profit from selling it after doing the necessary repairs.
The profit you make as a wholesaler will be the difference in price between what you’ve negotiated with the seller and what the buyer is willing to pay for the property.
Real Estate Wholesaling: Finding Properties to Wholesale
As a real estate investor, the first step you will need to make towards wholesaling a real estate investment property is finding potential properties to wholesale. The best investment properties for wholesaling are distressed properties. This is because distressed properties are typically put up for sale at a much lower price than the market’s average due to their need for renovation and repairs.
To locate distressed properties for wholesaling in your area, there are a number of mediums that you can rely on.
Real Estate Wholesale Groups and Real Estate Investment Groups
Real estate wholesale groups and real estate investment groups are groups of real estate professionals and experts who gather, both online and in person, to share information and discuss matters related to wholesaling and the available listings of distressed properties.
These groups and clubs can be a very useful source of information and for learning from the experience of others in the field, in addition to giving a real estate investor or wholesaler the ability to develop a solid network of professionals in the field who can help him/her in different aspects of the investments.
Related: 5 Ways to Find an Investment Property
Online Sources and Wholesaling Websites
There are a number of online sources and websites that are designed specifically for wholesalers. The websites can provide a real estate investor with data and listings to help him/her find distressed properties that are suitable for wholesaling in his/her area of interest.
Some of the best wholesaling websites or online sources that can be used for acquiring the required data include Craigslist, FSBO, and HomesByOwner.com. You can use these sources to search for distressed properties using keywords and terms such as “motivated seller” or “distressed property” or any other relevant keyword to narrow down your search results and get the most relevant listings based on your search criteria.
Hire a Bird Dog
Alternatively, you can hire a property finder, or a bird dog, to help you locate investment properties for your wholesale. These individuals will scout neighborhoods, conduct cold calls, and reach out to a wide audience to find investment properties for you. Typically, a property finder is paid upon the completion of a deal for a property that he/she has helped you find, which makes him/her an excellent and less risky choice as you will not have to pay unless you pull out the wholesale and make a profit out of it.
Real Estate Wholesaling: Making an Offer
Once you’ve located a potential investment property that is appropriate for real estate wholesaling, it is time for you to approach the seller and negotiate the deal. This is a very important step in any real estate wholesaling deal, as this is the point at which you negotiate the price with the seller and determine the amount of profit that you can make from the deal.
When approaching the seller, make sure to be professional about it and do your best to earn his/her trust. It is typically best to leave out the details of your deal, or more specifically the fact that you are wholesaling, as most homeowners will shy away from getting involved with a wholesaler and would rather deal with a normal buyer instead.
When negotiating the deal and making an offer, make sure to give the seller a good reason to sell and remind him/her of the benefits of selling the distressed property. Most homeowners who are selling a distressed property will be in a tough financial situation, and in many cases, they might have a debt that they are unable to pay. These reasons will make them more motivated to sell the property, and if you want to make a profit from the deal, you need to take advantage of that.
One of the best ways to convince a seller to sell the distressed property at a low price is by pointing out the condition of the property and the estimated costs of repairing and renovating it. Another thing that you can do is to remind the seller that he/she won’t have to pay any upfront costs and that all of the costs and expenses of repairing and renovating the distressed property will be handled by the buyer.
Related: What Are the Best Alternative Sources for Finding Investment Properties for Sale?
Real Estate Wholesaling: Hiring a Professional Team
After negotiating the deal and coming to an agreement with the seller, it is time to hire a team of real estate professionals whom you will need. There are three major real estate professionals whom you will need to hire at this point: a title company, an appraiser, and a contractor.
The title company will ensure that the real estate property that you’re dealing with is legitimate. It will run a title search on the property to see if there are any liens on it. Additionally, the title company will also be used at settlement (closing) and should be an investor-friendly title company.
Related: You Need These Real Estate Professionals for the Success of Your Investment Business
You will also need to hire an appraiser to assess the property and determine its value, which will ensure that you are paying the right price for the investment property and give you an idea of the price at which the property can be sold post renovations.
The contractor will be able to give you an accurate assessment of the repairs and renovation costs that the distressed property needs, allowing you to further assess the price at which you can sell the contract to a new buyer. This will also give you the upper hand when negotiating the deal with the new buyer as you will be able to provide him/her with accurate estimates of the costs of renovation, preventing him/her from giving you higher estimates to ask for a better price.
Real Estate Wholesaling: Assessing the Renovation Needs
As mentioned above, assessing the amount of renovation and repairs that the distressed property needs is an important step to any real estate wholesaling deal. This will help you with the financial planning of your real estate investment and will allow you to better understand the returns that you will be able to make from your investment. This will also prevent the new buyer from giving you overpriced estimates of the repairs in an attempt to decrease the sale price of the property.
Finally, having estimates of the costs of renovation and repairs will allow you to provide the new buyer with the overall value of the investment and the amount of profit that he/she can make from selling the property after renovating it.
Related: Home Renovation: A Guide for Fixer-Upper Investments
Real Estate Wholesaling: Finding a Buyer
Now that you have everything you need before approaching a buyer, it is time for you to start searching for a buyer. The best buyers when doing real estate wholesaling are not homebuyers but real estate investors. Real estate investors are most interested in opportunities where they can make a guaranteed profit if they have the finances to do so.
A wholesale deal is an especially attractive investment for real estate investors because it can be made in a short period of time and is guaranteed to make a profit. For real estate investors, they don’t even have to gather the information and conduct an extensive research to determine the value of the property and the profit that they can make from investing in it. The wholesaler will be doing all of that for them. All they have to do is to close the deal and fix the property before selling it again for a profit.
One of the best ways of finding interested buyers is through advertising the property through online sources such as Craigslist or Zillow. Alternatively, you can advertise the investment property by distributing flyers or by creating a solid emailing list with potential buyers from your real estate network.
Real Estate Wholesaling: Negotiating the Deal
After you’ve found a real estate investor who is a potential buyer, it is time to negotiate the deal. This negotiation is extremely crucial for you as a real estate wholesaler as it will determine the exact amount of profit that you will make from the deal. When negotiating the deal with the buyer, you will be using the contractor’s and the appraiser’s estimates to your advantage.
Be transparent with the buyer and provide him/her with all the data that you’ve gathered on the investment property so far. This will build up trust and assure the real estate investor of the profits that he/she can make from purchasing the property.
When negotiating the price, make sure to keep in mind the various expenses when calculating the profit that you will be making. These expenses include:
- Appraisal fees
- Title fees
- Contractor’s walk through fees
- Marketing and bird-dogging fees
A typical successful real estate wholesaling deal should generate no less than $2,000 after calculating out all of the expenses; otherwise, it would be considered unworthy of the time and effort spent.
Real Estate Wholesaling: Closing the Deal
Closing the deal will typically take place at the title company’s office. Keep in mind that the date of the settlement or closing will be determined in the initial contract that you’ve signed with the homeowner, as well as the contract that you’ve signed with the real estate investor. This date is typically fixed, and you will need to have carried out all of the previous steps before this date.
Related: Looking for a Good Deal? Learn How to Buy Foreclosed Homes
All parties will come together, and the settlement will end when the property’s ownership is transferred, and the new buyer is handed the keys to the property.
Keep in mind that different states and cities have different laws and regulations related to real estate wholesaling, and some states might enforce double taxation on a real estate wholesaling deal by assuming a double transaction, which applies the transaction tax twice. Make sure to research the laws and regulations related to your deal prior to the closing date to make sure that you have everything in check and that no additional complications might arise.
Bottom Line
Real estate wholesaling can be a very effective way of making a quick profit in real estate. Of course, there is much more to real estate wholesaling than this. The best wholesalers are individuals who are driven and with passion for real estate investing and who have built up enough knowledge and a solid network of professionals in the field to help them close their deals faster and make higher profits.
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