Why should you have a step-by-step guide to wholesale real estate?
To get your start in the quick money world of wholesaling real estate really isn’t that hard. There are a few steps you must learn and master if you really want to make it big.
If you would like a longer and more thorough read on how to wholesale real estate, check out my book “10 Steps to Becoming a Real Estate Wholesaling Rock Star!” It’s available for Kindle by clicking on the name, or get the PDF version by clicking “Free Book Download” on the homepage. OK, Sorry. Let’s get back to it.
To be able to wholesale real estate, you must actively seeks out property owners with property related issues that they cannot overcome on their own. To do a wholesale deal, you must find a person that NEEDS to sell their house. Not someone that “wants to” or “is thinking about it.”
When a wholesaler finds one of these motivated sellers, they get the seller’s property under contract, and then they assign the contract to another buyer before closing, making a small profit on the deal.
Wholesalers are the major providers of discounted inventory for rehabbers to fix and flip and for landlords to fix and rent. It is very hard for a small rehabber to market for motivated sellers while focusing on a rehab project. A rehabber is more than happy to pay the wholesaler $5,000 or more to be able to step into their next project without any downtime.
If you have no experience, credit, or significant assets, wholesaling real estate is the very best option for starting in real estate investing. You will have opportunities to learn the ropes without committing a lot of resources or taking on a lot of risk.
To the uninitiated, placing a contract on a $100,000 home is a daunting task filled with hidden dangers and the subject of countless horror stories. Once you’ve been properly trained, however, it’s like riding a bike, scary at first, but then it becomes second nature.
While it may seem that you only need a contract, pen, and a small amount of cash for a low refundable security deposit to get you started, there is a lot more to it than that.Remember….
To start wholesaling real estate, it is important to get instruction on the basics of real estate. Do not dive into this blind because if you have no idea what you’re talking about, people will know it immediately and you will set yourself up for failure. There are a few options to get basic real estate investor training.
One way is to take a state-offered real estate agent course. However, these courses do not teach “investment real estate.” They teach “agent real estate,” which focuses more on what you can’t do instead of what you can do. You will sit through lots of fluff that you don’t need just to get to the things that you do. Should you be an agent to wholesale real estate? (read more)
You can also learn the basics by searching online, but there is a lot of noise out there and people who have not spent any real time in the business tend to give a lot of bad advice. If you ask a question in an online forum, you will likely get a hundred different answers. You need to find someone that is trained, reliable, and accountable.
As a Florida-licensed real estate teacher, I used to answer questions online about real estate deals, but the barrage of bad advice was disheartening. Now I stay off the Internet forums and help those that come to me.
Reading a book about real estate investing is another option. Although you won’t get the complete bundle of knowledge needed, you will get some solid fundamentals. If you go this route, consider books by John Schaub or other experienced investors who have been around for years. Free Book Download
Another way to get investor training and learn the basics is to join a local REIA (real estate investors association). This will give you the opportunity to network with other investors and pick up tidbits of information at the meetings. Getting the needed training this way, however, will be a long, arduous process. As the new kid on the block, you will not understand the investor slang, which can be a challenge, so be prepared to ask questions, a lot of them.
In addition, “experts” often attend these meetings, offering seminars, training, and a variety of boot camps all in the name of helping you succeed! Their $1,000 to $1,500 weekend seminars don’t give you the wide scope of training needed. It just cannot be done in a weekend. They usually take a single old idea, polish it up, and present it as though they have just discovered fire. When those guys come around, keep your mind open, but your wallet closed.
I have developed a simple, in-depth, step-by-step program that gives you everything you need to learn as a new investor wholesaling real estate. It is self-paced and in an understandable, easy to learn, interactive format. This program includes a complete video training, along with downloadable checklists, cheat sheets, and bonuses. More importantly, it includes support. Most training gives you a bundle of info, a pat on the back, and you’re on your own. I wouldn’t do that to you.
The EZ REAL ESTATE CASH program also includes ME: Q&A, coaching calls, a private Facebook group, and everything I can do to help transform you into a real estate wholesaling rock star. Due to the in-depth nature of the program, I can only accept a limited number of students at a time.
Contact me at email@example.com to see if we are a good fit for each other.
A key attribute when wholesaling real estate, or of a good real estate investor is the ability to see past the obvious and find alternative options. Anyone can look at something and say, “I’ll take it,” write a check, and take it home. In real estate, there are many ways to do every deal. By understanding the options, you can choose the best one for your situation.
Let’s say that you find a house in a wonderful neighborhood at a great price. It needs some work, but there is a large upside potential. Do you wholesale it to someone else and pick up some quick cash? Do you close on it, pre-hab it, and market it to a retail rehabber? Do you do the full rehab and retail it, or do you partner on it with another investor?
The best course of action will depend on many factors, such as:
Learning which tactics to use can minimize stress and make you a lot more money. A big issue facing investors is deciding which strategy to use for a given situation. Sadly, investors often let the vision of dollar signs drive them to make bad decisions. I caution you to be careful because being greedy or making bad decisions can get you trapped.
On every deal consider these questions to help you decide what to do.
Not fully understanding your real estate contract is like a carpenter not knowing how to use a saw. You may get deals done eventually, but you’ll never be good at it. To become a real estate wholesaling rock star, you’ll need to become intimately familiar with the contract that you use.
A real estate contract is an agreement between parties for the transfer of ownership of real estate. The laws and practices that govern the transfer of real estate changes is based on the jurisdiction in which the land is located. Contracts can be legally enforced, so it is crucial that you have a full and complete understanding of what your real estate contract states.
It’s debatable whether a 1- or 2-page contract is better than a 12-page agent/attorney one, but both have advantages and disadvantages. The short contract is simple and easy to read; however, it lacks specific instructions on how to handle certain issues. Conversely, the long contract can be complicated, but it covers most anything that could come up.
At a minimum, all real estate contracts must meet four criteria to be valid:
Real estate contracts typically include:
When wholesaling real estate, you will have to choose whether to use the standard real estate contract that agents use, a standard real estate contract created by your state’s bar association or create your own contract.
I don’t suggest using a generic contract that you download from the Internet. Rather, use a state-specific contract, as real estate law changes from state to state.
Every state has different laws regarding:
Obtain a current contract from a local agent, real estate attorney’s office, or title company. Review the contract, reading it word by word, until you fully understand it. If needed, consult an attorney or closing agent for clarification.
Many new investors wait until it’s time to fill out a contract before they read it. At that point, it may be too late. You need to know in advance what all parties are agreeing to in the contract.
The few hours that you spend researching and understanding the contract can pay off in big dividends. In addition, the confidence that you exude when presenting a contract to a seller will likely win you some deals.
Sellers will rely on you to answer questions they may have about the contract. If you research it beforehand, you’ll be prepared to offer educated opinions on questions asked. In addition, opinions offered up quickly and confidently are usually accepted as fact. Preface your answer with, “The way I understand it…” Answering with, “I don’t know” or “I’m not sure” will cause doubt and may cost you the deal.
A closing agent oversees the closing of a real estate transaction. They are an impartial party to the transaction and provides escrow services and information, facilitating the transfer of the property from the seller to buyer at closing.
Some states have laws that require a real estate attorney to close real estate transactions, and others allow a closing agent at a title company to close them. If you do business in a jurisdiction that allows title companies to close transactions, weigh the pro and cons of using them vs an attorney.
At the risk of ruffling some feathers in the closing agent community, I recommend finding a real estate attorney to close your deals. Many investors think that using a title company will save them money and effort. However, in my experience, a savvy real estate attorney that will answer your questions and offer advice can be one of the most valuable members of your team. Their fees are usually comparable to a title company, and the additional advice and legal expertise that comes with using a competent attorney is priceless.
If you have doubts about the value, just ask the staff at a title company for legal advice and watch them scatter like a flock of pigeons.
Attorneys and title agents generally do not mind which contract is used; however, the seller needs to be comfortable with the contract and its content. To get you up and running quickly and help you avoid legal problems, it may be best to use the agent or state bar contracts. Reach out to the attorney or closing agent that you will use, explain what you are doing, and get their input on rules specific to your area.
In the EZ REAL ESTATE CASH training program, I cover contracts in greater detail, including specific strategies to get more contracts signed! Email me to learn more.
Every day when wholesaling real estate you will have to value property. A great wholesaler knows their market inside and out. This may seem like an insurmountable task, but it’s not that difficult. As you will learn when we cover the next couple of steps, you will only need to know a certain section of the market, possibly 1/3 of it. Be methodical in your approach, use this defined plan, and don’t get overwhelmed. You’ll be rockin’ in no time.
Possibly the best way to get a quick start is to conduct research on Zillow. Don’t concern yourself with the “Zestimate” valuation model. Rather, look at active listing prices and use the map view of your town to get an overview of where different price range neighborhoods are located. Then enter different price ranges of homes (e.g., $100,000 to $120,000 listings) to pinpoint your ideal target areas (more on this in Step 6).
Active listings will get you in the right area, but finding value requires you to use actual sale prices of recently sold properties. Once you find your target area, turn off the active listings and only look at sold properties.
Appraisers and real estate agents commonly use the Sales Comparison Method to find the value of a single-family home. This method is done by completing a Comparative Market Analysis (CMA) to compare a subject property with sales prices of similar properties.
Subject property – the home you want to find a price for
Comparable properties (comps) – sold homes used to compare to the subject property
Properties for comparison must be:
When you prepare your sales comparison, CURRENT VALUE (CV) & AFTER REPAIRED VALUE (ARV) are two numbers that need to be expressed.CV is determined by subtracting all costs of repairs from the ARV.
When trying to find a value for a property that may need repairs, you must first determine what the property would be worth in move-in condition. Start with comps that are in excellent or move-in condition. Adjust your move-in ready comps to the subject property for everything but condition, as you are trying to calculate an after repaired value for the subject property. This will give you the target ARV that the subject property would sell for in a retail sale if it is in perfect condition. Then subtract the needed repairs to the subject property to get the CV.
One problem that you will face is quickly determining the sold price per SF of recently sold properties. The information is easy to find, if you know where to
For example, if a 1,200 SF comp sold for $140,000, the sold price is $116.67 per SF. If your subject property is the same, except it has an extra 100 SF, add $11,667 to the comp sale price of $140,000 to get a comp of $151,667 for your subject property. If the other two come in near that price, then an average of the three will suffice. A good test for your ARV number is to make sure it doesn’t exceed the highest sales price in the neighborhood in the past year. If it does, redo your numbers. Let’s assume the number you came up with is $150,000 for your ARV.
When you get to the property and find that it needs a $4,000 AC unit and a $6,000 kitchen, adjust the value accordingly.
– $ 10,000 Repairs
$140,000 Current Value (CV)
In wholesale deals, you will not offer current value for the house. This is just an example to get you started and thinking.
After you calculate the after repaired value and the current value, you need to leave some room for profits (yours and your buyer’s).
There are two scenarios for the buyer’s profit. If you sell it to a landlord for a rental, they won’t be overly concerned with maximum ARV. They want it for cheap, will do minimum repairs, and rent it out as quickly as possible. If you sell for rehab and retail, then the ARV is a big consideration, and the finished product will need to be much nicer. I find that for either situation, a $20,000 profit on a home of less than $150,000 is enough to get people interested.
The math works like this
$ 140,000 (CV)
– $ 5,000 Your Profit
– $ 20,000 Buyer’s Profit
$ 115,000 MNA (Maximum Number Allowable)
Using this formula will give you confidence in your numbers, and that confidence will be felt by the sellers and buyers. When a prospective assignee asks how you arrived at your numbers (as they always do), pull out your notes and explain it to them.
Up to this point, we have focused on the hard facts of what a house is worth and how much everyone will want to profit from it. The only hurdle left to cross is to negotiate with the seller. When approaching a seller, your initial offer should never be the maximum that you are willing to pay. In my early days, I made this mistake a couple of times. I either left money on the table by paying too much, or I had a seller that felt they should negotiate but I left myself no room to do so. Someone once said, “If you aren’t embarrassed by your first offer, you offered too much.” You need to learn how to make a low-ball offer that you can adjust without embarrassing yourself.
Slightly reduce your initial offer to leave yourself ample room to move on the price.
$ 115,000 MNA
-$ 20,000 (room to negotiate)
$ 95,000 Initial offer
By using this formula, you will avoid offering too much for the property.
You may be asking yourself, “Why would someone sell a $140,000 house for $95,000?” The reasons may number in the hundreds, but it usually comes down to two circumstances.
Regardless of which one it is, if you’re there at the right time, they will give you a good deal to make their pain go away.
The term target market has two meanings. One is a target price range, and the second is a target or “farm” area. There are neighborhoods in your town that are best for wholesaling, and you need to find and focus on them. High-end neighborhoods typically do not have the distressed homeowners and price range that you will need.
I recommend you choose market areas that are below the median sale price for your area. The median price is the “middle price.” Half of the homes sold for more, and half sold for less. Google the median home price for your area. Zillow usually has a number that works, as well. The median price will typically be the high end of your target market.
Your goal is to find homes in neighborhoods that will have the broadest appeal, such as homes that are affordable to young families and first-time buyers and homes that would make excellent rentals. When wholesaling, you’re not dealing with move-in ready houses and retail buyers. Most often, you will sell homes that need repairs to rehabbers and landlords. They need homes in neighborhoods where average people want to live and homes they can repair or sell quickly and profitably.
If you find a home in an area of higher priced homes, the price point will likely be too high to make a profitable rental, so your best option will be to sell to rehabbers. Some people will argue that you can make more money on a high-priced home. They love to say that you can’t buy a $100,000 home at $100,000 below market, but you can with an $800,000 home. This may be true, but there are many things to consider. While the potential spread can be greater on higher priced homes, they tend to cost more to rehab, have higher holding costs, and take longer to sell.
If you stay below the median, you will have more competition for your deals.
In the previous sections, you learned how to quickly estimate a property’s value and defined what makes a good target market. In this section, you will learn how to locate specific neighborhoods to consider.
You’ve just done more to understand real factual data than many other investors.
Now you’ve got hard facts, when you are talking with someone about homes in that area, you can speak with authority.
Be aware that when someone is trying to sell you their home, the only numbers they know, or at least the ones that stick in their heads, are the list prices of the homes in their neighborhood.
They never bring up the actual sale price.
With this hard data, when someone says, “Well my neighbor on the next block sold theirs for $120,000,” you’ll know if that is true or false.
That home may have listed for $120,000, but sold for only $98,000, well below the asking price. It may have been a different size house, or it may have been newer, nicer, or sold 3 years ago and the market has declined.
People don’t intend to lie; they just use the part of the truth that meets their needs.
With the info that you have, you will know exactly what homes sell for in your chosen area.
One full weekend of snooping should reward you with enough info to get started.
When I talk about marketing as it pertains to wholesaling real estate, it includes the act of searching for a seller. Any act of either searching for a buyer or a seller falls under the title of marketing.
For this section, we will concentrate on the simple and inexpensive methods that can be used to locate motivated sellers.
Don’t listen to people who tell you that you need a huge marketing budget to be a wholesaler. I know a lot of wholesalers, both high rollers and low key. The ones with big marketing budgets tend to have more leads and deals, but they are also the first to crash and burn if they make some critical mistakes. An old investor once told me, “Always play with the house’s money,” meaning that once you do a few deals and make some profit, reinvest that into marketing if you want, but start out using the basics.
Here are the basic things that you can do to find motivated sellers without breaking the bank:
This should give you a good start to effectively market for motivated sellers on a budget. Implement one or two options at a time and see what feels best to you. Don’t try to do them all at one time or you will be overwhelmed.
If you work your way through this list and only implement half of it, you’ll be too busy with deals to worry about different marketing strategies.
I know this sounds obvious, but you’ll get a lot of calls from people that want to sell their home for retail. Sadly, new wholesalers tend to waste a lot of time trying to make something out of nothing. In their desire to get a deal, novice wholesalers will drive all over town to meet with sellers without qualifying them first. You need a simple set of standards, a template of sorts that you can apply to a seller within the first few minutes on the phone with them.
Here are three simple criteria to quickly cut to the chase with sellers.
When you start getting results from the marketing efforts that we covered in Step 7, make sure to prequalify the callers to determine their needs, motivation, and expectations before you invest more time with them.
Ask about their story and take some notes. If they spill their guts over the phone, keep them talking, get their story, and then close for the appointment. You can’t buy a house over the phone, so get the appointment. That’s the only way you can get the deal.
Before you hang up, make sure you know how long they have lived in the home and how much they owe on it. These two tidbits could save you time. If they bought it last year and didn’t put much money down, they may not be able to sell. They could be extremely motivated, but if they’re broke and heavily financed, you can’t help them.
If they seem gruff or cocky on the phone, they may just be fishing for an offer. Sometimes sellers (especially old guys) feel like they just have to see what you’re willing to offer, so they will call and preface the conversation with something like…
You will immediately know that the seller isn’t motivated and is only fishing for a high offer.FLUSH!!!
One of the oldest sayings in real estate is “If you’ve got a great deal, the money will find you.”
Finding a buyer to assign your contract to is easy if you’ve got a true wholesale deal. Pitch your deal to the local REIA, landlord associations, and post it on Craigslist. Word will spread quickly about your deal. Some other options include:
When contacting potential assignee’s, make sure that you have a solid property info package available for them.
Putting the bulk of the info on a web page and providing a link to it can be a real time saver.Make sure when someone starts asking questions that you are prepared to answer with hard info.
Your buyers will want:
Before moving forward, they will want to review the contract that you are assigning to them.If the owners still live in the property, a great way to handle buyer inspections is to schedule them all at one time.
This creates an auction atmosphere among the potential buyers and reduces the wear and tear on the sellers, as you’ll want them out during showings.
If you have a true wholesale-priced deal, your problem won’t be finding someone to take the assignment of contract. Your challenge will be dealing with all the crybabies that acted too late.
When you find your buyer and get ready to assign the contract, check out your buyer carefully. Get a proof of funds before you assign the contract to them. If using a hard money lender, verify that they have approved the deal and that funds are available.
A major concern in wholesaling is making sure that you don’t lose control of the deal. An inexperienced buyer may not understand the limitations of the assignment, and you may need to coach them on their role and rights in the deal.
Novice wholesalers typically do not know that they should be concerned with the timing of the transfer of an assignment. If your deal gives the assignee rights to the assignment at the time it’s signed, you have effectively lost control of the deal. If you did this style of assignment with someone who is inexperienced or less that honest, you can have a problem.
The best way maintain control is to have your assignment state that the buyer/assignee doesn’t get control of the assignment until just before and simultaneous to closing. You can also add some language in the assignment that would allow you to reject the assignment if they didn’t follow certain rules. This always keeps you in control of the deal.
As Tony Robbins says, “Take Massive Action!”Getting started in wholesaling may seem daunting, but it’s a simple process that anyone can do without having credit, verifiable income, or years of experience.
You can start today by focusing on real estate in your daily thought. Your brain sees what you tell it to see. If you start thinking about buying something, like a red car, suddenly red cars seem to pop up everywhere. It works like that with real estate, too. Tell yourself you want to find wholesale opportunities, and you will start noticing empty houses and opportunities.
Find a real estate attorney in your area that will give you a consultation. Speak with them about the business that you’re about to start and ask if they have a contract and assignment addendum they feel comfortable using. Let them know that you will attempt to have all the deals close with them.
If they say anything negative about wholesaling, then you have the wrong attorney. Some attorneys don’t have experience with investor deals and focus only on retail. If that’s the case, find another attorney who is “investor friendly,” as they normally will provide contracts and some advice without charging fees, in hopes of getting the closings.
Next, research your area and learn the home values. Hit Zillow for the map areas and take a ride. Find a couple of addresses on Zillow to drive by and compare them to other homes in the neighborhood. Also, look at the homes that are currently listed for sale and compare them to the sold properties. While driving, remember to keep an eye out for homes that need help.
Narrow down your target area, remembering to stay on the lower end of the market. Then get started on some marketing. Bandit signs are an easy and cost-effective starting point. If placed properly; they offer a good “bang for the buck.”
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