Investing in real estate is one way to build your portfolio, but be aware it’s nothing like investing in stocks and bonds. You’ll need to do your research, have access to large amounts of initial investment monies, and deal with property management. If all that extra work doesn’t appeal to you, other avenues are available for investing in real estate. Wholesale real estate is one option that allows you to invest in property without a large down payment or the worry of dealing with tenants and rent.
What Is Wholesale Real Estate?
Wholesale real estate is a term for when a real estate investor enters into a contract with the property owner and then sells that contract to another buyer at an inflated price. The investor keeps the price difference between the amount of the contract with the seller and the amount for which they sold the contract to the buyer.
This type of investing can only take place when the property being sold under contract is offered under market value, such as with a foreclosure sale. Foreclosure often happens due to unforeseen financial circumstances or when a house needs a tremendous amount of repairs the seller cannot afford. Foreclosure causes a property’s price to drop substantially, creating the perfect investment opportunity for a wholesale real estate investor.
A real estate investor’s goal is to sell the contract they’ve entered into with the seller to an interested buyer before the contract with the seller closes. In wholesale real estate situations, money rarely exchanges hands between the investor and the seller until a buyer surfaces. All parties are aware of the roles in this exchange. The seller is motivated to participate because they don’t have to put the legwork into selling their home. The buyer is interested because the investor has vetted the house according to their specifications, saving them time searching local listings.
Wholesale real estate is ideal for investors who want to invest in real estate but don’t have the finances to purchase houses to rent, flip, or update and sell at a higher price. It’s also a way to profit from real estate without getting a real estate license or passing an exam.
How To Wholesale Real Estate
Once you’ve decided to try your hand at wholesale real estate, you’ll need to create a business plan to be successful. Here are a few steps to get started:
Build a Buyer List
When you know what buyers are looking for, it’s easier to connect them with a property. Build relationships with potential buyers so you can create a list with their specific needs in mind. Take the time to learn what your buyers are looking for as far as location, square footage, number of bedrooms, and more, so when you find a potential property, you can match it to a buyer. To build a buyer list, you can use one of the following strategies:
- Networking. Connect with local real estate investors, real estate agents, and landlords to build relationships that might locate potential buyers. You can also join a local real estate investing club to meet fellow investors or possibly connect with a partner who can work on future projects with you.
- Craigslist. Under the housing section on Craigslist, you can check for rent and for sale properties to find landlords and owners who might soon be interested in a wholesale real estate deal.
- Wholesaler’s buyers list. You can subscribe to a local wholesaler’s buyers list to connect with other wholesalers.
- Hard money lenders. Buyers who don’t have the total purchase price readily available will often turn to hard money lenders, making them an excellent source for referrals to cash buyers.
Thankfully, you don’t need a license to start wholesaling.
Know Your Numbers
Sellers and buyers are both looking to get the best deal possible, so you’ll need to know the fair purchase price on the properties you’re looking to buy and sell. A fair purchase price considers the cost of repairs, comparable home sales in the area, and the home’s after-repair value. Include these factors in your offer to the seller and end buyer, finding a price acceptable by all parties while still earning you a profit. Profit margins can be small, so investors typically focus on volume instead of the profitability of one sale.
Use any resource available, including email, direct mail, phone calls, and online sources such as Craigslist, to produce leads on potential sellers. Seller leads are homeowners motivated to sell, increasing an investor’s odds of negotiating a contract at a profitable price. These can include homeowners in tax default, foreclosure, or probate, as well as properties that appear vacant or listings that have failed to sell in the past. You could also contact landlords who live out of state as potential sellers.
Wholesaling Real Estate Step by Step
After you’ve created your business plan, it’s time to start the wholesale real estate process. Steps include:
- Finding a property. Review your buyer’s list to determine a property listed under market value that has the specifications they require.
- Negotiating with the seller. Negotiate a price for the contract that makes the seller happy while still creating profit potential. You’ll want to consider adding other expenses to the contract, such as earnest money, appraisal fees, and title company fees.
- Finding a buyer. Connect a potential buyer with the property and negotiate a fair purchase price that allows you to profit from the sale of the contract.
- Assigning the contract to the buyer. Once you agree upon a price, you can assign the contract over to the buyer.
- Closing and collecting. Attend the closing to oversee the process. Once the title company transfers ownership, you can collect your assignment fee.
As a wholesale real estate investor, consider putting a clause in your contract with the seller regarding the chance that the house does not sell so you don’t become a property owner unintentionally.
When you’re ready to delve into wholesale real estate investing, reach out to the team at Titan Funding. We have the knowledge and experience to answer any questions and provide you with a range of financing options. Call us at 855-912-8313 or complete our convenient online form.