How to Wholesale Real Estate: A Step-By-Step Guide to Becoming a Successful Real Estate Wholesaler
If being a successful real estate wholesaler is your goal, then you’re not alone! Many people are ready to dump the 9 to 5 grind and join the world of real estate investing. If you’ve just discovered this magic, you may be wondering to yourself “what is wholesaling real estate”? This isn’t a common phrase that you hear in the news or in general conversations. This article will explain what wholesaling houses means, and give you some basic information about how to wholesale houses.
What is Real Estate Wholesaling?
Real Estate wholesaling is a specialized method for buying real estate. The process involves negotiating a purchase price on a property with the seller that leaves enough room to quickly flip the house for a cash profit. Once the wholesaler and the seller agree and the contract has been signed, the wholesaler can assign his interest in the property to a new buyer for a fee.
Buyer of a real estate wholesale deal are typically a landlords who own rental properties or a rehabber. They usually improve the property by doing repairs and then resell it to a retail buyer. Rehabbers rely on wholesalers to located distressed properties for them at discounted prices. Then they can focus more on their business model. These cash buyers are always looking for investment opportunities.
Is Wholesaling Real Estate Illegal?
Real estate wholesaling is not illegal as long as it’s done correctly. You must have a signed real estate purchase agreement with the current owner of the property. Only then can sell your interest to another person for a fee. The fee can be any amount that you and the new buyer agree to. Wholesaling is illegal if you’re advertising properties that you have no legal interest in.
How to Wholesale Real Estate
Learning how to become a real estate wholesaler can be a daunting task. There are many different coaches and real estate mentors out there who teach different methods of structuring creative real estate transactions. The basic process of wholesaling houses can be summarized in 5 simple steps:
Here is the breakdown of the 5 simple steps to follow when wholesaling real estate.
Generate Motivated Seller Leads
The ability to generate quality seller leads is where the real estate wholesale deal begins. Execute a marketing campaign that targets property owners that may be distressed (i.e. foreclosure. Probate, absentee owners, etc). Motivation is what will drive the seller to sell the property at a discount price. Without motivation from a seller, you’ll find yourself beating a dead horse. This will cause frustration to a newbie wholesaler, and may even drive you to give up.
Pre-Screen Sellers thoroughly to determine their motivation. Have a series of questions ready to ask your potential sellers. Listen for motivated seller trigger keywords. More often than not, the person responding to your marketing will not be the right person for your real estate wholesaling program. Not every seller is a qualified lead.
Without an underlying REASON to sell the house, and a need to get rid of the house, you’re not going to be able to get a deal. If you want to shorten the pain of this inevitable problem that all new real estate investors will have, I highly recommend practicing your listening skills. When you can understand the seller’s reason for selling, you can help them solve their problem.
Tips for Pre-Screening Motivated Sellers of Real Estate
- Stay in control of the conversation. Ask open-ended questions, so that they have to answer a specific question and can’t beat around the bush. This means that you might have to “politely” cut them off so that you can move on. Controlling the conversation also means that you don’t end up on the phone with the sellers for 30 minutes, listening to their life story. While that might be entertaining at first, it’ll get old REAL quick.
- If the sellers start telling you how beautiful their house is, and how much money they’ve put into over the last 50 years, they’re probably not your motivated sellers. They have an emotional and monetary attachment to their property, and probably just need to call a Realtor. Your #1 Objective during your first conversation with the seller is to find out WHY they’re selling the house. All of the other crap just doesn’t matter. When I say find out “WHY”, I mean dig and dig and dig until the seller reveals the EMOTIONAL reason that they need to sell the house. For example, if they say they’re selling the house because they can’t afford it anymore. That’s not the EMOTION that’s attached to their motivation. The emotion would be FEAR. Fear of ruining of their credit or fear of humiliation amongst their family. Once you discover their emotional reason why identifying them as motivated sellers, then you can probe and poke at it during your negotiations, irritating the problem and then offer a solution to their pain.
- Don’t forget to ask them if they have a mortgage on the house and how much they owe. A lot of investors think that this is asking too much personal information. If you don’t get this information in the beginning, you’ll wish you did!
Make An Offer to Purchase Property
Make the seller an offer that will work for both of you. This means the seller receives a price at closing that they are happy with and you buy the property cheap enough that you can assign your contract for a profit. That’s a win-win agreement.
In today’s competitive market, you may have to offer the seller a higher price than your competitors, in order to get the property locked up. This means taking less of an assignment fee in order to get the deal done. Don’t be discouraged by this. It’s the adjustment that you have to make in a seller’s market. Since your contracts are such short term agreements, you’ll be able to make a quick check and move on, even if you do have to pay a higher price.
Follow Up with Sellers
If your seller doesn’t accept your purchase price offer the first time, don’t consider them dead. Follow up with every seller that you’ve made an offer to. Create a strong follow-up funnel that will convert sellers months down the road without spending any additional marketing dollars.
Follow-up marketing campaigns can include direct mail, phone calls, text messages, emails, and retargeting on Social Media.
Close the Deal
Secure your position in this transaction by getting the seller to sign your real estate contract for the lowest purchase price possible. Use a simple, all-cash as-is purchase and sale agreement. When you get to this point, you’ve gotten through the most difficult part of a wholesale transaction. Now you can market the contract and assign it to a cash buyer.
How to Write a Real Estate Wholesale Contract
Writing a real estate contract can be intimidating, especially for a new real estate wholesaler. The agreements used in the business are typically very short and simple without a lot of contingencies. You can find Standard Purchase and Sale Agreements at your local office supply store.
Listed below are the essential elements of a wholesale contract:
Buyer and Seller Name
Both the buyer(s) and seller(s) name must be listed on the contract. The parties must be 18 years of age or older and be of sound mind. The signatures of all parties involved must be presented on the contract
Legal Description of Real Estate
The Property address must be listed on the real estate contract. When possible, also include the legal description. This can usually be found online in the property appraisers database or on a deed.
Purchase Price and Earnest Money
The purchase price that was agreed to by the buyer and seller must be indicated on the contract. If there is monetary consideration (earnest money deposit), that amount must also be listed on the contract. EMD is not required to make a contract enforceable but sometimes the seller will ask for it. This amount can be negotiated. Many times a seller is satisfied with a $10 – $100 earnest money deposit. If you don’t have money to risk on a binder deposit, offer the seller something else instead of EMD, like a higher purchase price.
Contract Expiration Date
All real estate contracts must have an expiration date. This is the date that both parties agree to perform by, or the settlement date. This can be negotiated between the seller and the buyer. For a wholesale deal, the expiration date is typically 10 – 30 days.
Best Marketing Lists for Real Estate Wholesaling
The key to a successful real estate business is learning how to generate motivated seller leads. There are some core lists of people that you can target to find the sellers that are willing to work with you. Once you can generate the right leads, you’re potential deals will be plentiful.
- Delinquent Property Taxes
- Quit Claim Deeds
- Code Violations
- Landlords who are Evicting Tenants
How to Find Buyers for Your Discounted Properties
The investors that will buy your contracts from you are typically landlord and rehabbers who don’t have time to find their own deals. Their exit strategy is completely different that yours. This makes for an excellent business relationship. A strong real estate wholesaler keeps a list of qualified cash buyers. When a property is secured through contract, contact the buyers and offer them the deal.
Here are some ways to locate cash buyers:
There are hundreds of Facebook Groups that are full of cash buyers. If you join these groups and the members in the group get to know you through social networking, you’ll have a great pool of buyers to sell your wholesale properties to.
Craigslist has a “Real Estate for Sale” classified section where you can post your properties. Depending on where you love, you may or may not have to pay a small fee to post your listing. When potential buyers respond to your ad, you can start building your cash buyers list.
Setup a website that is exclusive used to collect buyer leads and present deals to your wholesale buyers. Using a lead capture form and offering exclusive peeks at deals before they’re marketed to the public is a great way to build a buyers list. Drive traffic to your website through direct mail, social media, social media groups, and car magnets.
Local REIA Meetings
There’s a plethora of cash buyers at the local real estate investor meetings. Attend the meetings and come prepared with information about the properties (contracts) that you have for sale.
There are plenty of real estate agents who work with cash investors, both local and out of state buyers. Search for these Realtors online and build relationships with them. If you build in enough profit into the deal, you’ll be abe to offer a commission to the Realtor by helping you sell your contracts. Be sure the Realtor that you chose to work with understands real estate wholesaling.
Explaining Real Estate Wholesaling to A Seller
Sellers are very savvy in today’s market. They are familiar with real estate wholesaling and if you’re working with the right seller, are accepting of it. The best practice when it comes to sellers is to be totally transparent about your role in the transaction. Be honest with your seller and explain the process, the risks, and the rewards. Let the seller know your intention is to assign your interest to another buyer. The right sellers will get on board.
Do You Need a Real Estate License To Wholesale Real Estate?
A real estate license is required to buy or sell a property for someone other than yourself and be compensated for that. As a real estate wholesaler, you’re selling your interest in the real estate via the contract that you have with the seller. It’s similar to obtaining a mortgage, and then the mortgage company sells your loan off to another company.
Top 7 Reasons you SHOULD have a real estate license as a real estate investor:
- #7 – Access to the MLS for Comps and Market Data
- #6 – Ability to Find your Own Deals (REO‘s, motivated sellers, etc)
- #5 – Ability to List Your Own Deals (contracts, rehabs)
- #4 – You won’t be ignorant to the laws of your state.
- #3- You can fill income gaps with Realtor activity income
- #2 – You can refer leads for a referral fee
- #1 – Eventually become a broker and open your own office (for the ambitious only).
Can You Really Make Money Wholesaling Houses?
The business of wholesaling real estate can be very lucrative. In fact, it’s one of the easiest business models to make fast money. However, it’s not for everyone. There’s plenty of misconceptions about how “easy” it is to get started. In reality, one of the biggest challenges is getting things off the ground and closing your first deal.
Learning the business is like learning any new trade. You start with the basic concept and then start filling in the details. Eventually, it becomes second nature and you can do your work with your eyes closed.
The Mindset of a Real Estate Wholesaler
There seems to be a common mindset for those who are successful in the real estate wholesaling business. Once you have established that this is a real business and it needs to be treated as such, you can really start digging in. You are your own boss now. There isn’t anyone to tell you when to show up and when to go home. It’s entirely up to you.
Consistency is the Key to Success
Whether you are brand new to the real estate wholesaling business or have been in it for years, you should know that consistency is the key to success. Once you get your system running then it’s imperative to keep it running in order to keep deals coming in.
How Much Money Can You Make Wholesaling Real Estate?
The amount of money that you can make as a real estate wholesaler depends on how much time and money you have to invest in your business. The first year may be your lowest reported year of income, without $50,000 and it should increase from there. Many wholesalers easily earn as much as $1,000.000.00 per year.
What is an Assignment Fee?
An assignment fee is the amount of money that the buyer pays to take over the position of the real estate wholesaler in the contract. This amount can be a percentage of the purchase price, or a flat fee. It is negotiated between the buyer and the seller of the contract. The assignment fee can be paid at the time the interest is sold, or at closing as a line item on the Settlement statement.
How to Get Started Wholesaling Real Estate
When you’re ready to get started as a real estate wholesaler, the first step is to construct a marketing plan. The goal is to start generating leads. Motivated sellers are the lifeline to your success. Direct mail, Pay Per Click Advertising, bandit signs, and cold calling are just a few methods you can use to start generating leads.
To beat the learning curve, you’ll want to enroll in a training course or find a real estate mentor. Either of these can help eliminate some of the common mistakes that new real estate wholesalers make (like offering too much for a property).
How to Wholesale Real Estate With No Money
If you don’t have any money to fund your marketing campaign, you can offer your time to an experienced wholesaler in exchange for mentorship. Similar to an internship you can do certain tasks for a busy wholesaler like taking photos of houses, and marketing properties in exchange for some valuable knowledge.
Driving for dollars, cold calling and door knocking is another way to get started without any of your own money. This isn’t the best business model, since it will be hard to sustain once you start getting busy with sellers and closings. Make it a point to shave a good portion of profits off of your deals to invest back into your business.
What is Virtual Wholesaling?
Virtual wholesaling is when you’re a real estate wholesaler that is doing business in an area other than that of which you live. Most of the research, communication and transacting is done via the internet. Many wholesalers of real estate have had great success doing virtual wholesaling in multiple markets.
Your First Deal Is the Game Changer
There are certainly pros and cons to being in the wholesaling business. It’s a little challenging at first, but Once you close your first deal and the money is in your bank account, your life will change forever. You’ll have the validation that you need to continue the journey and master the trade. There will be more wondering if you can make it happen. Watch this video about my first deal that I closed….it literally changed my future forever.