In this guide, we’ll go though wholesale real estate investing step by step, from finding houses to buy, up to wholesaling these houses to real estate investors.
As we have seen, in wholesale real estate investing, you locate houses below market value and put them under contract to buy. You then sell them at wholesale prices to real estate investors through contract assignment or simultaneous closing, without doing repairs.
Wholesale real estate investing involves 6 steps:
Step 1: Identify Cheap Properties
Where do you find cheap properties to wholesale?
To succeed in wholesale real estate investing, you must have a constant supply of leads that you convert to closed deals.
If you can get leads targeted to your local market, people that are motivated to sell their houses, you’ll have a constant supply of properties and good deals.
Let’s get one thing clear:
The supply of good deals is not a problem if you can locate motivated sellers.
If you do this right, you will have more leads and deals than you can handle.
There are 2 ways to target motivated sellers.
a) Get a good real estate investing website
Today, almost everything starts as a search on the internet.
This includes people looking to sell their houses – so they must find you on the internet when they need to sell.
Incidentally this happens to be very easy.
In order to attract leads online, you need a good website for your real estate investing business.
This website must have excellent on-page SEO that targets your local market where you buy and sell houses.
Your real estate investor website will play some key central roles for you. Your website will:
- Handle the job of attracting most of your leads online through SEO.
- Help tell your story to potential leads, e.g. when you communicate through direct mail.
- Engage these leads to take a specific call to action such as fill out a form or call you.
- Follow up with these leads for you and nurture them until they are ready to do business with you, so you can close deals with them.
- Automate most of your daily tasks, and keep you well organized so you can close more deals using less time, money and effort.
- Build a buyers list and sell your properties quickly.
There are a lot of benefits for having a good website for your real estate investing business. This is covered in a separate article.
b) Target local people in legal trouble who own real estate
People who are in legal trouble and own real estate usually happen to be real motivated sellers.
For example, people who have inherited properties (probate properties) have a real valuable goldmine looking for cash buyers.
There are several groups of these motivated sellers – people who are going through divorce, bankruptcy, expired listings, etc.
Understand that there are lots of super motivated sellers out there who have no idea they can sell their houses to real estate investors.
They only get to know once you contact them. Most of them think they can only sell their house through a real estate agent.
When you reach these people you become a savior.
Again, targeting these people happens to be extremely easy.
Since this can become a long topic on its own, we have covered this in a free Ebook.
You can also almost fully automate this process, and have your leads coming like clockwork so you can spend more your time closing your deals.
Between online and offline sources of leads, you should have more leads than you can handle in your local market.
And hopefully lots of wholesale real estate deals.
For most deals, you need very little, if any, money to get started in wholesale real estate investing.
This will be in the form of earnest money, which is around $100 to $500.
If you’re wholesaling a deal through contract assignment, you only need earnest money, so you won’t need financing.
However, if you’re doing a double closing (simultaneous closing), you might need some money to do the second closing. Most lenders today do not allow their money to close the first transaction. Therefore, you need short-term funds for this before you can complete the second transaction.
The most common type of short-term funding is transactional funding.
What is transactional funding?
Transactional funding, also called flash funding or same-day funding, is a short-term funding to finance purchase of a property, provided an end buyer will purchase the property shortly afterwards. The wholesale real estate investor buys the property using transactional funding, then sells it to his end buyer in a simultaneous closing.
So, where do you get this money from?
There are several sources for finding financing for your deals.
There are many lenders in the real estate market such as hard money lenders and other non-conventional lenders.
You can easily find these lenders by attending local real estate meetings or a simple search on the internet.
A quick search on Google for “transactional funding lenders in Dallas” gives me the following results:
In other words, lenders are not in short supply. And they usually do not care if you have bad credit.
Most will finance you on the strength of the deal, not your personal credit.
Talk to other real estate investors in your area to identify the best lenders for your needs.
b) Private money
Private money is the cheapest way to finance your transactions.
In most cases you define the terms of the deal.
Note that most of these are companies that lend privately.
Sometimes you can find individuals to lend you money privately.
This will be the cheapest source of private money for you.
It’s quite easy to find partners especially in your local real estate investors meetings who can put up money on a deal to deal basis.
The terms of the partnership will be as you agree. Since they are putting up this money just for a few minutes without any risk, it’s really cheap money.
When all is said and done, the supply of money for your real estate deals will not be a problem as long as you can locate good deals.
Step 3: Sign A Contract To Buy The House
Now that you have located a motivated seller and agreed to buy their house, the next step is to put the house under contract.
You do not have a deal until you have a binding contract.
For this you’ll need a purchase agreement (contract).
Wholesaling Real Estate Contracts – Buying Houses
If you have been to a real estate investing seminar, you probably have a contract for buying houses.
Also, you can also find numerous contracts that “can be used in every state” in the USA on the internet.
Each state has a real estate contract used by real estate agents. These are the best, and they are free.
Although I have access to so many simple contracts that can be used in all states, I prefer to use contracts mandated by our state real estate commission.
This is because they are more popular to people selling their houses.
Since they are mandated by the local state real estate commission, most people feel more comfortable dealing with you.
Secondly, when you approach a title company with your own contract, they will want to pass it through their lawyer.
The last time I tried my own contract, I paid $600 to have the contract reviewed before the title company could use it.
They then suggested a few modifications that would have cost me more money. Eventually, I ditched it for a contract mandated by our state.
You don’t need to be a real estate agent to use your state’s real estate contract.
The official state real estate contract is also updated regularly to cover changing federal and state laws, so you can never go wrong with it.
Also in most cases, it’s pretty straight forward.
What To Put In The Contract
If you use your state’s real estate contract, most likely it will be at least 10 pages or more.
But there are only a few places where you can fill in the blanks such as price, buyer, seller, disclosures, etc.
The contract must explicitly allow you to assign it.
The easiest way to do this is put the buyer with “and or assigns“, e.g. “My Company Name and or assigns”.
Without this little clause you will not be able to assign the contract.
How do you explain this to the seller?
It’s very important that you let the seller know you can assign the contract to another investor.
I usually tell them that I could partner with another real estate investor to close the deal, or that my partner can close the deal on the same terms.
As long as they understand I’ll only be paid if we close the deal, and that the contract and closing will not be changed, they have no problem
They do need to understand that whether you close the deal yourself or “your partner” does, at the end of the day, you will make some money out of it.
I also tell them that I am the one who will take the lead and I will personally keep them updated every step of the way.
Tell it like it is.
I’ve never met a motivated seller that objects to this.
But I have to repeat it – you must tell it like it is.
And there will never be any misunderstanding.
Step 4: Take The Contract To The Title Company
Now it’s time to get the title work done.
What is title work?
Title work involves searching if the seller actually owns the property. It verifies the history of ownership of the property – who bought and sold it, and when, what judgements, taxes, mortgages and other liens are owed on the property. Once a buyer buys the property, a new title is issued in the buyer’s name and filed in the county court records.
A title company or closing attorney, does the title work and acts as the closing agent in the deal, representing the buyer, seller and other parties involved in the real estate transaction – such as mortgage lender. It facilitates closings, issues title commitments and insurance policies and records paperwork.
Title commitment is simply a promise to issue title insurance for your property.
A title report is issued when title work is completed. It reveals anything recorded against the property, such as liens, encroachments and easements.
You should let professionals do the title work. Don’t do this yourself!
Who chooses title company, buyer or seller?
As a wholesale real estate investor, you should have your title company do title work. Talk to other real estate investors in your area to find out investor friendly title companies. You can then agree who pays which closing costs between the buyer and seller.
Typically, in a standard purchase contract for a home, the buyer pays for the title insurance issued to their lender. The seller pays for title insurance for the buyer.
What is covered by title insurance?
Title insurance protects the buyer and mortgage lender against problems with the title. If there’s a dispute with the title, title insurance will pay for specified legal damages.
Do I need a title insurance if I pay cash?
If you pay cash, or you get seller financing, get title insurance. Even though it might sound like added expense, it will protect you.
How long is title insurance good for?
A title insurance for a buyer lasts as long as their interest or their heir’s interest retains an interest in the property. For a mortgage company, it lasts until the mortgage is paid in full.
What does a title company charge?
Depending on where you live, a title company will charge $200 to $400. This depends on the property and transaction type. The total closing costs usually range between 2% to 5% of the purchase price, depending on where you live. So, if you’re buying a house worth $150,000, closing costs will be $3000 to $7500.
Depending on the number of documents to be reviewed, title search takes about 2 to 3 weeks.
Back to your motivated seller…
When you first talk to a motivated seller, pre-screen them properly to get all information on what is owed on the house.
This includes any junior mortgages and liens on the property. Then verify this information by doing title work.
In my business, I can check the county records online to see this information. But I always let my title company do this job in case something slips between my fingers.
They don’t charge me anything for title work because I close all my deals with them.
Example – How I lost $1000 because of not pre-screening properly.
I once got a great deal which I identified as a great short sale candidate. It had 2 mortgages, and even though I’d still have made some money if I paid off both mortgages, I decided to negotiate a short sale.
The owner just wanted was to get rid of it without foreclosure. Both short sale offers got accepted.
The house needed some repair, but no structural damage like foundation or roof. There was also a lot of junk to remove and touch-ups I had to clear before I could wholesale it to another real estate investor.
I had to clear an overgrown yard, there was tons of trash to haul off, and general cleanup.
I spent $1000 for this work before I had the title work done.
It was an easy flip – and I quickly found a buyer with cash.
In the meantime, my title company did title work. It turned out there were two mechanic liens the seller did not disclose!
One of the liens was easy to track down, but the other one had been sold twice and none of the contact information on the lien was working. Only a foreclosure could wipe out this lien.
Of course, I could not wholesale the property – I lost time and $1000!
Always check the title before spending money to make sure the property is marketable.
Step 5: Identify A Wholesale Real Estate Investor Buyer With Cash
Now that you have learned how to buy houses cheaply, how do you sell them quickly to make money? You need to find real estate investors with cash looking to buy wholesale deals.
In order to sell your houses quickly, always keep building your buyers list. A real estate buyers list is a list of real estate investors that buy wholesale properties in your area, preferably with cash. A cash buyer is someone who has the cash to buy the property outright, without having to take a mortgage.
Cash buyers will close on any type of property, even if it needs repair. Cash buyers can also close quickly, which can be necessary if the property is going through foreclosure.
In your case as a wholesale real estate investor, you need a list of people who buy wholesale deals in your area.
This will become a golden list for you.
I cannot recall the last time I had to advertise a property for wholesale. When I send an email with my wholesale deal, I typically have a buyer within hours of my email.
And because I have done this long enough, I have a few preferred buyers who beg me to always send them my deals before I send them to anyone else.
Which comes first, the buyers list or the property?
I hear most real estate investors say they want to build their buyers list before they can buy their first property.
Not having a buyers list should not stop you from buying houses.
Once you get a property, the process of selling it is easier than you think. You should never hold off buying your first good deal because you don’t have a buyers list.
How To Build A Buyers List
There are several ways to build your buyers list.
1) Get a good wholesale real estate investor website
In order to have a buyers list, you need a website for real estate investing where they can sign up.
A wholesale real estate investor website allows you to manage your buyers list and send out your deals.
Whenever you advertise your properties, a website show-cases your properties to potential buyers, where they can also join your buyers list.
Potential cash buyers simply sign up on your website to be notified when you have new deals. Preferably, ask them to join your buyers list to view property details:
Interactive real estate investor websites come equipped with this feature that you can activate from a virtual back office so they provide their email before they can view full property details.
If you do not have properties for sale you can use an effective squeeze page, or landing page that convinces them to join your buyers list to access your properties.
On interactive real estate websites, you activate these features with just a few clicks from the virtual back office.
You can then market your properties or squeeze page to build your buyers list.
Once they sign up, they’ll get an instant email thanking them for joining your buyers list and that you will be sending them deals or homes as they become available depending on their needs.
Need A Wholesale Real Estate Website?
Get a fully optimized website built to attract and convert real estate investing leads for you. Also helps you build your buyers list while you wholesale your properties.
Place your web address on your ads when advertising your properties. This is where they’ll sign up.
I built my first buyers list of about 200 real estate investors on newspaper ads. I never provided a phone number, just a web address that had a squeeze form.
They had to provide their name, email and phone number before they could view my properties.
In today’s market, you can also advertise in places like Craigslist and other online media.
In addition, you can also provide a phone number with a voice mail that also points them back to the website.
By the time you get to talk to anyone, they have probably already joined your buyers list.
3) Network with other investors
Attend your local real estate meetings – you’ll build your buyers list pretty fast.
Every time I attend one, I come home with a bunch of cards of people who want to join my list.
4) Place ads on Craigslist
Place ads on Craigslist with “Wholesale properties at 70% ARV”. You’ll attract wholesale real estate buyers to your buyers list.
5) Courthouse auctions
People that buy properties at courthouse auctions have cash and are usually looking for good deals. Strike up conversations and you’ll build a very valuable buyers list.
6) Hard money lenders
Hard money lenders lend to real estate investors. These investors sometimes have cash to buy wholesale deals. Cash buyers sometimes also use hard money. Developing relationships with these lenders will get you a terrific source of cash buyers.
How To Pre-Screen Your Wholesale Cash Buyers
Most real estate investors get excited when they get a potential buyer.
Don’t get excited until you get proof they have money to close the deal.
Once a potential buyer calls, I will take down their full contact information and either give them the lockbox code if I know them, or show them the property.
If they want to buy it, they must tell me their source of cash.
“Cash” is not enough.
Is this cash in their bank account?
Did they just sell a property?
Are they working with a line of credit?
Do they have a private money lender or a hard money lender?
In other words, they must provide a clear proof of funds.
Do not rely on sellers who are hoping to get a mortgage from a bank. They must have cash, and the ability to close quickly.
Step 6: Sign A Contract To Sell The Property
Once you have identified a real estate investor buyer, sign a contract so you can sell the property.
Which type of contract do you use?
Wholesaling Real Estate Contracts – Contract Assignment And Simultaneous Closing
As we have seen, contract assignment means that you assign the right to buy the property from yourself to another buyer, usually a real estate investor.
In simultaneous closing (double closing), you actually buy the property from the motivated seller, and then sell it to your buyer.
Usually this happens on the same closing table, so you will own it for only a few minutes.
How Do You Know What Type Of Contract To Use?
The type of contract you sign depends on the amount of money in the deal.
If I stand to make less than $5,000 I prefer to do a contract assignment.
But if I am making more than $5,000 or my profits are near or the same as the real estate investor I sell to, then I prefer to do a simultaneous closing.
When you do a simultaneous closing, your buyer won’t know what you are making in the deal.
If you are making a lot of money, some people think you are being selfish and they feel obligated to re-negotiate or look for another deal.
When you sign the contract, always collect earnest money – I collect at least $500.
I make sure the earnest money is non-refundable if they do not buy the house.
And always make sure the contract expires by a certain date.
Contract to use for simultaneous closing:
If you are doing a simultaneous closing, you will sign a regular purchase and sale agreement, just like the one you did for buying.
However in this case, it should not contain “and or assigns”.
Your buyer must have verified source of cash. They must close the deal themselves.
Contract to use for contract assignment:
If you are assigning the contract, then you just need to sign a simple agreement for them to take over your contract for an assignment fee.
Here’s an example assignment contract (click on the image below).
Step 7: Follow Through Until You Close The Deal
Your wholesale buyer will now go through the process of funding the transaction for closing.
If all goes well, you will walk home with cash.
If you do a simultaneous closing,
Your Profit = Selling Price – Buying Price – Closing Costs
If you do a contract assignment,
Your Profit = Assignment Fee
Most wholesale real estate deals take 14 days or less to close.
I have closed a deal in 2 days because it was a really good deal and it would have otherwise gone into foreclosure.
Keep a close eye on the progress of the closing process.
Make sure the financing has been confirmed in a timely manner and that it has been wired to the title company.
You should not have any issues if you pre-screen your buyers properly.
Congratulations on your closing.
Rinse, repeat and make more money.
There you have it.
Hopefully the information in this article will get you started in your journey in wholesale real estate investing.
I know there are lots of dots to connect, but to summarize, here are the main take-aways:
- Identify properties that have equity. Motivated sellers will be your biggest source of these deals.
- Sign contract to buy the property with the seller.
- Check the title for liens through your title company.
- Identify a real estate investor that buys wholesale properties in your area. Most likely these are people who buy, fix and flip houses, or landlords.
- Sign contract to sell with your wholesale real estate investor buyer.
- Follow up until the deal closes and collect your cash.
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