Have you heard about Wholesaling Real Estate? You don’t need a real estate license, you don’t need to own property, and you can make thousands in a short time – legally!
It may seem too good to be true, but wholesaling is a way to get started in real estate investing. I’ll be honest – it’s simple, but not easy. It doesn’t take any money upfront, but requires a lot of work looking for homes and finding people to make deals with.
For those of you who don’t know me, I originally got into real estate because I felt like most agents were not taking advantage of the internet and social media as fully as they could. If you want to learn more about how I got started, you can read my Goals for my business, and subsequent real estate income reports.
What is a Wholesale Deal in Real Estate?
Traditional real estate transactions involve two agents – one representing the seller, and another representing the buyer. There are also a few other people involved like Title Companies and Mortgage Lenders.
In a traditional deal there is an agent who represents the seller and is trying to get as much as possible for the sale of the home). Conversely, the buyer’s agent is representing a homebuyer, and they are trying to get their house for the best possible terms and price.
A contract is negotiated and written, and once all the contract terms are fulfilled, the house changes title, the old owners get some money, and the new buyers have a house.
Real Estate Wholesaling is different.
What exactly is Real Estate Wholesaling?
Wholesaling is when you find a person who wants to sell their house, and you write a contract to buy it. However, you have no intention of actually purchasing the house. Instead, you look for a buyer and then sell (assign) the contract to them. They then buy the house. You act as a middleman in the process.
The idea is that you offer one price to the seller (that they agree upon), and then once you have the contract you sell your interest in buying the house to another person for more money. You keep the difference. No agents are involved. You don’t have to get a loan, or even have a down payment. You never actually own a house. But you get a paycheck for the process.
Real Estate investors like it because no license is required. You don’t need a Real Estate Agent because You aren’t representing any client (except yourself).
But there are some things to watch out for – I’ll explain using these three wholesale real estate examples.
Wholesale Real Estate Example – As a story
I have a friend who wanted to be a real estate wholesaler.
Let’s call him Justin.
Justin had good street smarts but never really did great in school. He worked a part-time job to cover his car payment but still lived with his folks (who were helping him out).
One day while surfing Youtube he saw a pre-video ad that promised he could make $30K in as fast as 30 days.
Obviously, he clicked on it to see more.
There was a guy, just a little older than him who was explaining how he lived in one city but bought a house without ever seeing it, and then sold it for a profit. He never went to the home and never met the sellers.
He talks about how he found the deal, how he analyzed the deal, and how he got the house under contract with the sellers.
Youtube made it seem so easy.
All Justin had to do was find a house that was a good deal.
Driving for Dollars
Following the instructions on the video, Justin began to look for houses that were newer (less than 10 years old) but needed a lot of work. Specifically, he was looking for a place that needed cosmetic repairs like paint, flooring, and light touch-up work. These are also called distressed property.
He wasn’t using the MLS to find properties – anything on Zillow or other websites would already be represented by a seller’s agent.
No, Justin had to drive around looking for homes with overgrown yards, or houses that looked a little run down. He was driving for dollars, looking for vacant properties.
The reason he was searching for these homes is because they are more likely to have owners that may want to sell.
When he found a candidate, he took a photo with his cell phone and recorded the address. He would need this info for the next step.
After spending a couple of days driving through every neighborhood in his town, he had a list of over 100 houses!
Finding out Who Owns a House
The next step was to try to locate the owners. He needed to talk to them and ask if they were interested in selling.
The YouTube video had some suggestions about how to find the owners.
Justin turned on the PC he normally used for gaming and went to the County Property Tax Assessor website. In his state, you could look up who owned each house, and he could see how much the property tax and estimated home value was. He could also see if the house was owner-occupied, or if it was a rental. All this info would be needed for the next step.
Using Google Sheets, he made several columns – Property Address, Current Owner, Owner Occupied, Property Tax, Outstanding Property Tax, and Estimated Home value. On a few of the properties, there was a large amount of outstanding property tax – he highlighted these rows.
Now came one of the more challenging parts. The county tax website only had names and addresses – they didn’t list emails or phone numbers. Justin had to get creative and figure out how to contact each of these homeowners.
So Justin turned to Facebook, Linked-in and Google. He would type in the name of the owner, and try to find the profile of the owner. He added a few more columns to his spreadsheet – Telephone, email, and a link to the profile for each person.
Out of the 100 homes, he was able to find 83 of the owners.
The 4 Steps to a Great Wholesale Script
Now Justin had to work on his pitch – he spent several hours writing what he was going to say and practicing in front of a mirror. Even though this was his first time making calls, he knew he needed to sound professional and knowledgeable.
From researching online he learned there are 4 steps to a great wholesale script:
- Gaining Trust
- Learning More about the Home
- Find out if they want to sell
- Close and ask for the deal.
It took a few days of working the phone and emails, but Justin was able to contact 78 of the owners. Out of those 78, 4 were behind on their taxes. Another 3 were seriously thinking of selling. There were a few others who wanted to sell but were asking for too much money.
Finding a Deal
Remember, the goal was to find a house that he could get under contract for lower than the market value. He would then sell the contract to a new buyer at a higher price. The difference between the price he got it for, and what he sold it for was his profit.
While Justin was on the phone talking to the owners, he had a very important piece of information from the county tax records. This was the assessed value of the home. Basically, it was how much the house was worth. While he was talking to the owner – he could easily compare the amount of money the owner wanted with the tax value.
Some people wanted too much. Justin made a note on his spreadsheet and would come back to them in a few months to “check-in” and see if they had changed their minds about selling.
There were a few owners who were behind on their property taxes. Some didn’t know and were thankful that Justin shared this info with them. They were going to pay the back taxes and were not interested in selling.
But 1 person didn’t want to pay the back tax and was interested in selling – for the right price.
Then there were the 3 seriously thinking of selling. They purchased the homes many years ago and were tired of the upkeep. They had a hard time renting the house because they didn’t have property management experience. .
Two gave Justin a price that was just below the market value, but one person gave a number that was $48,000 under market value.
This was perfect!
He made an appointment to meet the owner at a nearby coffee shop the next day.
If this deal worked out, he had a few other “leads” that he could go after in a few months, too!
These were the people who weren’t quite ready to sell or wanted too much money. They weren’t ready right now, but he would try again later.
Getting the Deal
Now Justin was very excited – he was so close to getting his own deal, but had a little bit more convincing to do with the owner.
They met the next day and he was ready. He had a blank purchase agreement he found online and his goal was to get the owner to sell the house to him.
They talked for about an hour and Justin learned a lot more about the house. He found out it needed some work. Actually, it needed a lot of work. The furnace wasn’t working, and at one point there had been renters with a dog who did some damage to a few doors. It was also very dated and dirty. Paint and new carpet were required.
All in all, it would take about $20,000 Justin estimated to make the place nice again.
This was actually OK, because the owner wanted to sell the house for $250,000. Other, fixed-up homes in the area were going for around $300K. Justin could get the house, and even with the necessary repairs, still, come out almost $30,000 ahead.
The two of them went over the contract right there at the coffee shop and negotiated all the different terms.
Justin explained that he needed some time to come up with the money, and asked for a 60-day close. The owner didn’t want to wait that long so he only agreed to 45 days.
That should be enough for the next step Justin thought. The shook hands, and more importantly each signed and dated the contract.
Finding a Buyer for the Wholesale Deal
The first step was done – Justin had found a house.
Now the clock was ticking – he had to find a buyer to sell the contract to. Plus he only had 45 days to do it.
If he couldn’t find. a buyer he would either have to buy the house himself (a contract is a contract), or he could cancel the contract and loose his $2,500 Earnest money deposit.
Once again Justin turned to the internet. Using Facebook, and other meetup websites, he searched for, and found, a few investor groups that had upcoming meetings.
He registered to go to these meetings and see if he could find an end buyer who would buy the contract. Justin went to his first meet-up but there weren’t very many potential buyers there. Mostly is was people who wanted to get into real estate, but didn’t know where to start.
2 days later he went to a Facebook group and there were several real estate investors there.
Justin began telling some of the people about the house, but nobody was interested. He was feeling discouraged, and a little worried he woudln’t be able to find a buyer.
That weekend, he decided he needed to get out from working behind his computer. Since he loved looking at houses, Justin made a list of all the open homes in his area to go visit.
It turns out that this was a great idea.
Working with House Flippers
The very first open house Justin went to was one block away from the house he had under contract. It was a similar 3-bedroom but had been completely fixed up. It looked incredible with new paint, nice engineered wood floors, and even an updated kitchen. The yard was well maintained with fresh sod and mulch, and overall the house had great curb appeal.
While he was at the open house, the owner/flipper came in. Justin started to talk to him, sort of picking his brain about repair costs, and what buyers wanted in this market.
As they talked Justin shared that he was a Wholesaler and had a house under contract just down the street.
Immediately the flipper was interested. He asked the price, and Justin hesitated for a second.
Would $300K be too much for this investor? Should I go lower? Should I go higher?
After a brief pause, he said 300K is the purchase price. Without batting an eye, the flipper said “I’ll take it”.
Selling the Contract
They arranged to meet that evening at a nearby coffee shop to sign the papers. Obviously, this was Justin’s first time, but the flipper was experienced having purchased many homes over the years, and even a few were Wholesale Deals.
As they went through the paperwork together, the flipper asked if he could purchase the house with cash. This means there is no bank involved for financing, and it could close very quickly. Justin didn’t know the answer – he sent a quick text to the original homeowner and asked.
The owner was surprised but was totally OK with it. She would be out in 10 days, and the flipper could be the new owner and get to work fixing it up. Justin had one question for the flipper – he was worried that he didn’t have enough money to do the deal, so he asked for proof of funds.
Again, the flipper was unfased. He brought out his cell phone and logged into his bank.
Yep, he was more than qualified. He had several times the purchase amount in his account.
The contract was executed (signed by everyone) and Justin sent over a copy to the title company who would facilitate the transfer of ownership.
Double Closing at the Title Company
Two weeks later. everyone met at the title company. The seller was a bit surprised that Justin had sold the contract to the flipper, but she couldn’t really complain because she was getting what she asked for (which was more than she thought the house was worth).
The Escrow officer at the title company was familiar the wholesale contract, and first had the seller sign the paperwork. This released her ownership of the place.
Then, with everyone still there they processed the assignment of the contract from Justin to the flipper. This released Justin from the contract.
Finally, the flipper signed the paperwork becoming the new property owner. The funds were transferred from the bank to the title company.
Then the Escrow officer wrote out two checks – one for $250K to the lady who used to be the owner. The remaining $50K went to Justin as the assignment fee.
After all the fees and closing costs Justin walked away with $47,550.
Everyone left the office with smiles on their faces.
A few months later Justin found himself in the same neighborhood driving for dollars and looking for a new property.
He decided to drive by the house.
The house looked totally different – it had been painted, and the front yard had been cleaned up.
The flipper was there pressure washing the driveway.
Justin stopped the car, and got out – Immediately the flipper stopped what he was doing and greeted him. “Do you want to see the inside?” he asked? Of course he did!
The inside was just like the outside – completely redone. The flipper had taken out a wall between the kitchen and living room, and the space was so much bigger and brighter. There were shiny new stainless steel appliances, fresh paint, and even new floors. The old burned out lighting fixtures had been replaced with some mid-century modern style replacements that looked so cool and modern. The address was the same, but the house was totally different.
Justin was afraid to ask, but did anyway “How much are you going to sell this for?”
The flipper said – “Well, I spent a couple of months and about $25K in materials and labor”. Then he added “it’s already sold!” A young couple was driving around the neighborhood, and saw the flipper working on it. They were having their first child in a few weeks, and had been having a hard time finding the perfect place to settle down. They asked the flipper if he would sell the house off market and of course the answer was yes.
Justin asked how much and the flipper said $345K. He had made an easy $20K and didn’t have to pay any realtor fees.
Going Forward with Wholesale Transactions
Wholesaling is a great way to make a lot of money relatively quickly. Justin did a lot of hard work, but got a nice paycheck for it. It was unusual to find a cash buyer the first time out, but not impossible.
It can also be difficult to find a motivated seller. Remember, Justin had. alist of 100 houses that could be potential sellers but only 1 was read when he called.
Also, Justin didn’t do much due diligence on the property. It could have had a lot more problems
Make sure you have a buyers list ready so that when you do get a house under contract you can more quickly get rid of it. Working with a deadline and trying to market properties can be very hard.
Also, be sure to spend some time reading and completely understanding the purchase contract. Some lenders do not allow the assignment of contract, so be careful. If you have any questions I suggest contacting an experienced real estate attorney.
Basically, be sure to understand all aspects. of the real estate transaction. Make sure you have a great deal, and just any deal. Get the right property under contract, and determine. a fair sale price that makes everybody happy.
Becoming a wholesale real estate investor doesn’t take any formal education. The whole idea is to get a house under contract for a low price, and then sell the contract for a higher price.
Knowing the local real estate market is essential to being a successful wholesaler.
So, are you up to it? Are you ready to Wholesale properties?