How to Wholesale a Property when You’re Starting Out

15

When I was fresh out of college and getting started in this business I jumped in head first. I had almost no money, I didn’t know much at all about real estate, but I was full of enthusiasm and I knew that I would figure it out along the way. I certainly didn’t want to read books and study for 5 years before buying a property, when I could be reading, studying, learning, and making offers at the same time.

In fact, almost every successful person I know has taken this approach. I’ll admit, it’s a little scary, however in my opinion it was much better than knowing I’d have to work a job for the rest of my life that I didn’t enjoy. This approach is best suited to wholesaling, particularly if you’re broke.

What Comes First: Buyers or Deals?

That said, you need to be very careful wholesaling if you’re so brand new that you don’t have any end buyers lined up and you don’t have anyone to sell your property to. In other words, it’s great to take massive action, but you don’t want to be dishonest and get a property under contract with a seller and then have no intention of actually wholesaling the property.

Every once in a while I’ll meet someone at a REIA meeting who says they’re going to gain experience by making a ton of offers and getting a bunch of deals under contract and they don’t have any plan to actually complete the wholesale transaction.

This is not a good idea for several reasons. First off, you won’t make any money. If you’re going through the effort of trying to locate deals, then you might as well have rehabbers that you can wholesale the properties too. However, the most important reason is that it’s a disservice to the seller you’re working with.

If you get a property under contract, you need to fulfill your obligations and keep your word to the seller. But, I do realize there may be times when you truly aren’t sure that you’re going to be able to get rid of a property.

Not Certain You Have an End Buyer for a Wholesale?

I have been in those situations myself, and in those situations I was 100% upfront with the seller. I told them that there was a chance I might not be able to get rid of the house because of certain conditions. I told them this upfront before we signed the contract and we’d usually have an agreement that would give me 60 days to sell it or the contract would become null and void.

Besides the honesty issue, another reason you don’t go around putting contracts on houses without closing them is because of your reputation. Believe it or not, the real estate business in your local area is very close knit. If you get a bad reputation the word will spread quickly and nobody will want to work with you. I’ve seen it many times in my area and I have several people on my “blacklist” that I wouldn’t do a deal with if they were the last person on earth.

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name
Share.

About Author

Jason R. Hanson is the founder of National Real Estate Investor Month and the author of “How to Build a Real Estate Empire”. Jason specializes in purchasing properties “subject-to” and has purchased millions of dollars worth of property using none of his own cash or credit.

15 Comments

  1. I am at the point in my real estate career that you describe. I’ve read a number of books, etc but have realized that that is all I’ve done. I’ve been reading mostly books by people who are making more money selling books than they are doing real estate deals.

    My main question would be how best to go about building a list of end users who I can keep on speed dial when I have a property to move.

    If you could describe how you went about getting you’re first couple of buyers that would be helpful.

    • You should search for some real estate investor clubs in your area. If you attend those, you’ll meet lots of people who can fund the properties you find, and you can meet people who might be willing to help you along the way on your first few deals.

  2. Hi Jason, Just like Haven, my main problem is finding Buyers, but I’m getting around and starting to make contact. In your article you discuss finding Wholesale deals with FSBOs. My question is how many FSBOs did/do you average before getting to a “yes”? I have not given up on FSBOs, but I have turned the majority of my concentration on REOs because FSBOs, at least in my area, usually want more for there houses than even the market value suggests. On the other hand, there seems to be very little emotion with REOs. Do you agree? I know this involes a few more steps, and some earnest money, but at least you eliminate some of the drama.

  3. You asked great questions and the answer on how to find buyers is a long one. So, what I’m going to do is write a blog post all about the right way to find buyers, so look for that next weekend. Thanks.

    -Jason

  4. Great article, I am just starting out too and facing the dilemma of which comes first… the deal or the buyer? I’m learning it’s best to have a list of buyers sitting on your desk, rather than a list of contracts you can’t move. Looking forward to the next article!

  5. Jason – That is always the big question isn’t it? Whether you find buyers or deals first. I think you can tackle both of those things and also the learning issue if you become very active in your local REIA group. I am a full time wholesaler now, but in the beginning I was a buy and hold landlord, and I did some rehabbing. I was able to find houses, buyers and keep myself from making huge mistakes just by being part of a REIA group. You will learn pretty quickly who are the big players in your group.

    While I don’t think you can just read books and attend seminars, I firmly believe that folks that are successful over the LONG TERM are life long learners. They are learners and action takers.

  6. Hi Guys… nice post… this is something I want to do here in the UK so I will be waiting for your next ‘Blog’ post as stated above… and Sharon… get a list of buyers lined up first as you say above… find out what they want regards property and buy that for them. Sometimes what they want will not work in ‘whatever’ area they choose… so this is where you put your foot down and ‘say NO’ because ‘your the expert’ and tell them what they should have to get a Return on Investment (ROI) and yields etc – Paul from Cornwall
    PS: I did have 9 properties myself at one time but because of the ‘2007 crunch’ went bankrupt and lost the lot last December 2010… never mind… time to move on and up!

  7. Paul –

    I am pretty lucky now. I am at the stage where I have active cash buyers on my list. I know what these folks are looking for, so I can just make a call when I have a property that meets their needs. Lately I haven’t even gone to my “big list”.

    In the beginning, even when I really didn’t have a buyers list, if it was a good deal I could always sell it by sending an email to the investors as my local REIA. You can always sell a good deal!

  8. Jason,
    I really enjoy your no-nonsense style in your blog posts. They key to any success, is ACTION. As far as “which comes first, the deal or the buyers question”, I think the deal will bring the buyers.
    But if anyone needs to have a list of buyers to send the deal to, why not go to craislist and contact EVERY SINGLE ad claiming to be a cash buyer. You aren’t spamming them, they asked for you to contact them.

    Just my $.02.

  9. Hey i understand how you get your buyers but can somebody,anybody please explain to me how you find sellers?or houses you can assign to the buyers?

  10. I’m new and have a few questions.

    1. If you know a wholesaler who is wholesaling a property, say for 100k and the ARV is 200k and the repairs will cost 50k. There would be a potential 50k profit. Could I, as a wholesaler, go into contract with that wholesaler and then just turn around and re-wholesale it and take a bit of the profit for myself?

    2. Also, as a wholesaler, if i find a distressed property, along with a scope of work, should I also get the property inspected?

    Thanks for your responses! Any other side notes would be great as well!

    • Hi Clint,

      I’m very new to all of this and am constantly learning, but since no one answered your question I thought I’d give it a go!

      Answer to #1: You could contract the property from the first wholesaler, but the whole idea in wholesaling is to get paid as big a finder’s fee as you can from a fix/flipper or buy/holder who will see a larger return later down the line. I don’t think there would be much incentive for the first wholesaler to sell the property to you, because you likely wouldn’t want to pay him/her what they could get from a rehabber or investor. Maybe a bit convoluted, but that’s how I see it.

      Answer to #2: Probably a good idea. At the very least you must inspect it with your own eyeballs unless you like to gamble with your life. I’d inspect the house personally to see if anything pops out at you….like missing walls, plumbing, flooring, who knows!!! This, also, gives you the opp to see if a home is actually what it is listed as (3 bd/2ba) or what you’ve been told it is. More experienced investors know better what to look for and still order an inspection.

      When inspecting yourself look for cracks in the walls (and cover-ups) if it’s a slab. That can mean real foundation problems. On a pier/beam it could just be settling a bit.

      The more experienced you get the more you’ll be able to notice hints that could mean big bucks in repairs. Then again, a $300 inspection that saves you thousands is worth every penny. Remember, an inspection is only as good as the inspector so find a reputable one!

      Hope that helps!

      -MS

Leave A Reply

css.php