Many people that want to get started flipping houses are having a hard time figuring out how to do so. Maybe you have learned a lot and educated yourself to the point where you could and should have already started. Why haven’t you?
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What Keeps Most New Investors From Taking Action and Getting Started
For the most part, I think the fear of messing up when you are dealing with such a huge investment is what keeps us from ever really taking the plunge. Other than that, not having the money to buy a flip and not having the knowledge and skill to rehab a house also play a big part.
What I recommend for most people new to flipping houses is to start with wholesaling. You can avoid all of these problems by just starting with wholesaling. Wholesaling is where you put a house under contract (usually at 70% of market value in fixed-up condition, minus the cost to fix up, minus what you want to make as your ‘wholesale fee’) and then either assign that contract or close on the house and then sell it as-is to another investor. The goal should always be to to try and assign the contract, as you have a lot less risk and money in the deal.
Here are 7 reasons why I recommend wholesaling as the best way to get started flipping houses:
Note: I highly recommend marketing to and buying from motivated sellers versus dealing with listed, bank-owned properties. The following benefits relate to buying directly from these private sellers.
1. You can get started with very little money
You don’t have to have a lot of money to put houses under contract and then assign the contract. If you are marketing directly to motivated sellers (private sellers), the amount of earnest money can be as little as $1. I normally pay $25 for earnest money.
Once you assign the contract to your end buyer, they will be responsible for closing the deal and all of the costs involved with the closing.
2. You don’t have to take ownership of the houses
When assigning contracts, you never take ownership of the house. You are not the one closing on the deal and therefore are never in the chain of title. This will eliminate a lot of risk and costs involved with owning a house that is likely vacant and going to be repaired and sold.
3. You can make a lot of money very quickly
Wholesaling allows you to make great money in a very short amount of time. Usually within a matter of days or a couple of weeks. Compare that to how long it takes to close on a house, fix it up, market it, sell it, and finally close and get paid. That could be half a year in some cases.
This will help you prepare for when you transition into other methods of flipping and investing by allowing you to learn more on the streets and build a reserve fund. This cash reserve is something I highly recommend for anyone wanting to flip houses or become a landlord.
4. Wholesaling enables you to learn what good deals really are
If you are having trouble selling your wholesale deals, you are either asking too much or don’t have enough investor buyers to sell to. Usually, it is the former. It’s better to learn this lesson while wholesaling so that when you do go for that first fix and flip, you will already know from experience what a good deal is.
5. Wholesaling allows you to network and build relationships with successful investors
In the process of selling deals to experienced investors, you will begin to build relationships with them. If you are selling them homerun deals, this friendship will be immediate. The benefit of having friendships with these successful investors is hard to put a price on, it really is invaluable. You might even end up with a local mentor that can help you progress into fix and flipping.
6. Wholesaling enables you to become a master at finding good deals
This could be seen as a negative of wholesaling. You will need to find better house flip deals than what your buyers are finding. This is because you have to buy cheaper in order to fit your wholesale fee into the deal. I see this as a benefit, because you will learn how to work on and improve your marketing so that you can increase the number of leads you are getting so that you can find those homeruns.
I also firmly believe that a lot of people simply pay too much because they are too afraid to offer less. When wholesaling you have to offer less. Why not make it a habit?
7. You can wholesale houses part-time easily
Wholesaling can be done part-time, as there isn’t much for you to do. The majority of your time will be working on marketing and making offers. Once you learn how to properly screen leads, you won’t have to see as many houses because you know which ones are likely to be deals and which ones aren’t.
Fixing and flipping can become very time consuming and stressful. I love wholesaling a house and making more on it than I would have by fixing it and selling it retail. It doesn’t happen all the time, but when it does, it’s an awesome feeling.
If you’ve learned enough that you feel you should have already started but are hung up on the risk and cost involved in buying, fixing and fipping houses, you should seriously consider wholesaling.