My goal with this post is to help any newbies out there interested in real estate wholesaling who simply don’t know where to begin.
Before we start, I first want to share my story and how wholesaling has completely changed my life.
For those of you who don’t know me, my name is Brett Snodgrass, and I’ve been a real estate investor for over 10 years. When I first jumped into real estate, I had just graduated college with an early childhood education degree and was a substitute teacher. In my first year of substituting, I had only made $10,000.
I hated my job!
I refused to take the career route again, so I began exploring ways to become entrepreneur. I started flipping everything I could get my hands on, from cars to stereo systems on eBay. You name it!
I eventually stumbled upon something called real estate investing and boy, did it change my life forever!
I found my first property on eBay in the heart of the ghetto in Youngstown, Ohio for $9,000. I only had $5,000, but my father graciously matched me, so we moved forward and bought it together for $10,000, including closing costs.
My father and I didn’t have any money left to renovate the property, so we were stuck with no idea of what to do next.
I thought to myself, “What if try I to sell it for a little bit more than what we bought it for?”
So we did just that and listed the property for $15,000 and made a $5,000 profit.
Then I was hooked! I had just made half of my yearly salary in less than one week! The moment that happened, I remember sitting back and saying, “If I could do this with one house, what could I do with 100 houses?”
That’s where it all started.
Wholesaling real estate has literally been my ticket to creating the life of my dreams. I’m now able to go on vacation whenever I want. I have complete control over my schedule and my life, and it’s really incredible!
Today, I want encourage you all to use real estate wholesaling to do the same thing in your life. So, without further ado, let’s get into it!
3 Ways to Wholesale Real Estate
A wholesaler in any industry is defined as “a person or company that sells things to businesses and not to individuals,” according to the Merriam-Webster dictionary.
So, when you are a person who sells products to businesses and not individuals, you are selling them products they can turn around and use to make money, right?
Wholesalers buy extremely cheap property and then sell the property for a slightly highly cost, leaving room for buy-and-hold or rehab investors to turn a profit as well.
We are the matchmakers or the “middle-men” between the property and the investor buyer.
Pretty freakin’ sweet, huh? Just buy a cheap property and sell it for a quick profit. It’s that simple!
Now that you understand what wholesaling is, let’s dive into the three most common strategies used to wholesale real estate.
This method is probably the most popular wholesaling strategy because it’s the easiest method of entry, it doesn’t cost money to get started, and there’s little to no risk involved.
This strategy consists of getting a property under a purchase agreement between you and a motivated seller, and before you close, you find an investor buyer to sell the contractual rights to. You then profit via the “assignment” fee of giving the rights of the contract to the investor buyer.
Here’s an example: The motivated seller wants $15,000 for their property. You write a purchase agreement with the seller for $15,000. During your “due diligence” period, you turn to your buyer’s list and offer to assign that contract for a fee of $5,000.
The investor-buyer purchases the property for $20,000, and boom, you just made $5,000 on a wholesale deal!
There are so many amazing benefits when taking advantage of the assignment strategy; however, I personally do not like this type of wholesaling for a couple of reasons.
Legal Gray Areas
Many argue that you’re essentially acting like you’re a licensed agent even though you’re not, because you’re overseeing a transaction between a buyer and a seller for a profit. If you’re marketing a house for sale that isn’t yours, technically, you could run into being accused of fraud. If you have your license, then it’s cleaner to do assignments, but you still could run into some trouble depending on the laws and customs of your state.
If you’re going to assign contracts, then I highly recommend sitting down with a legal professional and have them write up the contract for you.
It’s Too Complicated!
Assigning contracts involves multiple people and multiple prices, and it so easy to lose control of the deal.
Have you ever heard of the daisy chain?
If not, here’s an example of a daisy chain: I get a property under contract. I assign it to Joe, then Joe assigns it to Tom, and then Tom assigns the contract to Harry.
It’s called a daisy chain because it’s a big chain that can get very messy, very fast! If something falls through, it breaks the entire chain, and everyone involved gets frustrated and upset—and your reputation is on the line.
2. Double Close
The double close method is used when you purchase a property and then sell it to an investor immediately—within minutes!
Sounds pretty crazy, right?
Here’s how it works. At closing, you first sign the documents with the motivated seller, and then a few minutes later, you meet with the investor buyer and sign the closing documents with them.
Timing is key!
The success of double closing ultimately depends on timing, and if the motivated seller or buyer pulls a no-show at closing, you’re stuck!
The biggest risk using this method is that you have no control of the transaction because you’re very dependent on the motivated seller and the buyer.
But don’t get me wrong. If done correctly, this can be an incredible way to wholesale real estate as well.
3. The Simple Close
The final way to wholesale real estate, is something we like to call the “simple close.”
In a simple close, you simply buy the property from the motivated seller with your own funds, close on it, then once you fully own the property, you market it and sell it to an investor buyer.
This is the method we use in my company, and it’s my favorite strategy because, in my opinion, it is legally the safest and easiest way to wholesale real estate!
I never have to worry about deals falling through, my reputation is still intact, I own the properties free and clear prior to marketing them for sale, and everything runs a lot more smoothly.
Obviously, the main drawback is that you need a lot of working capital in order to conduct your business at scale, and in markets where purchase prices exceed $150,000+ for a distressed property, this becomes increasingly difficult.
But don’t let this discourage you! I started with only $5,000, and within a year, I was operating as a full-time wholesaler, so it is definitely possible!
Each type of wholesaling has its pros and cons, and ultimately, you’ll need to decide which path is right for you.
Decide now because next week I’m going to dive into the how real estate wholesaling companies operate and the three components within a wholesaling business.
We’ve updated this article and are republishing it to help out our newer readers.
Question: Which method of real estate wholesaling do you use and why?