This blog post has one intended purpose—to help you clearly understand what it takes to be a successful wholesaler. First, we’ll take a minute to review the basic concepts and premise of wholesaling.
There is a ton of information circulating the web via videos, blogs, workshops, and seminars. The majority of this information overlooks the basics. Therefore, this blog post is for those who have not done a deal and are trying to wrap their heads around the process.
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Real Estate Wholesaling, Defined
So, what is wholesaling? Wholesaling is when you find a property with signs of distress and agree to purchase the property significantly below market value. Then, you resell the property to an investor for below market value, and you keep the difference between the contract price with the seller and your contract price with the buyer (investor).
Here’s a that process simplified:
Find a Distressed House –> Deal With Seller –> Find Investor –> Deal With Investor = $$$
Is this possible? Yes.
Is it easy? It could be, but there are steps.
Related: 3 Steps to Close Your First Wholesaling Deal (& Find a Mentor in the Process)
Steps to Facilitate a Wholesale Deal
There are some vital steps that must be followed in order to facilitate a transaction. It takes persistence and tenacity, but yes, it is possible.
Step 1: Find a deal.
You have to be able to find a deal. Without going into detail (it’s beyond the scope of this post), you can do this numerous ways: online marketing, direct mail, driving for dollars, relationships etc. Regardless, marketing is the key.
So let’s say you find a distressed property. Now what?
Step 2: Decide with the property is worth.
This is done by finding comparable sales. What have similar properties in the area sold for? These properties will be properties that have been rehabbed.
Step 3: Make an offer.
Once you’ve done comparable sales and you know the after repair value (ARV), you are ready to make an offer to the seller. This offer will need to be considerably below value, normally close to 50% below value (including repair cost).
Step 4: Submit the contract.
Let’s say your seller accepts your offer of $50k, and the house is worth $100k. Now you will contact your closing agent (attorney or title company) and submit the contract to them.
Step 5: Find a buyer.
You will have a good deal, so a buyer should not be hard to find. You can post the property on Craigslist, or you can call other wholesalers and joint venture, where you bring the house to the deal and a partner brings the buyer.
Now let’s say you’ve found a buyer willing to pay $60K for your deal.
Step 6: Create an agreement.
Now you’ll create an agreement between you and the buyer for $60k. This can be done either by assignment agreement or double closing. You are basically selling your contract to the buyer for $10k. Click here for an article that discusses the assignment agreement.
Step 7: Coordinate the closing process.
This is the most exciting step, but can be the most frustrating as well. Here is where you have to coordinate everything. You have to make sure the closing agent communicates the closing schedule with the seller, that your buyer has submitted earnest money and has the closing schedule, and that the closing agent gets all the needed paperwork out. You have to coordinate the transaction to the end. If you are successful at this, then you will receive a $10k check at closing. This is the difference between the $50k deal you made with the seller and the $60k deal you made with the buyer.
Related: Thinking of Becoming a Real Estate Agent Because Wholesaling is Too Hard? Read THIS First.
Wrap Up
As a wholesaler, you have to be able to find remarkable deals by smart marketing. You also have to be able to understand what a good deal is and how to find your numbers via comparable sales. Next, you’ll need to find your buyer, which takes marketing efforts as well, but if you truly have a deal, this is not difficult. Lastly, you have to coordinate the transaction to make sure everyone is on the same page.
Everyone likes to start with wholesaling as an entry into the real estate industry. It can be challenging at times, but at the closing table, it’s all worth it.
What areas of the wholesaling process are you having issues with?
Let me know and I’ll try to help!
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17 Comments
Hi Marcus,
Thank you for this information. It’s helpful for all newbies such as myself. I have a question that is bewildering to me, which I hope you will forgive my ignorance on the topic. I understand that it could take a significant amount of time for a home to be sold by a real estate agent. However, outside of the factor of time, why would a seller want to sell their home for such a discount when they can hire a real estate agent to sell it at retail price? I live in California in the SF Bay Area and its hard for me to imagine that there are many sellers who would want to get rid of their properties at 50% of the retail value rather than list it with a real agent to get full retail value. Do you think there is less of a demand of a wholesaling business in places like the SF Bay Area? Any insight to this would be helpful. Thank you.
Virginia,
That’s a great question. There are numerous reasons someone would not list their property with a Realtor. Here are an example of just a few:
Timing:
Need to sell immediately because the house is vacant
Need to move immediately due to job transfer out of state and they have no one in state to help sell the house
Condition:
House needs tons of repairs and the Realtor is not willing to sell the property in its current condition
Fire Damage and water damage.
Liens: IRS, City
Every market is different but there are people in every market that find themselves in troubling situations. It is your aim as a wholesaler to find those people and help them.
Thank you so much for your help!
Hi Marcus,
Thanks for writing the article. One follow question is what would you suggest that new wholesalers use as proof of funds? In a competitive market, the more attractive your offer looks, the more likely it is to be accepted. Looking forward to your thoughts.
Best,
Ndongo
Indongo, I found myself in this same position, this is why I stress the importance of Birddogging first. Birdogging gives you the ability lean on a more experienced wholesalers information, contacts, and capital. So to solve this problem, work with another investor/wholesaler and inform them you will be putting offers in on properties but you need to provide POF (proof of funds). If they are truly looking to secure deals they will offer you the POF to write the contract in their name and you receive a joint venture fee.
Also you can contact a hard money lender for POF, and they can provide that for you as well.
Indongo,
For cash deals you should be able to provide a recent bank statement or a letter from your bank showing the available funds from either your or your LLC’s (if you are operating through one) bank account.
One detail you left out. If you enter into an agreement with a seller and have no intention or the capacity to close the deal you are committing fraud.
Hey Marcus,
What a great, simple, and easy to understand article! Obviously there are many details to fill in on the “actual to-do’s” but this was a great overview. Thanks for writing this for a newbie like me.
I am new to REI and still in the “education” phase… but am feeling some urgency to start making something happen. I don’t have a lot of money and am still rebuilding my credit from a failed business. But, have been thinking lately that I would like to do some Wholesaling to build up my cash reserves and get some down payment money. I have a bunch of time, am getting educated, but have little else to offer.
In your opinion, Is this a good strategy? As a newbie, what pitfalls should I look out for?
I like your idea of doing a joint deal with an experienced wholesaler. I am listening intently to the podcasts and have downed about 60 out of the 242 podcasts that are available here on BP in the last couple weeks. In several they talk about “unscrupulous” wholesalers. How do I avoid becoming one? And what should I look out for to avoid being taken advantage by one?
Last question… Can you point me in the direction of resources to learn about Steps 2 & 3 above? Step 2 (which I think has a Typo in the heading – btw) it says to determine what the property is worth. But, how do you go about doing that, and that leads to step 3, making the offer. You say to offer well below market value, usually 50% including repair costs… but how do I know how much it is going to cost to repair?
Thanks again for the article, and for any insight on these questions (in advance).
Regards,
Dean
Dean,
Thanks for reading; you asked a couple of questions and I will attempt to answer them in order. First off that is a typo it should read determine what the property is worth. This can be done by running comps for the area. Check out this video https://www.youtube.com/watch?v=oSKp3BEpze8 and it explains how to pull comps. This would be easier for you to review than try and tell you.
Pitfalls to try and avoid: Being distracted….there is a lot of noise out here; some is valid some is not but chasing the next hottest thing is a challenge that a lot of newbies face. Remain focus and know why you want to be a real estate investor.
Do everything with integrity, and treat others how you want to be treated. This is the best way to avoid being an unscrupulous wholesaler. There are a few in the industry that only think of themselves but they get a bad name very fast and no one is willing to work with them. INTEGRITY is the key.
The answer to question #3 coincide with #2 you can not present a valid offer without knowing the ARV of the property. I’ll refer you again to that video for help.
If you have any additional questions don’t hesitate to ask. “Enjoying the Journey”
Thanks, Marcus! I appreciate your response. I am super excited to get started.
I also appreciate the video. It is super helpful.
Just a follow up question. I alluded to it, but wasn’t real clear in it… So…
For a new investor, who doesn’t have a lot of money you think this is a good strategy for someone who doesn’t have a lot of money, and not very good credit to build capital for down payments on buy-and-hold properties?
Thanks again!
@Dean Hamilton
You can be succesful at wholesaling and close a deal with little or no money depending on your marketing approach to acquire motivated sellers. What will determine your results is the amount of effort and persistant action you take to get that first deal.
– knock on doors
– cold calling
– social media marketing
– direct mail
– seo
Best ,
David
Awesome input, David! Thanks so much for your comment! Any resources you would recommend for the social media marketing and SEO? Also, for finding numbers so I can cold call. I know how to cold call and knock doors… It is the other stuff I don’t know anything about.
Also, Any ideas on how to approach cold prospects? Do I just tell them I want to wholesale their house?
Dean, on approaching cold prospects;
“Hi, my name is Dean and I’m looking to invest in this area and possibly expand my portfolio. I noticed your property and it appealed to me as a possible investment opportunity. Have you considered selling……………? If so………..would you be interested in me or one of my team members presenting an offer to you, absolutely no obligation at all.”
You can use your own variation of course.
That is great! Thank you so much!!
Marcus,
Is this also a good response for a seller who calls from a motivated seller campaign? Thanks.
@Marcus Maloney
Great article for newbies such as myself! Thanks for your insight and explanations. Do you have an opinion on experience regarding effectiveness of knocking doors or cold calling versus sending letters? I have identified several pre-foreclosure properties, just trying to see best route to reach and try to negotiate with them. Thank you for any thoughts!
@Debi thanks for reading, if you have pre-foreclosure leads then you do whatever it takes to reach the owner. You can skip the owner using tlo.com and then call them or door knock.