The Newbie’s Guide to Wholesaling in 7 Simple Steps
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.
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 = $$$
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Is this possible? Yes.
Is it easy? It could be, but there are steps.
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.
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!