​Building Your Real Estate Empire with $50

There’s much hubbub about real estate investing these days. It’s probably one of the most hyped markets in the world, next to becoming a famous celebrity. But if the 2008 real estate crisis taught us anything, it was caution. Like Rome, your real estate empire can’t be built in a day. Let me repeat—your real estate empire cannot be built in a single day or week or year.But,it can be built. You just have to build it the old-fashioned way, one brick at a time.

The first brick’s gonna cost ya 50 bucks.

This first brick is called wholesaling, or “contract assignment.” Many real estate professionals build a sizable business by employing this single method. There are limitations of course; we recommend that you eventually grow into rentals, flips, and ultimately our real estate note creation system. Wholesaling is an effective, efficient and inexpensive way to get started.

Essentially, when you wholesale a real estate investment deal, like a wholesale food distribution company, you are acting as an in-between person. There is the person growing and then selling the food, and then there is the person buying the food. In real estate wholesaling, there is the “motivated seller,” and then there is the person wanting to invest their money (the “investor). Similar to going to Costco and buying 500 rolls of paper towels and 17 gallons of applesauce, an investor will go to you—the wholesaler—for a great real estate investment deal. Why do investors go to you? For the same reason you go to Costco for 50 cans of soup: it’s a great deal and you cannot make the soup yourself.

The wholesale process is simple. Your goal is to find someone who is highly motivated to sell his house. This could be someone who inherited a house but has no use for it, and wants to get it off his hands quickly. Or, it could be someone who hates her local city and desperately wants out. Once you’ve found this motivated seller, you will negotiate to contract his or her house below market value. You then take this contract and “assign” it to an investor for a slightly marked up price. You take home the extra “mark-up”—usually $3,000 to $10,000—and move on to the next deal.

The beauty of this system is that everyone is happy. The motivated seller gets what she wants: the property off her hands quickly and for cash. The investor gets what he wants: a great deal on an investment property. And the only risk to the wholesaler is the cost of the “option” to leave the contract in 14 days. How much does the wholesaler pay for this option in the contact?

You guessed it, typically 50 bucks.

There are two critical elements to winning at the wholesale game. The first is to qualify quickly and the second is to be first. In other words, “Don’t waste time in your prime,” and “first on the scene wins the bean.” (Old sayings I just made up)

CASE STUDY

Here’s a case study of a typical deal. We did change the names, but this is was real deal.

The first step is to qualify quickly, preferably over the phone: “Don’t waste time in your prime.”

Homeowner: Hello, I saw your ad in the newspaper that said you buy homes. I have a home that I want to sell.

Me: Great…thanks for calling me. What’s your name?

Homeowner: Suzy.

Me: Hi, Suzy, can you tell me a little about the house and give me the address?

Homeowner: It has three bedrooms and one bath. It was built in the 1940s, and it is located at 322 Fair Avenue.

Me: Thanks, Suzy. How long have you been trying to sell your home?

Homeowner: I just started calling people today. I inherited the house from my father. It used to be a rental home that he had for many years.

Me: Great. How much are you trying to sell it for?

Homeowner: I’m not sure. I just want to get the best price that I can.

Me: Suzy, do you own the house free and clear, or is there a loan at the bank that needs to be paid off?

Homeowner: I own it free and clear.

Me: Great! Does the home need any repairs?

Homeowner: Yes, the tenants that just moved out trashed the place, and I don’t want to deal with it anymore.

Me: No problem, Suzy. We can buy your house as is.

Homeowner: Perfect!

Me: What do you think your house is worth?

Homeowner: My neighbor across the street sold his home a couple of months ago for $85,000.

Me: How was the condition of that home compared to yours?

Homeowner: I think it was recently remodeled and in pretty good condition.

Me: OK…Suzy. I am interested in your house and would like to make you a cash offer today. What time could I meet you at the house to take a look?

Homeowner: How about three o’clock today?

Me: Perfect, Suzy. I’ll see you later today at three o’clock.

Once you know you have a qualified “motivated seller,” you must set up a time to meet immediately. Typically, the first investor to see the property gets it under contract.

Then the second step: “First on the scene wins the bean.”

Me: Hi Suzy, I’m Collin Corrington. Thanks for meeting with me today. I really appreciate the call. Let’s take a good look at the house and then talk numbers.

Suzy: OK…

Me: Thanks for showing me the house. It obviously needs quite a bit of work. How old is the roof?

Suzy: I’m not sure.

Me: Are there any plumbing or electrical problems that you are aware of?

Suzy: The light in the hall quit working a while back, and the tub drains a little slowly.

Me: How are your neighbors?

Suzy: The ones to the left are an older retired couple. The ones to the right just remodeled their house and have two children.

Me: What do you think your house is worth?

Suzy: Probably about $65,000.

Me: How did you come up with that number?

Suzy: I know it needs a lot of work, and my neighbors sold for $85,000.

Me: Your neighbor’s house at $85,000 was updated and move-in ready. Your house needs a lot of rehab, and from an investor’s perspective, it is only worth $50,000. If you agree to the price, I will even pay all the closing costs and haul off the trash.

Let’s say you haggle a bit and get the seller to agree to $53,000. Now that you have a verbal agreement, it is critical that you get the seller to sign a contract.

Now that we have agreed on a firm sales price, we would say the following if we were going to wholesale the house:

“Suzy, let’s go over the paperwork. What this contract basically says is that you are agreeing to sell us your home for $53,000, and that we plan on closing within thirty days. There is an option period for us to opt out of the contract within fourteen days if we choose to do so. We want to get our contractors over here to inspect the property. Ninety-five percent of the time, we are on the same page, but we always like another set of eyes on all of the homes that we buy. By the way, we are paying you $50 for the fourteen-day option period. If we decide not to buy the house and cancel the contract, you get to keep the $50. Of course, we do not anticipate having to opt out of the contract. You will also notice on the contract that the buyer is listed as “The Note Factory and/or Assigns.” We often assign contracts to fellow investors. Since the house is vacant, would you mind if we put a lockbox on the property with your key in it so we do not have to bother you every time we look at the property? We want to start getting bids from contractors right away, and start showing it to a couple of other investors.”

Now that you have a contract, you have fourteen days to assign the contract to another investor or opt out. You have a lot to potentially gain and a whopping $50 to lose if you have to opt out of the contract. Talk about a low-risk real estate deal!

These wholesale deals are your first bricks for your Empire. By doing these deals you will learn your local market, you’ll begin to understand how to negotiate the best deal, you’ll spot deals quickly, build relationships with investors and much more. These are the first steps to moving up to a more advanced stage of real estate investing. The sweet thing is you’ll be making good money along the way.

-Collin