I am a college student and live in Providence, RI. I've been looking to get into wholesaling and was wondering if there were any bigger pockets members in the Rhode Island area that would be willing to impart some advice on how to get started in wholesaling. I've gotten some really good info online but, wanted to learn a little bit more about the specifics of the initial process. General tips and resources would be awesome. I would really love to connect with someone who has had some good experience.
Francy, I've done a number of wholesale deals. I can say, that while they are marketed as "the easy way to get started in real estate with no money or experience", in practice many (maybe even most) wholesale deals are stressful and maybe not ideal for beginners.
It's not to say a beginner can't succeed, but there could be a bit of a steep learning curve. I can count the number of "smooth" and "easy" wholesale deals on one hand, and I've done a lot of them.
The #1 thing you need for wholesaling is to find someone who is willing to sell at a cheap enough price (a "motivated seller") that it leaves enough of a profit margin for the end buyer (usually a rehabber) AND for your wholesale fee. That means marketing, marketing, marketing.
This usually includes direct mail, and a few other marketing techniques which could include pole signs (aka bandit signs), fliers, door knocking, calling on For Rent signs, "driving for dollars", hanging out in eviction court, etc. Bigger Pockets should have a lot of ideas & help for marketing methods.
But without a substantially below market deal, you pretty much can't wholesale. So it all starts with that, which means grinding through a lot of work marketing.
Once you get in front of a motivated seller and negotiate a price with enough margin, you'll need to get the property under contract, which means having a signed purchase and sale agreement (P&S) where you're going to buy it from the seller. If you're an agent, my understanding is that you can use the RI Association of Realtors P&S (though you may have to put special disclosure language in), but if you're not you'll have to get a P&S to use from your attorney.
Then you'll need to find a buyer and hope that they will buy it for enough above the contract price that you'll be able to make your wholesale fee as a spread between the two.
There are a lot more nuances, such as the contract needs to be assignable (most are by default, people differ on whether you should write "and/or assigns"), getting your potential buyer in to see the property, whether to do an assignment vs. double close, the importance of selling your contract vs. selling the house, etc. But the basic idea/setup is what I outlined, and you have nothing until you have something cheap enough to be a deal, under contract.
Another important point, and this relates to getting it cheap enough / with enough margin, is that really, you should kinda have the ability (and desire!) to close on a property you're going to wholesale. You may go into it thinking that you'd prefer to wholesale it (sell to someone else for a slight markup aka finder's fee), but you should have the ability to close if you can't find a buyer (or yours backs out) and you should be getting it cheap enough that you would be OK with that, even if it was only for a few months until you found another buyer or did the rehab yourself.
If you're not getting it cheap enough where you would be willing to close yourself (if you had to, again this is "plan B"), then you might not be getting it cheap enough to sell it to someone else at all. And if you don't have the ability to close on it yourself (even if it just means lining up private/hard money in advance), then you may run the risk of getting into trouble in the future if your buyer backs out, and thus you back out, leaving a dissatisfied homeowner who could complain to someone and cause you some problems.
Bottom line is, don't put something under contract if you wouldn't be willing to close if you had to, even if that's not your primary plan.
As far as making sure you're getting a good enough deal, you'll need to either be an agent who has access to the MLS to look at comparable sales (comps) to determine after repair value (ARV), or be working with one who can do that for you, or have some other source of data to be able to do comps and determine that ARV. (And you need to look at similar properties in the same area, which have sold recently, not asking prices - anyone can ask anything for a property, that doesn't mean their price is realistic or representative of actual value.)
You definitely need to 1) do enough marketing to find "motivated sellers", 2) be able to do or get comps to determine after repair value, 3) estimate repairs (which comes from experience or walking through with a good contractor - see the BP guide to estimating repairs), 4) have a P&S agreement so you can get something under contract, 5) have (at least) an attorney to review all of this with and possibly give you a P&S to use if you're not an agent.
Those are just some thoughts, hopefully that helps somewhat. There are a lot of grey areas or ambiguous areas where people will have different opinions than what I've written, such as assigning vs. double closing, or whether you can do good comps without the MLS, whether you should care if you have the ability to close or should just say it's only your deposit at risk, etc.
I'm not an attorney and none of this is legal advice, but hopefully it helps. It is definitely not "easy", but there is potentially money to be made, if you are willing to do the work (and maybe invest in some heart burn pills).
My advice would be to secure some money and acquire these wholesale deals and list them below market value in as is condition. Return on your money, gain of experience, and limited financial output initially. You have some skin in the game, learn the game, and stack your chips all at once.
Hey @Anthony Thompson ,
Thank you for your response as it was really helpful. I have a few follow up questions.
- What are the specifics to the legality of wholesaling in terms of being licensed or not(In Rhode Island)?
- When speaking to buyers should I make it clear that I am intending to wholesale their property or is that something that I should keep to myself?
- How do I go about finding an attorney who would be willing to give me and P&S contract for wholesaling?
- Should I start wholesaling by diving right into a deal or should I seek help from someone else?
Hey @Brandon Ingegneri ,
Thanks for your response. I have a few followup questions.
- How much is "some money" and when you say acquire do you mean getting these deals under contract or actually purchasing the properties?
- Really basic question but, how do I go about learning how to actually assess a property's market value?
Appreciate your help,
Some money will depend on what you are digging up as far as deals. Enough for acquisition though.
I would start with comps. If and when you begin doing volumes of deals in particular areas, you begin to get a feel for the market amd it’s trends.
1. I'm not an attorney so I'm not qualified to speak to the legalities. My understanding is that people in Rhode Island who are both agents, and non-agents, wholesale properties, but that agents may have additional disclosure requirements and may need to consult their broker. Questions about legalities should be directed to an attorney though.
2. Most wholesalers do not announce to the homeowner that they are intending to turn around, mark up the property and sell it to someone else. You could do so though, some wholesalers do. For me, it goes back to, I would be willing to close on it at the agreed upon price. If I happen to be able to sell the contract to someone else for a slight mark-up then I might do that, but I don't have to and I intend to make sure that either way, the seller will get the promised amount.
3. I would recommend asking other real estate investors who are active in Rhode Island, or perhaps attending a local real estate networking group such as RIREIG in Warwick or Black Diamond REI in southern Mass (if you intend to do anything in Mass too).
4. It sounds like you're asking if you should find (or hire) a mentor first, or try to do a deal on your own first. That is a good question and I can't answer it for you, but I would refer you to the Bigger Pockets Ultimate Beginners Guide since it covers that topic (and many more) in some detail.
Personally, I usually recommend that people attend a local REIA meeting (either of the above would work) and instead of trying to "find a mentor", just network and make friends with people who are one or two steps ahead (so if you own no properties find a few people who own one or two, same thing with # of wholesale deals).
Good luck and keep us updated on your progress of course!