How to start in Wholesaling for a TRUE NEWBIE?

Question

I know nothing about wholesaling. I heard that this is a good way to learn the fastest about REI. Can someone please explain how a beginner gets into wholesaling thank you :)

Chris Piper · Answer

@Dev Why You really don't need any special skills or anything to start wholesaling right away. What you DO need are cash buyers and properties.

You need to build a cash buyers list immediately. You don't want to guess at what you think is a good deal, put it under contract, and then not be able to sell it and lose your earnest money.

So here is how to get going:

Step #1

GET CASH BUYERS

You can do this by advertising, going to local real estate investment meetings/clubs, putting up bandit signs(if they are legal in your area), using craigslist, going to tax sales or sheriff's sales(all cash buyers), building a website and driving traffic to it, or you can pay for access to a list(just google "cash buyer's list).

Make sure that when the cash buyers call you, that you find out what types of properties they want, how many beds/baths, square footage, what area they want properties in, what price range, if they are buying with all cash, how quickly they can close, etc. Get as much info as possible so you are only bringing them the deals they want.

Step #2

GETTING FUNDING IN PLACE BEFORE DOING ANY DEALS

You need to have funding in place in order to wholesale. The funding will have nothing to do with your credit, job time, income, etc. You are looking for "transactional funding." This is very short term funding, typically used for 1 day. You will obviously have to pay interest to use the funding, even though it is only for 1 day. You need to have a property under contract with a seller, and a contract with a cash buyer to purchase the property from you before most transactional funding companies will fund a deal for you. Google "transactional funding" to find some possible funding companies to work with. Call them and find out what their requirements are before making any offers. Some might have a minimum amount they will fund, and they will all charge various rates for their funding. Make sure you know how much you will be paying to use their funding and all the other details.

Step #3

FIND PROPERTIES

Although some people might think it's best to go after properties listed in your local MLS system, for sale by owners, of REO's(bank owned properties), there will be a ton of competition with more experience and deeper pockets going after those same deals. The way to get the best deals with the least amount of competition is by finding vacant properties. You can find them by driving around and finding them(look for a lockbox on the door but no sign in the yard, tall grass, no window coverings, piled up newspapers, etc.)

Once you find the properties, then you have to mail a letter to the owner of that property. Make sure you get some comps on the properties you are interested in right away. Make notes you can find easily(on your computer, smart phone, or a notebook). After you get your comps, run some numbers on the property to see what your maximum purchase price is. NEVER go over that amount, or it will not be a good deal for you. When a vacant property owner calls you after you have pulled comps and run the numbers, you will be prepared to make them an offer over the phone in case they ask for one. When you talk to them, find out all you can about the property. Find out why they are selling and whatnot.

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*****FORMULA FOR MAKING AN OFFER*****

ARV(After repaired value)

X 70%

- Repairs

= Your selling price to a cash buyer

Selling price to cash buyer

- Your Profit( I use 10% of the ARV)

- Closing Costs

- Miscellaneous Fees(Interest, Points, etc.)

= MPP(Maximum Purchase Price- The Most you can pay for a property)

My initial offer is 85% of my MPP. This gives me the possibility to get the property at an even better price than my MPP if the seller accepts.

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Step #4

PUTTING A DEAL UNDER CONTRACT

Once you have gotten a cash buyers list going and have found properties that will match your cash buyer's requirements, then you need to put a property under contract. You do this by having your real estate agent put together a purchase agreement. If you don't have an agent, call around and find one that works with investors. This way when you make a lowball offer on something, they won't be shocked. A purchase agreement is a contract offering to buy a property. When your agent submits an offer for you, in the purchase agreement, you will need to put in the amount of earnest money(deposit) you will be putting up. This can be anything from $10-$100 or more depending on the seller. Being as you are new to this, I would try to put up as little as possible. You can decide how much you put up when your agent completes the purchase agreement for you.

Once your offer is submitted to the seller, they will either say "No", "Yes", or will not reply at all. If they counter offer, then you are not obligated to purchase the property. You can look at their counter offer price, see if it is less than your maximum purchase price and if it is acceptable, and reply via your agent with "Yes", "No", or with your own counter offer price. Sometimes, the numbers just won't work for you or the seller, and a deal will not happen. Other times, it will work. Once an offer or counter is accepted by you and the seller, you will typically have 30 days to close on the property. The closing date will be given to you by the title/closing company doing the closing on your purchase of the property. If you can't sell the property to a cash buyer within the 30 days or by the closing date, you will lose your earnest money deposit, and some credibility. Try to make sure you are putting the right properties under contract, which are properties that your cash buyer's requested. Don't put a property under contract that is a 3 bed/2 bath by a freeway when one of your cash buyers said they want a 3/2 in a quiet neighborhood. You will get stuck with it, not be able to sell it, and lose the deal.

Make sure your real estate agent puts in a 7 day inspection period in the purchase agreement. This will give you 7 days to have a contractor look at the property, tell you what repairs need to be done, and give you an estimate. Make sure your repair costs that are figured into your numbers prior to making any offer are pretty accurate. If the contractor finds something major with the property that just won't work for you, you can back out of the deal with the seller and still get your earnest money back, and lose no credibility.

Once you have had the property checked out by a contractor, or multiple contractors, then if everything is good and the numbers make sense, then you need to start calling your cash buyers ASAP!

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*****IMPORTANT NOTE*****

If you can't get a cash buyer to put a property under contract with you within 1 week after your offer to a seller is accepted, reduce your price. If you can't get a cash buyer to put it under contract with you within 2 weeksafter your offer is accepted by a seller, drop the price again to your cost. You won't make any money, but you won't get stuck with it and won't lose your earnest money.

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Step #5

FLIPPING A PROPERTY TO A CASH BUYER

Now that you know you got a great deal, and got it at the right price, you need to contact your cash buyers with this property. Call them and tell them that you have a property for them which matches their requirements. Tell them that you already have some buyers looking for the same properties, but as a courtesy to them, you wanted to give them first crack at it. Obviously you are lying, but you need to put pressure on them to buy this property right away so you don't get stuck with it. If someone calls you about buying this property, tell them "I think it's already sold, but let me check." Wait a few seconds, and say "It is still available, it must have been the other property we just sold." Then proceed to get them to take action. This way, it looks like you are doing deals regularly even if you are new. Always have the right info and answers for buyers and sellers, or you will look like an amateur to them, and they likely won't work with you. If the cash buyer you are trying to sell this property to is not interested, start contacting anyone else who is looking for this type of property and do the same thing. If no one is buying it, then you might have missed the mark on this property. Maybe the size is too small or it's not exactly in the right neighborhood.

Step #6

CLOSING

If you talk to a cash buyer who is interested, let them know that you require a $2,000 earnest money deposit by escrow to secure this property. Your buyer can do this by depositing the $2,000 in escrow with the title/closing company you will be using to close both your purchase from the seller, and your sale to your cash buyer. If you do not have a title/closing company, call around and find one that works with investors. Let them know that you will be doing "back-to-back" or "double-closes." Let them know that you already have "wet-funds" in place. Wet funds means you will be closing and purchasing a property and paying for it in full.

When you do a "double-close", you are closing in the morning, and then doing a second close later that same day. So you are essentially "buying" a property in the morning on the day of closing from a seller, and "selling" it again later the same day to your cash buyer.

Step #7

GETTING PAID

Once both of your closes have taken place, you will be paid by the title/closing company the same day or the next. Typically, it will be by check. If not, then they may wire the money directly to your bank account. That's it! You're done, and made good money with very little effort. Now go do it over and over and again!

Account Closed · Answer

Welcome Dev,

The Ultimate Beginners Guide (UBG) on this website will help with a lot of your questions. I am new to the business as well but I have learned a lot so far from this website and going to my local REIA (Real Estate Investing Association) meeting.

Best of Luck,

Jeremy

www.istilldonthaveawebsite.com