Wholesaling Basics Questions

9 Replies

So if you're new to real estate in the real estate world, and you're thinking of wholesaling... what's the lowest you could buy a property to sell it again?

I was told to always know your market, so basically always live where you're investing. Is this wise for all types of real estate? What about wholesaling? And when in your real estate career would you fly down to a disaster to assess property?

Do you have to operate on credit in order to get a bank loan? How much should you ask for on your first loan? Should you start out wholesaling, renting out, or flipping houses?

In other words how do you start? What are some of the best tools you guys have ever used? I already have some, and any more would be appreciated. And I'm also talking about the big leaguers out there.

Thanks,

David Linton

Guru's pitch wholesaling like crazy! Its cheap if you can find your first deal with no looking. The marketing is what really ads up. You can spend lots of money on marketing month after month and get no deal coming in. 

Best way is to join or start your own REIA. Find those who need help. Offer to help. What is it that you can offer? Money? Time? Expertise? You need to have something that will help others.

Wholesaling, at least the part where you have a property under contract, doesn't require loans. At the most it requires transactional funding, where you get a lot of money for a quick turn around, as in 5 minutes sometime. Search transactional funding on here to get an idea of how it works. 

I started marketing to absentee owners this past week. Check out list source for leads .. Also check out yellow letters in the search box. Its not cheap to market but I set a monthly budget for 6 months and I'm working with a wholesaler who's averaging 1 wholesale a month!!! I'm planning on my cash buyer putting the cash into escrow and purchase the property with his money minus my fee. So there's no need for transactional funding.. 

Have fun and be passionate about real estate

Chris...

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That's a great start! Also very awesome to have someone experienced helping you out. 

I was looking into purchasing a new list on listsource and unfortunately the area I'm looking at doesn't report the number or rooms in the house. Leaves me stuck with getting some 2 beds when I want 3 and more. Pretty lame if you ask me.

ARV*70%- your profit-rehab is the MOST you wuold buy it for.

i wouldnt start off by flipping until you know what you are doing

you dont NEED to live where you are investing. it just may help when you are first starting out

as a wholesaler you dont need to get a loan. you get it under contract and basically sell the contract to a house flipper for 5-10k or whatever profit you want

When you are looking for properties to acquire for wholesale, is very important to think like your buyer will,  think he needs to pay:

  • The property (lets assume 95k for example), 
  • You (lets say 5k), 
  • Closing cost at purchase (lets say 2k if paying cash)
  • Made the rehab (lets say 50k, asumming kitchen, floors, 2 baths, painting and no major surprises),  
  • Pay his hard money or private lender (for example 3 point at start and 12% yearly can be around 3k and 5k for 5 months financing, assuming 1 month rehab, 1 month selling and 3 months waiting for closing ),  
  • holding costs (utilities, taxes, insurance, etc can be 2k or more)
  • Realtor commissions 6% (12k if it sells for 200k)
  • closing costs at selling (around 6 to 8k)

If he closes for 200k he will be making 20k for all the risk and 5 months wait, if it takes longer than a month to find a buyer his profit shrinks paying financing, if the rehab budget goes up he loses profit or even money

So choose carefully your properties, if your investor buyers make money quickly you will sell quickly and more important last in this business, if your properties are not appealing to savvy investor maybe some new one will buy you and he will get in trouble and loose money and your reputation will suffer

Is not easy find properties heavily discounted in areas moving fast, that is why you are paid 5k  without putting any money or risk

My numbers can be wrong if somebody has a correction please jump in 

@Nereo Mendoza has a good point.

You should understand what your buyers are looking for and how it is that they are going to make a profit. I'm not one to go with 70%, 60% or 50% of ARV minus repairs. In smaller markets, you could be put in a tight situation. Take for example a house that has a $50K ARV, at 70% you're looking at $15k budgeted for transactional costs.

Let's break it down for your buyer:

Wholesale Fee: __________?

Buying costs with title company (1-4%):  $500-$2,000

Money Costs (say 3-5 points, plus 10% interest over 3-6 months for a $50k loan):  $2,500 plus $1,250-$2,500 in interest.

Holding Costs: $500 (small estimate for electricity, taxes, ins, etc.)

Real Estate Agent selling costs (6%):  $3,000

Selling costs with title company (1-4%): $500-$2,000

At this point without including your wholesale fee, we're already looking at a case where your buyer could be in for $12K, leaving him with $3k in profits and of that, he would have had to give some of that (or more than that) to you earlier in the transaction for your wholesale fee.  

My suggestion would be to do the math for your buyer's ahead of time before you make your offers to sellers.  Understand how much you want to get paid, and understand your buyer's costs and financial criteria.

I'm still trying to get my first deal in the books, but that's my two cents.

Originally posted by @Christopher Moran :

I started marketing to absentee owners this past week. Check out list source for leads .. Also check out yellow letters in the search box. Its not cheap to market but I set a monthly budget for 6 months and I'm working with a wholesaler who's averaging 1 wholesale a month!!! I'm planning on my cash buyer putting the cash into escrow and purchase the property with his money minus my fee. So there's no need for transactional funding.. 

Have fun and be passionate about real estate

Chris...

Wondering how your buyer can put cash in escrow and you are using buyer's funds to close on your purchase? I asked my closer and she said that it doesn't work like that