Hi BP! This is my first post on the site. I'm very new to real estate investing and am really having a hard time understanding the process from start to finish on a wholesale deal so I thought why not just post it here.
So... We'll start from the beginning...
I find a deal, talk to the seller and we agree on a price. I write up a Purchase and Sale agreement. The agreement has 'and/or assigns' and I inform the seller that I am a wholesaler and that I send the deal to investors I work with who then buy the contract from me. (At this point I need to give the seller an earnest money deposit correct? Do I give them cash or a check or do I put this with a title company I don't really know.)
Next I send the deal out to my buyers list and/or market the property to potential investors. Once I find a buyer I do an assignment contract with them and then send both the PS and assignment contracts to a title company...( I've noticed that finding a title company/real estate attorney that does double closings or even works with wholesalers/investors can be difficult. Instead couldn't I just assign the contract to the buyer for a fee using an attorney? (i.e. I find the buyer, they're interested in the property... They then write me a check for let's say $5,000 as an example, the PS contract goes to them and they deal with the seller and title company to close the deal?)
Once the above portion is done, the title company does all the paperwork the deal is closed, I thank the buyer, seller and title company and move on to the next one? How far off am I on the process and can anyone help guide me to fully understand?
Thanks BP! Look forward to the discussion!!!
You pretty much have the process down, only you never give the earnest money to seller, it goes in escrow to title company.
If you're going to tell the seller that you are planning to wholesale the contract, you might consider doing it before signing the purchase agreement. Always put earnest money with the title company; they will take care of what needs to be done with it. I'm sure it happens, but most buyers will only pay the fee at closing and wouldn't expect to give it to you just for the assignment. There's too much risk involved in writing an assignment fee check for a deal that hasn't actually completed yet. They don't want to lose out on that whole fee. Although, you can ask for a non refundable fee/deposit, I guess. Someone else might be able to weigh in on that. It looks like you have the process down pretty well, with a few minor kinks. Get out there and grab a deal!
Thank you for the replies. I appreciate the feedback. I've listened to a lot of the BiggerPockets podcasts and read a lot of the wholesaling forums - from what I heard isn't it better to be completely upfront and honest with the seller and let them know you're a wholesaler? I mean I guess you don't necessarily need to tell them you're a wholesaler as long as you let them know that you "may be assigning the contract to another investor."
I think, and this is just my opinion, that if you have the ability to close on the property if need be, then you don't necessarily have to disclose that you are going to wholesale the deal. I always tell the seller that we buy and lease, fix and flip, or resell. That way, worst case scenario I can close on the property myself. If you don't have the ability to close on the property at this time then I would let them know of your intentions.
Just tell the seller you may buy it (if you can) or sell it to an investor who may buy it and rent it out or flip it. I never give earnest money and never ever give anybody cash. Once you start making money and feel like making the seller feel more comfortable than put it in your escrow account at the title co. IF you want to. Most sellers do not know or ever even heard the term assignment or wholesaler so don't sweat it. They just want their property sold wether it's to you or Santa Claus buying it.
Nobody gets a check till closing. You can double close or assign. At closing the title co. or attorney will disperse the funds accordingly.
Now get more deals!
@Luke W. is right. If you have the ability to close on it without wholesaling it, then don't tell them you're a wholesaler.
As far as your steps, what you described is the old way of doing things, and it's this order of appearance that is probably the #1 reason why most give up. Also, you can't "assign" a contract if the seller is HUD, Fannie, or a bank, so "and or assigns won't work. That just works for FSBO, or private sellers. Your best deals, the ones you are most likely to wholesale, are going to be from HUD, Fannie or a bank.
Also, if you have the property in control first, then try to find the seller, your going to get very frustrated. This also poses an obstacle when telling the seller you're a wholesaler. Which would the seller rather hear:
"Hi, I have an offer for your property. I'm a wholesaler. I'm going to tie up your property for 30-45 days, and in the end may not close if I can't find a buyer"......or....
"Hi, I have an offer for your property. I'm a wholesaler. I'm going to present your property at this discounted price to my list of qualified buyers,...etc..."
Build your Buyer's List first, then look for properties that fit their buying criteria, then make your offers...etc...
I am curious. As a newbie, what has attracted you to wholesale? Why not some other venue, such as buy, rehab, and rent, or other?
Have you heard something, attended a seminar, read a book?
Do you have a real estate license?
@Joe Villeneuve "Build your Buyer's List first, then look for properties that fit their buying criteria, then make your offers...etc.."
totally agree with Joe. so on that note, Joe, do you have any special ideas how to build your list prior to getting properties under contract?
@Patrick Britton Yes. There are a number of ways to build a list. Most important place to start is with the analysis.
1 - Put together a series of properties that the wholesaler has analyzed, to show their ability to understand a good deal from a bad deal, and that these deals are available.
2 - Present these property analysis' to your potential buyers.
3 - Have the potential buyers fill out a form you make stating their buying criteria as well as their buying experience, number of properties owned/flipped, current budget, location desired, type of house they are looking for.
4 - Use the Buyer's Profile as a guild to analyze properties.
5 - Make offers, tie up deals, present them to the buyers, make money.
@Joe Villeneuve interesting. but as for step 2...where do you get those buyers?
I've built my buyers in 3 ways
1. Networking at local events REIA meetings and luncheons. This helped me to get a lay of land. Who rehabs vs buy and hold, which areas they like, rehab costs they are willing to spend at a max, whether they are cash buyers. When I grab their business cards, I write that info on the card and transfer all the info to a CRM program for better management. I use ZohoCRM because they have a free version, it functions like Salesforce which I use for full time job (reduced learning curve), and I can use it multiple devices especially my phone.
On the business cards I give people there's a link to a webpage where they can leave their contact info and what they are looking for. My domain is through godaddy and they offer a product called instapage for free as part of the domain package.
2. Running ads on Craigslist. The purpose of this is to get people to my webpage to provide their contact info and what their looking for.
3. Calling bandits "we buy houses 555 1234". It serves the same purpose as number 1, networking and getting a pulse of who is looking for what, where, and how much they want to spend.
Two key things that is important is following up with your list on occasion and management. I'm going to use survey monkey to poll my list to see what their needs are these days since it's been six months since I've done this. I already mentioned using a CRM (customer relationship management) like Zohocrm to manage your buyers list.
Originally posted by @Patrick Britton:
@Joe Villeneuve interesting. but as for step 2...where do you get those buyers?
@Jason Fraser beat me to it. His answers would be my answers...stressing #1 and #3. Hard to qualify #2, but I will still do that.
I am also new to RE investing, but I already knew that you DON'T give the earnest money check to the seller or owner, even if or when the check is written in his/her name; this earnest money MUST be kept with the title company. You can put an assignment clause in the deal if it is not REO or HUD, and you can also put subjects-to, like getting finance within your contract period. Close to your contract expiration date if you can't get a buyer or selling, you can ask for your earnest money back with an excuse that you can't get financing. As long as it is not REO or HUD, and you have your subjects-to and assignment clause, don't tell nor let owners know you are wholesaling.
Welcome. You have received some great advice. Time to build the foundation below.
Check out the Start Here page http://www.biggerpockets.com/starthere
Two Great reads, I bought both J. Scott The Book on Flipping Houses,The Book on Estimating ReHab Costshttp://www.biggerpockets.com/flippingbook
Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and all the cash buyers (rehabbers) you will need.
Couple good reads
- 9 Reasons You Couldn't Find A Buyer For Your Wholesale Deal
- Don't Start Wholesaling Until You Read This: Wholesale Advice from a Fix and Flipper
- How to Start Wholesaling: Getting Past The Education and Into the Field
You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.
Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over
I am new to the real estate game. I did some initial research to see what the best option for me at this time would be and it seems like wholesaling makes a lot of sense. I haven't attended any seminars, I've read a few books and am continuing to add more to my list. I think that I chose wholesaling because it doesn't take a HUGE amount of capital to start and I feel like if you can become a good quality wholesaler you can learn a lot from the buy/hold and fix/flip investors if you feel like you want to branch out to a different niche. I also feel like this is a great niche to learn marketing and it will require me to get out of my comfort zone and network with other investors.
Thank you for your reply. It is definitely a lot of help and some great ideas. I have attended 1 REIA meeting in my area so far and I plan to attend a few more to start networking with the people in my area doing deals. The first meeting I went to was a lot of fun and everyone there was super helpful and I definitely suggest other newer investors do it!
Thank you for the links. I have already added J Scott's books to my list and will be starting them very soon. I am also very interested in reading Brandon Turner's book. I've listened to quite a few of the podcasts and those are also super helpful and informative.
I just want to thank everyone for their replies and for helping out a new investor trying to get into the game. BP is awesome and I look forward to more discussions!!
@joe villenueve how are HUD and RED the best deals if you can't Assign the contract? I'm sure the prices are low but wouldn't those be far and few in between due to the agent investors who have mls access, the seasoned investors with mls access, etc? How would a newbie get in on one of those good deals?
Join the Largest Real Estate Investing Community
Basic membership is free, forever.