Posted 4 months ago

What is wholesaling and how to get started?

What is wholesaling and how to get started?

Wholesaling (also called an assignment) is the act of finding a property for under market value, agreeing with the selling on one price and assigning/selling the contract to an investor for a higher price. An assignment fee can be any amount, I’ve seen fee’s up to $1M. An average fee is going to be anywhere between $10-30k.

Wholesaling is the best way to get into Real Estate with the least amount of capital. Everything happens before the closing date so the only capital that is required is a deposit which can also be any amount. I usually do a $1k deposit which always goes to my lawyer’s firm and if you can’t find a buyer, you can walk away without losing your deposit.

The process of an assignment deal:

  1. Lead Generation - find a bunch of properties in which the owner is looking to sell
  2. Lead Qualification - get an idea of what price the seller is wanting to sell at. Is it in the ballpark of where you’re at? Typically happens before viewing the property
  3. Offer Presentation - walk around the property and get an idea of the renovations that are needed, sit down with the seller and make them an offer. (always make a conditional offer), send paperwork along with deposit to your lawyer
  4. Buyers Package - You want to create a buyers package for the property with all the details, information and photos and send it out to your investor list. I’ll explain further how to grow your buyers list.
  5. Buyers Showings - You want to arrange a date that all your interested buyers can walk through the property.
  6. Sign assignment contract - once you have someone that wants to buy it, you get them to sign the assignment contract (in Ontario it's called the form 145) and put the deposit in your lawyers account. (We usually require 50% of the assignment fee upfront)
  7. Get paid - Wait till the closing date, and get paid your fee.

After reading the steps, I’m sure there's a lot of questions. Here are some common questions and answers regarding an assignment.

  • Q: How do I find leads?
  • A: There are many different ways like: kijiji/facebook for rent section, door knocking, cold calling, realtors, direct mail marketing, instagram/facebook ads.

(the key to finding constant leads is being consistent)

  • Q: How do I qualify leads?
  • A: You want to get the amount of bedrooms, bathrooms, square footage, the reason why they’re selling,and the rough price they want to sell at. Now you go get comparables in fixed up condition fitting that criteria and as-is comparables. You can get comparables from your realtor.

  • Q: What do I put in the contract when agreeing with the seller?
  • A: Make sure you’re using the proper forms, in Ontario you’re going to use a standard purchase and sale agreement. In the schedule A you want to put some sort of condition in there (financing, inspection, due diligence), the longer the better, I usually do 2 weeks. This is the amount of time you’re giving yourself to assign the deal.

  • Q: How do I find investors
  • A: I have found all my investors from Facebook groups and networking.

  • Q: What if i can’t assign the deal?
  • A: You are protected by the conditional period. If you cannot assign the deal, then you can sign a mutual release which means both parties agree to walk away from the original agreement.

After completing over 20+ assignment deals, I have learned a ton from doing them. One of the most important takeaways is to never get emotional about a deal. In the beginning I would get so caught up on deals that if they didn’t end up going through I would be angry and frustrated which translated into my next deal.

A prime example of us being too emotional is one of our deals was an 18 unit cottage resort. We agreed with the seller at $4.5m and assigned it at $4.8m, meaning the assignment fee was $300k. This was a big deal being only 23 years old. After 6 months of negotiations, getting it under contract, assigning it and waiting for it to close, the investors we assigned it to couldn't close due to financing. The key takeaway here is, it's never over till it's over. The other takeaway from this deal was to always ask for 50% of the assignment fee upfront. This was a good learning lesson for us because we only asked for $80k instead of $150k.

Lastly, another major takeaway from my experience is to know your numbers. When I was first starting out, I wasn’t great with my numbers, there were two deals that cost us over half a million dollars. I’ll say that again, HALF A MILLION DOLLARS in two deals. The first one we locked up for $225k in Hamilton Ontario and assigned it for $290k, which sounds great but the investor on the other end listed it on the market and sold it for $552k. Meaning if we just closed on it and sold it, we would have made over $300k. The other deal we locked up for $250k and assigned it for $300k and the investor on the other end sold it as-is for $450k meaning we would’ve made about $200k.

Overall there has been a ton of learning lesions along the way, I’m not an expert but if anyone has any further questions about an assignment of needs help when in the middle of one. You can reach out to me via email: [email protected] or instagram: @ryancavasin.