Everyone wants to know how this wholesaling thing works and how exactly to assign a contract. I will try to explain in detail as much as possible in this article.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
The Wholesaling Process
Finding Motivated Sellers
The first thing you need to do is find a motivated seller. If you can master the art of finding motivated sellers, you will always be in business. You can find motivated sellers multiple ways, including direct mail, websites or billboard ads. To keep this simple, let’s say you do a direct mail campaign by buying an absentee owner list through a list broker. You then upload that list to a mailing company, who will mail out a letter or postcard to the property owner.
You start to get calls, and let’s say out of 27 calls, one caller is extremely motivated. You then set up an appointment with the seller. The seller tells you that they want to sell house now because they can no longer afford taxes. They tried listing with a real estate agent and have had no luck after 2 years. Now they are getting letters from the city threatening to take the house due to taxes, and they just want out.
Negotiations & Obtaining a Contract
You know the After Repair Value (ARV) on the house is $100k. An end buyer aka a cash buyer would want to be in that deal at no more than $70k. After walking the house, you then make an educated guess that it needs $20k in work. You then offer the home owner $35k, and you guys go back and forth with negotiations and decide on $43k. At that point you sign a contract with the homeowner for $43k. You also tell the home owner you have to get your money partners in the house to approve the deal. So the home owner gives you a key to vacant house.
Marketing to Buyers
Now that you have contract, you need to put this property in front of buyers. You go to the Marketplace on BiggerPockets and post the deal. You market the deal for $50k. You get 3 calls from buyers wanting to see the property. You get all 3 of them in the house at the same time (or different times; whatever everyone’s schedules permit). Two say they will think on it, and one says, “Let’s do it, but can you do $45k?”
Assigning the Contract & Closing the Deal
You go back and forth on negotiations again. Then you guys settle at $49k. At that point you will assign him the contract by giving him the original contract and assignment contract, which is a separate contract. Now, the reason you show him the original contract is because he must see exactly what he is being assigned, meaning terms and conditions. Also, your assignment of contract should have a non-refundable deposit; for this example, we will use $1k. He gives you a check for $1k written out to your title company or real estate attorney, depending on your state. Some states close deals with attorneys; others use title companies.
Once you have the earnest money deposit, contract and signed assignment, you then can drop those off at your title company or attorney to start title work and schedule a closing date. Typically it takes 10 days, but could take shorter or longer. Once the title search is complete and everything is good, you will then have “Clear to Close.” Once you have Clear to Close, you being the wholesaler do not have to show up to closing. Now remember, you had the house for $43k, and then you assigned the contract for $49k. So that means you will be picking up a check for $6k. Once you get check, do not go and blow the money. Please reinvest it back into the business and stay focused on your goals.
That is the process of wholesaling in a perfect world when every things goes smoothly. I will say that everything goes smoothly about 30% of the time. The other times, it’s always something; it could be the seller taking a month to accept your offer, the buyer flaking out, or my favorite, title issues. I personally tell people to get ready mentally to take on all the challenges we face as investors. That way, you won’t give up when the first thing goes wrong. I knew a guy who did his first mailing campaign, got a home run deal, was set to make $35k on the assignment and had a buyer lined up and everything. And he came to find out that the title had 3 mortgages on it. The bank said the seller still owed on the property, leaving the house upside down.
Just remember, things happen — but don’t quit.