The Best (And Most Honest) Way to Wholesale Properties in Any State

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“If you want to play, you have to pay!”

If there ever were a set of words that hold true for wholesaling properties, then that’s what these are. Money has a tendency of making more money. So, if you really, genuinely and most importantly legally want to get into wholesaling properties, then the only way to do so is by spending some of that hard earned cash. This is key, although you might think otherwise after reading through the many posts that tell you all about how you don’t really need to put in any money at all. But the fact is, if you don’t have the money to close the deal yourself, it’s better not to get into wholesaling at all. It’s always better to first buy the property and then sell it.

Wholesaling real estate essentially means that you buy a property, get the paperwork done, and then sell it off to an investor or a buyer as soon as possible. And profit in wholesaling only comes when you’re able to buy a property for a low value and then sell it for a higher value. However, today, there are many investors who instead of buying properties, tend to get homes assigned on contract or do a double close.

Wholesaling by contract simply means you get a contract stating you can sell the home to another buyer without the seller’s permission. While this sounds like a great way of investing without putting your money down up front, it isn’t necessarily the best way. In fact, there’s a big downside attached to this way of investing. When the buyer doesn’t show up or pay up on the day of the contract, you’re toast.

This makes the wholesaler lose his/her credibility, and as you know, in the real estate market, that credibility really matters a lot. Don’t forget that when you don’t have funds to buy the house yourself, you’re basically completely dependent on someone who does have the money, but can simply decide to back off whenever they wish. You can minimize your risk in many situations by having better control of them.

Another reason why getting a home assigned on contract isn’t recommended is because of the way contracts like this are typically phrased. The way most people do it is actually illegal. And finally, many states even consider the practice illegal. So if you try to market the property in any way, say, using advertising or placing signs in the front yard, without actually owning the house, you’d be breaking the law.

Related: Why Assigning Contracts Is One of the Worst Business Models for Real Estate Wholesalers

Some investors also do a double close, where the funds from the transaction with the buyer are used to pay off the seller. Commonly referred to as the “A to B and B to C” strategy, here you do make money, but have a double set of closing costs as well. Also, just like the other technique, if you lack funds of your own and Mr. C backs off for some unexpected reason, you’re in trouble. Thirdly, this too is illegal in certain states, and you need to make sure to look up the laws on the subject.

While both of these are strategies that are commonly used, they aren’t always the best, and I’d recommend the following steps instead for wholesaling real estate.

work-with-wholesalers

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Plan It

Keeping the current resources that you have in mind, draft a plan for when you want to start your wholesaling endeavor. Keep tabs on how much you would need approximately and how you would get it. Break down that plan into short term and long term goals that make it easier to achieve targets.

Learn about the market as much as you can, especially if you are new to real estate. Steer clear from the “get rich without any money” scams — because nothing comes from nothing. You need money to make money, just as I explain in this blog here: “Why Investing With No Money Down Might Be a Terrible Idea (& What You Should Do Instead).”

Work Hard

Work hard and build a decent amount of personal funds. Your day job is perhaps the best way to keep you earning enough money, so stick to it until you have enough money in your pockets. At that point, you can use that to buy the home you want to wholesale. If anyone tells you that you don’t need to work and you can get rich quickly, don’t trust them. You can ever consider flipping the property if you want more headache but also more profit.

Organize Your Funds & Budget it Out

While you don’t need to be filthy rich, having a healthy sum of money available before you wholesale your first property is pretty important. Organize yourself and check the funds you have in terms of liquid cash and even assets. If those aren’t sufficient for wholesaling, you can perhaps look at a private lender for a loan. Also, prepare a budget that includes money not just for purchasing a property, but also for closing costs, repairs, maintenance, legal fees, team fees and a margin of error.

Search for a Decent Property

You have to do a good amount of searching to locate the right kind of property. When you’re looking at listings, it’s equally important to check the off-market properties that aren’t listed because the owners were too busy to even list their houses. Try attending local meetups, sending direct mails and surfing through the relevant websites. All these things can help as well.

Many bird dogs may agree to help you find distress properties, but often the results they turn up with are the ones you already know about. So, use your own gut instincts and do your own research as much as possible. Once the right property is found, you must buy it dirt cheap. When wholesaling and with other real estate strategies, money is made on the “buy” side and not the “sell” side. Get to the lowest purchase price possible.

Buy in a Comfortable Range

Take action. Buy your property at a price range that’s comfortable for you, but don’t go into insecure neighborhoods, especially the C and D-class areas. Finding a buyer or an investor might be difficult there. Alternatively, if you spend too much on a property that is considered as an A-class property, it may be tough to find a buyer. So, depending on how deep your pockets are, pick a property in a good neighborhood, usually a B-class area, with good infrastructure and within close proximity to facilities.

turnkey-tips

Remodel and Sell

You can now choose to either sell (wholesale) immediately or remodel so that the property fetches a higher profit. Since you invested smart, you can do that within your own timeframe and without being under the constant pressure for a sale. And when the right buyer does come along, you’ll have all the paperwork ready to enable you to process the sales smoothly. If the buyer fails to perform, you will still be in good standing and under no pressure to find another buyer.

Stay Within the Bounds of the Law

Different states have different laws on what they perceive as wholesaling and what they see as brokering. There’s a very thin line between the two, so it’s important that you find out what your state has to say about these kinds of deals. Getting a property assigned under a contract is against the law in many states. Figure out if your state is one of them. Also, it’s illegal to receive a commission as a real estate wholesaler, which is only legal for real estate agents or brokers. Ohio, where I am based, is very rigorous with these laws.

Build Your Reputation by Doing the Right Things

The real estate market is all about building trust and relationships with key people, and while it takes years to build a reputation in the market, it takes seconds to lose it all. If you try to get into wholesaling without purchasing a property, you may tread on illegal ground, and that’s not where you want to be. As an investor, your reputation matters, and just because of one simple deal, you could end up losing it. It could also happen that you don’t find a buyer for your wholesale property, which means that you need to back out of the contract because you don’t have money to buy it yourself.

Related: Newbies: Considering Wholesaling to Break into Real Estate? STOP! And Read This.

Wholesaling can teach an investor a lot about the market. You learn to find good deals, negotiate contracts, and build relationships with other investors in the business. However, if you think that wholesaling is a great way of earning passive income without having to do any work, then think again — because it requires a lot of patience, effort, time and energy, not to mention funds!

Having said that, the toughest part is buying your first property. Once you’ve bought that first one and sold it, you’ll have a more substantial amount of money to work with and the experience needed to make the process of wholesaling both more lucrative and fun. Future deals will become easier to handle, and as you grow, you’ll improve your credibility in the market as well.

Good times ahead and keep the dream alive!

Investors: If you wholesale, how do you go about the process? Is there anything you’d add to this list?

I’d love to hear from you! Leave a comment below.

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo" is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

28 Comments

  1. Randy Phillips on

    I enjoyed your article and the many important subjects you brought up. I still consider myself a beginning wholesaler even though I’m approaching my 40th deal. I have to disagree with you about buying the property yourself before you sell it. There is absolutely no reason to put yourself in that kind of risk. Several times when I could not sell a property I was able to renegotiate a lower price with the homeowner and get it sold. You can’t do that after you purchased it.
    Many of my deals are sold in 2 hours or less and occasionally it might take a few days or a week.
    I simply assign my contract to my buyers who are usually one of my half dozen regular buyers and are Realtors.
    Of course I spend a lot on marketing, my post cards, my door knob hangers, bandit signs and I pay out a good chunk to my finders (Bird dogs).
    It’s not an easy road to riches but I sometimes have extremely profitable deals just fall in my lap.
    As far as I know, wholesaling Real Estate is legal in every state, despite what ignorant Realtors tell you. We are not working for commissions, but assignment fees.
    Unfortunately most newbies fail at wholesaling because it’s not easy, takes money for marketing, takes perseverance and focus and especially the right mind set.
    But, if your desperate, hungry, & motivated as in my case, you can be successful.
    I made 3 times more money in 2015 than I ever made in my life. Because I never gave up.
    I like how you article didn’t sugar coat wholesaling as easy, I’ve experienced the whole spectrum from very difficult to very easy.
    Once you slam a few deals and make 6 months salary on one junk house you will never go back to a 9-5
    Also, I really love the challenge and I’m getting good at it.
    Let’s make some money…..
    Rando

  2. Randy Phillips on

    I got started by reading every book I could find, and I still do. Not just on Wholesaling Real Estate because that process is really very simple. But on motivation and mindset. I’ve went 4-5 months with several deals falling apart, really discouraging and depressing, if I didn’t have the focus and drive and the right attitude I would have quit. I thought about quitting, but then I thought, I came so close, at some point I’m gonna have some deals go thru, then a few weeks later I had 3 deals come together and realized I averaged over 5 Grand a month. Now my motto is, NEVER GIVE UP.
    One of my most influential books is by Jackie Lange called “Real Estate on Steroids” It’s on Amazon books. It has the purchase contract and the assignment contract inside that I’ve used many times.
    The author actually heard about my success using her book she called me up and we did a pod cast with thousands of listeners, I felt like a real big shot and at that time I had only completed 15 deals.
    Hope this helps.
    Rando

  3. Brian Gibbons

    Randy,

    Good job, And I know Jackie Lange and her teacher, the late Jack Miller.

    Watch out for Florida and Ohio, cant show or market-advertise a house without owning it or being licensed. California too.

    I have Jackie’s book, and William Bronchick’s Flipping Book too.

    Best of luck!

  4. Dev Horn

    This is a good basic article on wholesaling, but I think because the author is in Ohio he may think that a lot of states are like Ohio, causing him to make statements such as: “The way most people do it is actually illegal…. many states even consider the practice illegal.”, and “Getting a property assigned under a contract is against the law in many states.” . That’s simply not accurate, and if it was, it seems like the author would do us all a great favor by mentioning some or all those states where “assigning a contract” is illegal. Truth is, there are a lot more rules against practices related to wholesaling IN OHIO, and to a lesser degree in Florida. But people wholesale legally and successfully in both those states as well. You will not find another state in the other 48 with rules like Ohio.

    “Wholesaling” is a term people in this business came up with mostly to refer to contract assignments. A double close is technically not “wholesaling” because the investor is buying the house, then turning around and selling to another buyer at a higher price. We usually just call that “real estate investing” (the buying and selling of real estate in an effort to make a profit).

  5. Randy Phillips on

    What makes Wholesaling legal is we put the property under contract to purchase .
    Some States require an earnest deposit which can be 1 dollar.
    This contract gives us an “Equitable Interest” & the legal right to market and sell these properties.
    Most Realtors have never heard of wholesaling real estate & will tell you it’s illegal as if they have a law degree. But you cant blame them, they don’t like investors making money while they only make a 3% commission that amounts to chump change. I’m sure the ones that make big money are a very small percentage.
    Let’s wholesale some houses and make some money….
    rando

    • Engelo Rumora

      Thanks Randy,

      Money speaks every language.

      I know of a ton of wholesalers even here in Ohio with fat pockets and awesome attorneys that do hundreds of deals and are untouchable.

      Our bread and butter model is buy, fix, tenant, flip and manage.

      Thanks and much success

  6. Jerry Kisasonak

    The #1 thing that gets people in trouble/sued in real estate is being deceptive and not disclosing all the facts. Be honest, candid, and straightforward in all your business dealings and 99% of our problems will disappear.

    In regards to wholesaling, if you explain to the seller what you’re doing and they agree to it in writing (your contract), when you perform on your stated intent everyone is happy with the process and the results. You told them what you were going to do, they agreed to it, and you did it. That’s what good business is all about.

  7. Crusandra Payne

    Thanks everybody for the good commets. I have been dragging my feet while working 60
    to 70 hours as a caregiver. Now I am determined to read everything, search every post, blog
    until I find out what is going to work for me as a wholsaler, quitting is not an option…….Cru

  8. walt doughty

    But the fact is, if you don’t have the money to close the deal yourself, it’s better not to get into wholesaling at all. It’s always better to first buy the property and then sell it. << THIS IS BULL!@#$%^ SO I SHOULD JUST QUIT NOW HUH after wanting to do this for so long… too !@#$ many opinions..

    • Engelo Rumora

      Thanks Walt,

      Why would you even think about quitting?

      To succeed in real estate and business “Quitting” should never be an option no matter how hard times get.

      And I’m sure you will go through some very S@#% times just like all of us.

      Much success

  9. Randy Phillips

    Hey Walt, I did my first half dozen deals with no money, cuz I didn’t have any to spend on marketing.
    I ran ads on Craig’s List (I Buy Houses) Any Area, Any condition Cash..
    I used to put 5-$10 for an earnest deposit but I don’t even do that any more.
    Just get out there and find some distressed properties, negotiate the lowest price, get it on contract, add the amount you want, run ads on CL. Have buyer sign you assignment of contract and wait for your check. Then do it multiple times. After a few deals you will have marketing money to do direct mail to absentee owners.
    Now stop whining, making excuses and get out there and do it.
    Rando

    • Dustin Verley

      Hey Randy, I’ve read your comments on this blog post and agree with every comment you’ve made. I got confused after reading it and your comment reassured me the correct way of wholesaling. BUT, that does lead me to a quick question.

      Your last comment about no longer placing an EMD and only getting them under contract and placing them on Craigslist for advertising. To my understanding, would this not be considering “brokering” because your marketing with no equitable interest which, without a realtor license, would be considered illegal? I contrast, would this be legal if you were to sell/assign to a buyer without actual “marketing” it? For instance, you knew the buyer before actually negotiating the deal and knew they would be interested in said property.

      Hopefully you can enlighten me on this perspective.

  10. Bea Bugan

    Hi! Thank you for a great article! I am a newbie and looking for my first buy and hold property or one for flipping. I was never interested in wholesaling because i found it difficult, until this moment. I negotiated one apartment but i decided not to take it, because i found better one, with better analyses. What I would like to do is to take profit somehow from my previous negotiation success and pass this property to somebody who is going to buy, until my offer accepted expires. I have no idea who to offer that apartment. I am a foreigner and have zero friends. I know some realtor guys, but they are not investors themselves. Should i ask them? Or search on the net ,,who is searching an apartment?” I smell the good opportunity but i am lost in process. I want to do that. Actually i did a negotiation course and wondering myself but it’s working wonders! Negotiation was never as easy as now, so maybe really the wholesaling should be worth it, at least to try! I am so excited! I wish all the best to all of you and a lot of success! I love Bigger Pockets and all the brilliant articles. You guys are my biggest inspiration! * sorry for my english

    • Engelo Rumora

      Thanks for your comment Bea,

      List the property on Craigslist and keep posting everyday. After 5 days, refresh the oldest posting.

      That’s the best bit of advice I can give you in order to find someone quickly that might be willing to buy it from you 😉

      Much success and keep the dream alive.

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