How To Wholesale Real Estate: Step By Step
The first part of getting into wholesaling real estate is setting up your business. In the United States, this means you would likely start by creating a limited liability corporation (LLC) to run your wholesale real estate business under.
Once you’ve done this, you’re ready to hit the real estate market and look for investment properties. Follow these steps to get in the wholesale real estate game.
1. Find A Distressed Property Or Motivated Seller
To make real estate wholesaling work, you must find motivated sellers of distressed properties. These sellers want to sell the property fast and don’t want to use the normal channels of a real estate agent, mortgage lender, earnest money, and home inspections or appraisals.
Instead, they want to sell to a cash buyer who can close on the property quickly before going into foreclosure. Motivated sellers will usually sell the property for less than the market value because they want to get out of the home quickly.
If you bid a price well enough below the market value, there’s enough room for you to put the home under contract at a higher price with your team of investors. This is important, so you make a profit or “finder’s fee” for facilitating the deal.
To find the owner of distressed properties, you must market yourself via direct mail, social media, and even word-of-mouth as a cash buyer of distressed properties. The more people that know of your services, the more homes you’ll have at your disposal to put under contract.
2. Negotiate With The Seller
When you find the right property, it’s time to negotiate a deal with the seller. This is one of the most important steps in the process. If you bid too high, you won’t leave room for a profit when you assign the contract to the final investor. If you don’t bid enough, the seller may reject your offer.
When negotiating a real estate purchase agreement with the seller, be professional, courteous and give the seller reasons to trust you. Tell the seller about your experience and how many other sellers you’ve helped avoid foreclosure or defaulting on their mortgage any longer.
It’s important to have a keen eye for detail too. Just walking around the house, you should tell what improvements the home needs so you can use it in your negotiation, telling the seller how much money it will cost to fix up the home to help you negotiate a lower rate.
The less money you agree to pay the seller, the easier it may be to find investors who see the opportunity to profit.
3. Sign The Contract
Once you agree on a price with the seller, draw up a wholesale contract. You can use a real estate attorney or real estate agent to do it or draw one up yourself. You’ll save more money if you do it yourself, but you run the risk of something being wrong. If you’re not well-versed in real estate contracts, consulting an attorney may be a good idea.
4. Search For An End Buyer
To find an end buyer, you’ll need to rely on your network of real estate investors. While you may not know someone directly who is interested, someone you know may know someone. Build your network through social media and local real estate meetups.
As you build your real estate wholesale business, you’ll assemble a group of real estate investors who will buy the properties you find. This is the end buyer or the person who will take possession of the property.
5. Negotiate With The Buyer
Just like you negotiate the price with the seller, you’ll then negotiate with the end buyer how much you stand to make on the sale of the contract. This is where you negotiate your transaction fee. This can be a standard fee you charge, or it could be something specific that you agree upon with the buyer.
6. Assign The Contract
To assign the contract you signed with the seller to the buyer, you must complete an assignment of contract agreement.
This agreement states that you assign the contract you signed with the seller to your end buyer for the agreed-upon amount. The amount stated in the contract is the difference between the amount you agreed to pay to the seller and the buyer’s agreement to pay you for the home.
The buyer agrees to buy the home and take possession of it. You (the seller) agree to accept the fee as assignment of contract, giving you no rights to the home.
7. Close The Deal
The final step is settlement. This is when all parties sign the documents, transferring the deed to the end buyer. The wholesaler (you) doesn’t have to pay any money out of pocket. The end buyer pays all the closing costs and the cost of the home. You pass the money along to the seller keeping only your profit or the difference between your sales price and the price you agreed with the end buyer.
