- In a wholesale deal, the investor never actually owns the property.
- Wholesaling is a great way to make a profit relatively quickly and without needing money of your own, making it a great entry point for beginner investors.
- Follow our seven-step wholesaling guide to set yourself up for success.
If you want to start making money in real estate quickly, it’s time to consider wholesaling. Closing a wholesale deal for the first time is a major accomplishment for any investor, due to the fact that the wholesale process is different from more traditional types of real estate transactions.
Not sure how to get started? Our easy-to-follow wholesaling real estate step by step guide has everything you need to ensure your first wholesale deal runs smoothly.
The Anatomy Of A Wholesale Deal
The reason a wholesale deal differs so much from rehabbing and buy and holds is because the wholesale investor never actually owns the property. Sounds strange, right? Fortunately, it’s not as strange as it sounds once the approach has been broken down. Once you get a better grasp on the process, you’ll make serious progress toward being a real estate wholesaler.
When it comes down to it, a wholesale investor is both an expert marketer and savvy networker. For instance, a wholesaler builds relationships with other professionals in the industry in order to create a buyers list. They then utilize their marketing skills to find wholesale properties in their desired market. Once they’ve secured a property, they contact a buyer from their buyers list and assign the property’s contract to that end buyer.
Wholesaling has become common practice for many very successful investors, which begs the question: How does a wholesale investor make money?” Simply put, when a wholesaler assigns his or her contract over to the end buyer, they are given an assignment fee (similar to a finder’s fee), which is usually a small percentage of the property’s value.
Still sound confusing? It won’t be after you consult with our seven-step beginner’s guide to closing a wholesale deal.
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How Does Wholesaling Work In Real Estate?
In real estate, wholesaling serves as a versatile exit strategy that can suit several different investor personality types. For starters, the wholesale process is known to have one of the shortest completion timelines, compared to other investing strategies. When done correctly, an investor can receive their assignment fee in less than a month (sometimes in as little as a few days). For this reason, wholesaling can be a great fit for investors who prefer to make profits in the least amount of time possible.
Another appealing aspect of wholesaling is that investors get to have complete control over the volume of wholesale deals that they process over a given period of time. For example, those who want to pursue wholesaling full-time can pursue a high volume of deals, while others who wish to wholesale on the side can process as many deals as their schedule allows. Be sure to read this guide to part time real estate investing to get more ideas on how to get into real estate investing on the side.
Finally, wholesaling serves as a great entry point for beginners who want to learn how to invest, but have no prior real estate knowledge. In the process of delivering a wholesale deal from beginning to end, a beginner will become immersed in skills vital to any investing operation such as marketing, networking, minding due diligence, and coordinating a real estate transaction. In addition, they will be sure to learn the ins and outs of the real estate market as they hunt for wholesale deals. Beginner investors who have limited access to capital, or are still working to build their credit, can also participate in wholesaling. Find out why in the following section.
Do You Need Money To Wholesale Real Estate?
If you have ever felt discouraged from getting started in real estate investing because you don’t have a lot of cash, or because you have a less-than-perfect credit score, you should know that you can get your start wholesaling real estate today. Because a wholesaler assigns purchase contracts directly from sellers to end buyers, they are not required to purchase property themselves. Because of this, meeting the various eligibility requirements of financing, such as income level or credit score, doesn’t pose as a barrier. For these reasons, wholesaling is a great way to gain valuable skills and learn about the real estate market, while you save up money and build up your credit score.
Even experienced investors might turn to wholesaling to finance other types of real estate deals. For example, an investor who prefers to make all-cash offers on their rehab deals might turn to wholesaling to replenish their personal capital in a short amount of time. For these reasons, wholesaling is a credible way to segue into other types of investment strategies.
How To Wholesale Real Estate Step By Step
Now that you understand the various benefits of becoming a wholesaler, you may be wondering exactly how the wholesaling process works, and what kind of skills and resources are required to successfully complete your first deal. The following wholesaling real estate step by step guide will help answer your questions:
- Mind your due diligence
- Build a buyers list
- Market to motivated sellers
- Get a property under contract
- Find your end buyer
- Assign the contract
- Close the deal and cash your check
Mind Your Due Diligence
The first step of any wholesale deal involves a lot of research and strategizing. One should spend plenty of time educating themselves on the wholesale process before conducting local market research and devising their marketing plan.
Build A Buyer’s List
Building a buyers list will put your networking skills to the test. Although buyers can be found through campaigns such as direct mail and bandit signs, one of the best ways to build your buyers list over time is through personal connection. Be sure to keep a running list of every person you meet as you expand your professional network.
Market To Motivated Sellers
You will now be putting your research and marketing skills to the test as you try to find motivated sellers. To find sellers who are motivated to sell their properties, try targeting lists of delinquent taxpayers, homeowners in pre-foreclosure and absentee owners. Once you have created target lists, design your marketing campaign. Even in this digital age, direct mail has been proven to be the most successful marketing strategy when targeting motivated sellers.
Get A Property Under Contract
When you successfully acquire a motivated seller, be sure to create a purchase contract that includes the agreed upon price and terms. Be sure to educate yourself on the legal process of a real estate transaction, as well as consult a legal professional.
Find Your End Buyer
As soon as you put a property under contract, reach out to your buyers list with an estimate of repairs, a title report, and a list of comps. Be sure to visit these guides on how to pull comparable sales. Keep in mind that different types of properties will attract different types of buyers. Properties requiring significant restoration might attract a rehabber, while a property only requiring minor repairs may be more suitable for a rental property investor.
Assign The Contract
Once you’ve identified your end buyer, be sure to agree upon your assignment fee and deposit amount, to be included in the assignment of contract agreement. Be sure to send a copy of the agreement to your title company.
Close The Deal & Cash Your Check
At the day of closing, make sure that your end buyer attends so that they can sign the appropriate documents, and that they bring the appropriate forms of payment to purchase the property, which should include your assignment fee. Once the title company accepts the payment, they will cut you a check for the amount of your fee.
By following our wholesaling real estate step by step guide, you’re already miles ahead of most beginner wholesalers. That’s because many individuals make the mistake of throwing themselves in without minding their due diligence and educating themselves on the wholesale process. By immersing yourself in research on the art of the deal before you get started, you’re already setting yourself up for success.
Were you surprised to learn that you don’t need money or perfect credit to become a wholesaler? Feel free to share your thoughts on wholesaling in the section below:
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