What Does the Phrase “Wholesale Real Estate” Mean?
The phrase, "wholesale real estate" means that a real estate wholesaler puts a distressed home under contract. They do this with the intent to assign that contract to another buyer. The wholesaler does not plan on fixing up or selling the property themselves before putting it up for sale. Instead, the wholesaler will market the home to potential buyers for a higher price than they have the property under contract for.
When it comes to wholesale houses, there are a few critical steps that need to be followed in order to make this process as successful as possible.
Finding the Right Kind of Property
Distressed properties more commonly known as fixer-uppers are generally the best kind of property when it comes to wholesaling because they can be purchased under market value. Properties of this nature are those that need a lot of work even to be considered safe or properties with owners who are motivated to sell quickly. Depending on where you are looking, finding a home for sale in San Diego that meets this criteria might not be easy, however, doing so will enable you to sell the property for more than what you put it under contract for.
Since one of the reasons that wholesaling real estate is so popular is the low capital requirements, those new to wholesaling real estate will often look for inexpensive or even free ways to locate distressed properties. More seasoned investors will have additional means and connections to find distressed properties. Three great methods for finding distressed properties are real estate websites, real estate wholesale, and real estate investment groups, and using the services of an assistant.
Once you have found a property and you are convinced that it is a good deal, there is something absolutely essential that you have to do and that convince the property owner to sell the property to you. You need to get the homeowner to sign your contract. This step is critical because it will be how you secure properties to wholesale and make it a successful investment of both your time and your money.
Approaching the Owner
When contacting a homeowner, it is important to go about it carefully. Remember that a wholesaler is not necessarily a popular real estate professional. This means that they often need to gain the homeowner’s trust before moving forward. Three tips for achieving a homeowner's confidence are to be professional, be courteous and always be on-time when meeting the homeowner.
Make an Offer & Get a Low Price
Once you have contacted the homeowner and they have agreed to meet with you, you will want to discuss what the benefits would be to them, if they sold their home to you. The majority of wholesalers tend to focus on the idea that by a homeowner selling the property to them the seller will be able to avoid having to deal with any real financial issues that have gotten them to such a point - i.e., someone defaulting on their mortgage and facing foreclosure.
It is not uncommon that wholesalers also emphasize how they will take care of many of the aspects of the sale. These are things like the contract, the appraisal, a property inspection, and the closing costs. This can be a significant factor because by taking care of these details, the wholesaler is taking away any additional stress that a traditional sale might put on the homeowner. In fact, many wholesalers will actually highlight the fact that the homeowner will not have to worry about paying for any of the upfront costs.
Prior to making any sort of offer, it is also important to tell the homeowner about any updates or repairs that the property needs to fix up, rent or resell the property. Doing this is a critical step as it will help to justify the offer you make to the homeowner.
Signing the Contract
When the time comes for the contract to be signed, you as the wholesaler have the option to use local attorney or realtor. That said, many wholesalers actually take the task into their own hands and either write their own contract or alter a relatively basic real estate purchase contract. Some even use what is called a wholesaling agreement template. This is done so that they are able to add their own clauses and do not have to necessarily adhere to the many provisions in a standard Agreement of Sale.
Finding the Right Professionals to Work With
This is where a real estate wholesaler needs some contacts in the real estate world, in order to make the sale take place you will need to work with a contractor, a title company, and an appraiser. These real estate professionals will not only help your entire wholesale transaction run better but will also add a new level of professionalism to your team.
Finding a knowledgeable, qualified and reliable contractor will make your life a lot easier. The contractor can come with you to check out potential properties and can also give you an idea of how much the necessary repairs and updates will cost. Now, you might not think that these details matter since the property is going to be sold "as is" but having this information is extremely helpful when speaking with future potential buyers.
It is a title company's job to ensure that the buyer is buying a legitimate piece of real estate. This means that they are responsible for doing what is called a title search on the property. This allows them to find out if there are any liens on it that the owner might not mention or even know about. The title company will also be used at settlement, which means that you will want to ensure that they are investor friendly and that they are comfortable dealing with assigned contracts. For this reason, it is essential to ask them this before getting started and be upfront and honest about what you intend to do with the property.
The job of an appraiser is pretty straightforward, it is to give you an appraisal for the property you intend to wholesale. This will ensure that you are paying a fair price for the property. It will also provide you with peace of mind in knowing that you still have room in the cost to resell the contract and make a profit.
Figure Out What Renovations Need to be Done
By figuring out what renovations a property needs, you will be able to break down the renovation costs and ensure they fit with your plan to profit off the final deal. A distressed property that needs a lot of improvements means that the investor you sell to will end up with a higher margin. It is this higher margin will allow you to profit off of the deal ultimately.
Having this information handy means that you are able to provide the buyer with the estimate of repairs, that your contractor put together. This will provide the buyer an idea of what to expect. This also benefits you because the buyer will not be able to make you an offer that is too low because you already know what repairs need to be made and roughly how much they will cost.
Knowing this information is an excellent resource because it also provides you with an idea of how much the property's ARV will be. This is especially important to show investors so they can see the potential profit that your particular property will bring in.
Find Yourself a Buyer
So, you have found a property to wholesale, you have your team of knowledgeable professionals in place and know what repairs the property needs. Now comes the fun part - it is now time to find a buyer for this property! Now, there are a lot of homes for sale in San Diego so it is important to realize that this buyer will not be new to the real estate game. It will not be a first-time homebuyer or a young family, it will either be a contractor or an investor who will be looking to renovate and sell the property for profit.
Finding a buyer is absolutely critical and needs to be done since there will be a settlement date on the contract which needs to be met.
Where Can I Find Buyers?
When you are starting out wholesaling, you probably won't have a list of buyers, readily accessible. But there are several ways that you can find them, a start building your own buyers list, including:
Using free websites like Craigslist or Zillow to advertise the property.
Distribute flyers with the information
Email any investors that you have met
Tip: Once potential buyers start calling about the house you are selling, make sure that you save their contact information. Even if they are not interested in this particular property. This will allow you to create your buyer’s list. From then on every time you have a new feature to wholesale, you can send it to the contacts on your buyer's list. This will dramatically decrease your advertising costs overtime, in turn increasing your potential profit.
Once you have found a buyer that is interested, it is time to sit down and negotiate a deal. This is critical because it will determine how much money you actually profit off the sale.
The bottom line is that once your costs are covered, you need to make sure that you will be making enough to make the process worth your time, energy and effort. Most wholesalers aim to make at least $2000 profit off of each wholesale deal, but as with any agreement, figures vary from sale to sale.
The closing of your wholesale will take place at the title company’s office. Both parties involved will come together, and the deed will be transferred over to the new owner. Once this is complete, the wholesale will be done.
Wholesaling is in many ways one of the lesser-known kinds of real estate investing. While it definitely has the potential to bring in a great profit, it takes time and experience to do, especially in a timely manner. Before jumping into a sale, make sure that you read these steps and speak with professional wholesale buyers if you have any questions or concerns before putting any of your hard earned money into the pot.