Wholesaling real estate is an easy way to make great money in the property transfer business. That is, if you have the right connections and great negotiating skills. If you are interested in wholesaling houses, this step-by-step guide will tell you everything that you need to know about the practice.
What Is Wholesaling In Real Estate?
Okay, so you’ve heard about flipping houses.
Wholesaling real estate as a concept is very similar. Except, instead of flipping houses, you’re just flipping purchase contracts. The time frame for wholesaling is also much shorter than flipping houses. You don’t have to make any repairs, so you don’t need as much start up money either and you take on significantly less risk.
Essentially, you act as a middleman between the buyer and the seller. You have to find a motivated seller, negotiate a below-market sales price, and then find an “end buyer” to sell the purchase contract to.
Wholesaling Real Estate: a Step-by-Step Guide
There are three main steps in any successful wholesale real estate deal.
You need to
- Find motivated sellers and negotiate a low sales price for their property
- Put the property under a transferable purchase contract and check the property’s title
- Find a buyer to assign the contract to
While it may seem simple enough, closing a successful wholesale deal takes infinite amounts of finesse, negotiation skills, and great connections in the industry.
Here are just a few tips to make it easier to accomplish these tasks:
Develop a Buyer’s List
It’s infinitely easier to assign a purchase contract to an eager buyer if you already have a pool of great investors to choose from when you have a contract to sell. Most wholesalers agree that using email is the most straightforward way to collect and distribute information. There are a number of free and paid services that you can use, like MailChimp, MadMimi, Convertkit, and more.
You can build up this list in a number of different ways.
The easiest would be to look through the real estate listings on classified sites, like Craigslist, for email addresses of local investors. You can also attend local Realtor gatherings, like REIA meetings or property auctions to meet investors in person. Be sure to exchange business cards, so that you have their contact information.
You can also gather emails through internet marketing, whether it be through your own website or social media advertising.
Real Estate Negotiating Skills
As a real estate wholesaler, the amount of money you stand to make depends entirely on how well you are able to negotiate your deal. You’re the middleman, so you have to make sure that you bring your seller down enough that the price is attractive to your end buyer, while still covering your wholesaler’s fee.
To do this, you should practice negotiations as much as possible. A good negotiator knows that making a great deal isn’t, “you offered $200,000, make it $225,000 or I walk,” but rather re-framing the entire situation so that the buyer can see how the price of $225,000 is actually more beneficial for them and their needs.
Take negotiation seminars. Read books on the subject. But overall, remember that your tone of voice, body language, and behavior throughout the deal are the things that can make or break the amount of profit you stand to make.
Become Familiar with the Paperwork
As a wholesaling middleman, it’s important that you have a good understanding of all of the paperwork you’ll have to complete for each deal. As you are transferring a purchase contract before closing day, one wrong move can put you into some pretty hot water legally, if you’re not careful.
So, be sure you understand just how an assignment of contract agreement works. In essence, it’s a simple, one page document that ensures you are assigning your interest in the original purchase of the property to your buyer instead, for a fee.
A sample contract might state that you found a seller who wanted a purchase price of $200,000 and then you found a buyer who would pay $225,000 for the property. So, the contract essentially stipulates that you assign your original interest in the property to the buyer for the price of $25,000.
Before proceeding, you need to make sure that both the buyer and the seller understand the kind of negotiation that they are in and agree to it.