Wholesaling houses is without a doubt one of the easiest strategies in real estate, but it can be hard to understand the process when you are first starting out.
I love to wholesale houses. You can make quick cash with no risk, no credit, and either no money down or very little money down. I have bought a number of houses with nothing down. But typically, I make a deposit of somewhere between $10.00 and $100.00 on each house. It is actually easier to justify to the seller not putting anything down than it is just giving him $10.00. But I have been told by my attorney, that you really should make an earnest money deposit to have a valid contract. It is also a lot easier to walk away from $10.00 if you can’t find a buyer for the deal than a larger amount of money.
One thing I would like to point out is that I never give that money to the seller. Always make the check payable to the closing attorney. That way, if something happens and the house doesn’t close, you will be sure to get your money back. When you are wholesaling houses you don’t have to deal with tenants, pay utilities, insurance and other costs associated with buying a property to rehab or to hold for a rental. Rehabbers also need access to substantial amounts of cash that you will not need as a wholesaler.
Where Do I Begin?
The one thing you will need to succeed in wholesaling houses is a steady stream of leads. It will be your job to find motivated sellers that will sell their house to you at a deep discount. It has been my experience that you need to talk to somewhere between 10 and 20 folks to find just one really motivated seller. Why the big difference in the numbers? I believe that the more targeted your letter is the better your response will be from motivated sellers. Also, you will get more calls after sending multiple letters over a period of time than you will off of your first letter or two. It is not at all unusual for me to buy a house from someone I have been marketing to for 9 months or a year; sometimes even longer. The seller that is not motivated today may be very motivated a year from now when his circumstances have changed. That is the importance of an ongoing direct mail program.
Where Do I Find Motivated Sellers?
There are many ways to find motivated sellers when you are wholesaling houses. You can use “Bandit” signs in areas where you would like to buy property. You can put “We Buy Houses” ads in local papers and on Craigs’ List. The MLS can be another source of leads. The owner of a house that has been sitting on the MLS for an extended period of time can become a very motivated seller if he is paying two mortgages. Probate attorneys, divorce attorneys and bankruptcy attorneys can also be a source of leads. But I can tell you after doing this for a few years. I find the bulk of my motivated sellers through direct mail campaigns. You get great results over time with direct mail.
How Much Can I Make?
This is a question that has many answers. I have made as little as $3,000.00 on a deal (not a figure I particularly like), and I have made over $20,000.00 on a couple of killer deals. These $20,000.00 + deals do not come around very often in my area. Somewhere between $7500.00 and $12,000.00 is much more typical for me. For instance, if you can wholesale just one house a month for $7500.00, you would gross $90,000.00 in one year. Not too bad! If you are working a full time job and you wholesale just 6 houses in a year and make $5000.00 on each house, you would have made an extra $30,000.00 for your trouble.
Who Do I Sell My Houses To?
This is probably the scariest part for an investor that wants to wholesale houses. When you are new, you can be terrified that you won’t find a buyer for the house before you have to close on it. If you are not already a member of your local REIA group (Real Estate Investors Association), this is the place to start. Join your local association and become active in it. These groups are a great source for buying and selling houses. This is the first place to start building your “buyers list”. You are looking for landlords and folks that rehab houses for your list.
Craig's List is another place I have had good luck finding rehabbers, landlords and other investors to put on my buyers list. When I have a house to sell, I always put it on Craig's List. I have sold a few houses this way but even more importantly, I have found a number of investors to put on my buyers list that have bought multiple properties from me. Be sure to include pictures of the houses when you place an ad on Craig's List.
When you have a house to sell, you can also find investors for your buyers list by running ads in local papers and by putting up Bandit signs in the area where the house is located. These are just a few of the many ways you can build your buyers’ list.
Traits of a Successful Wholesaler
Becoming successful as a wholesaler requires pretty much the same traits as you would need to find in any person that is self employed. You will need to be focused, organized, a self starter, and you must have systems for staying on track. Your systems don’t have to be complicated, but they do need to be things you can repeat month after month. In my opinion, you need to have a burning desire to “chart your own course” to succeed at wholesaling houses or most any entrepreneurial venture. There will be periods when you will just want to throw in the towel and this burning desire will see you through these times.
We have already said that you need a constant source of leads. Leads = houses purchased. To shake out these motivated sellers, you will need to do some type of ongoing marketing. I have great results with marketing to absentee owners as well as probates. Folks that need to sell houses from estates have been one of the best sources of motivated sellers for me. Most of these houses have been well maintained, but are just “ugly” or outdated.
Building Your Team
Contrary to what most people think, real estate investing is not a “solo” venture. It is vital that you begin to build your team right from the beginning. These are some of the folks you will need on your team.
- Closing Attorney. You will need a closing attorney on your team. I have two on my team because let’s face it, some people like to have a choice. My closing attorneys are well respected in their field and by local investors. I know I can count on them to do things correctly and they are used to getting things done quickly. Both of the attorneys I use are investors and they belong to our local investors group KREIA (The Kentuckiana Real Estate Investors Association). They are also used to working with investors who wholesale houses and do double closings.
- One thing I would like to mention is that closing costs are very affordable when you are doing “cash deals”. They are typically only a few hundred dollars for each transaction. This is important to me as I usually do double closings rather than assigning the contracts when I am wholesaling houses.
- Realtors. Having at least one Realtor on your team is a must. I personally have built relationships with a number of Realtors. They can help you with “comps” if you don’t have access to the MLS. Even if you are able to do your own comps, they can help you when determining the value of an unusual property or a property that is in an area that you are not familiar with. Realtors are also a great source of “pocket listings”. These are the houses that they are about to list, but have not yet been put on the MLS. Usually you will hear about one of these properties because it is “trashed” or just needs a lot of repairs. If they can sell it quickly to an investor, it is a win-win for everyone. There will also be times that you will need to list your property on the MLS and you will need a realtor to do this.
- Contractors and Inspectors. As a wholesaler, you will become very proficient in estimating repairs if you stick with it. There will be times however when you will need an opinion from an inspector or contractor on one thing or another. You need to have these professionals on your team before hand as you will typically be working on a short time frame for your inspection period. Things happen very quickly when you are wholesaling houses.
- Private Lenders and Transactional Funding.
- You will always be looking for a cash buyer when you wholesale a house. But that cash may actually come from a private lender and that’s OK. There will be times that you will be able to get a house sold quickly to someone that doesn’t actually have the cash if you can steer your buyer to a private lender.
- If you have to close on a property before re-selling it and you cannot do a double closing, you may need to use “transactional funding”. Transactional funding is short term funding that will allow you to close on the property and re-sell it typically in a few days. Transactional funding can’t be used in most cases if you do not already have a buyer lined up. Be sure to familiarize yourself with these sources of money.
What I Love Most About Wholesaling
For some strange reason, I just love looking at ugly, outdated, dirty, trashed houses. I am one of those people that can see the houses as they will look “after the renovation”. I especially love the fact that I can work when I want to from my home office. When you wholesale houses, it allows you to help a lot of people that are in tough situations and earn a good living at the same time. You are not only helping a seller that has an unwanted house, but you are funneling those same properties to rehabbers and landlords that ultimately provide nice homes for people to live in. I have sat in many closings where the seller says how truly thankful they are to have found a solution for their problem. It is a great feeling when you know that you provided that solution. Happy investing!