I have been investing in real estate for a long time now; two decades to be exact. However, it was almost a decade before I started wholesaling houses. It took me a while to wrap my brain around the concept of wholesaling. The process can be somewhat bewildering if you are new at real estate investing, so I hope this article will simplify the process for you. Wholesaling is just one of the many strategies that you can use to buy and sell property. It is by far the quickest way to make some fast cash.
If you need some help talking to sellers when you get them on the phone, I have a free resource for you at the end of this article. Grab my Property Information Form and you'll never dread talking to sellers again.
What Is Wholesaling Houses?
Most folks are familiar with the terms wholesale and wholesaling. This typically means that you are buying an item below market value. A furniture store buys products from the manufacturer at a wholesale price and sells to the end buyer for a retail price. The furniture store then is kind of the middle man.
Wholesaling houses is really no different. You buy a house from a seller significantly below market value, and sell it to another investor for more money (which is still significantly below market value). The investor makes the amount of money (the spread) between what he bought it for and what he sold it for. Just to make this easy to understand here's an example: If I buy a property for $100,000 and I sell it for $110,000, that $10,000 spread is my profit.
Sound simple? Well, it really is.
You should always buy property at a wholesale price. It really is true that you make your money the day you buy the property. You're going down a deep rabbit hole if you pay too much for the property in the beginning. It can be hard if not impossible to recover from that mistake.
Once you have purchased your wholesale property, there are several potential exit strategies for you. Typically, one of these things will happen after the investor purchases the wholesale property.
- The investor will rehab the house and sell it to a retail buyer for profit.
- The property will be sold “as is” to another landlord who may or may not do some level of rehab before finding a tenant.
- Or, the investor may decide to keep the property themselves for a rental.
In the first two examples, the rehabber or landlord must purchase the property from the investor for a price that allows to him or her to make a profit when it's sold.
Ugly houses are perfect candidates when it comes to wholesaling houses. So, what exactly is an ugly house? It's any house that needs a lot of repairs and/or updates in order to be sold to a retail buyer on the MLS.
What Is Absolutely Essential for A Wholesale Transaction?
The one thing you must have is a motivated seller!
In most cases you will have to talk to a lot of sellers to find one that is really motivated. Simply put, you will not be able to put together a wholesale deal if the seller isn't motivated. Talking people into taking our low-ball offer is not what we do.
You've probably heard the saying, “You have to kiss a lot of frogs to find a prince”. It's that way with motivated sellers.
What Makes a Seller Motivated to Sell at a Deep Discount?
A truly motivated seller will be in some type of situation where he simply must get rid of the property.
- They may have inherited a property they simply can't afford so they need to sell quickly. The property may need a lot of repairs and/ or updates the seller just cannot afford to make.
- The seller is in tough financial situation due to a divorce, a job loss, job transfer, or possibly another major financial issue in his life.
- Other folks may have discovered that managing a rental property from another state is just a huge task and just want to be rid of the property.
There can be a lot of reasons why a seller is motivated to sell at a deep discount. Just know that they are out there!
It doesn't matter what the reason is. This person wants to sell badly and they want to sell now. They just want to be out of whatever situation they are currently in. Contacting you is the first step toward solving their problem which is that they have a house they don't want. If you can offer them cash and a quick, hassle free closing that's what they will be looking for.
Is Wholesaling Houses a Strategy for You?
I love wholesaling houses! Of all of the types of real estate investing it is one of my favorites, and it is definitely the least risky of all the different strategies. You don't need a lot of cash or a great credit score to be successful at this.
I have to tell you honestly that you do need some money for marketing. There are a lot of free or low cost marketing strategies you can use. But at the end of the day, this business will require some investment of your time and some cash. One thing you definitely need is a website. People don't think you are trustworthy if you don't have an online presence.
I'm going to make this short and sweet. Yes, you can try to build one yourself, but that's not what I recommend. There are several good companies that have “done for you websites” that you can customize yourself. The advantage of getting one of these is simple; your site will get ranked much faster than if you try to do it yourself. Unless you really know how to build a lead generation website you're going to get one thing… crickets when it comes to leads. Trust me on this one.
Most investors are not website builders. You want a website that will bring you leads 24/7 even when you sleep. There are a lot of good companies out there, but these are the two I am familiar with and I recommend:
I personally know both of the owners of these companies, and I have no problem giving them a recommendation.
How Long Does it Take to Close a Deal?
Once you start to build your buyer’s list, these types of transactions where you are wholesaling houses are typically pretty quick. I have put a house under contract and re-sold it in as little as week. Typically it's 10 days to 2 weeks. Remember that your end buyer is always another investor who is paying cash for the house.
A wholesaler can best be described as a “transaction coordinator”. Whether you are doing a double closing or assigning the property, the whole process is quick and easy. If you want to learn more about how to buy properties even when you're broke, check out my Complete Guide to Double Closings.
Some folks will tell you that buying these properties far below market value is taking advantage of the seller. That couldn't be further from the truth. All of these distressed sellers want relief. Relief from whatever situation they are in. Real estate investors provide solutions for folks that have problems they cannot solve themselves. At the end of each closing, the sellers always tell me how thankful they are to have found me and how happy they are that I was able to solve their problem.
What About You?
Have you tried wholesaling? Let me know.
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