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How to Wholesale Houses in the Real Estate Business
Wholesaling houses is a great way to start in real estate investment Most people in the real estate investment business are familiar with the term flipping houses, but while many have heard of the term “wholesaling houses,” few actually know the true meaning of wholesaling houses. Many investors don’t think there is a difference between flipping and wholesaling houses, and for some real estate investors there is no difference, but most of the time flipping houses consists of actually taking ownership of the house, repairing and reselling the house, while wholesaling houses usually only means putting a contract down on the house and then finding a suitable investor to take it from there. Wholesaling is an excellent way to become involved in real estate without having to put your own credit on the line or without the fear of whether or not you will make a profit off of the property once you have refurbished the home and are ready to sell. Many times wholesale investors are referred to as scouts or dealers, those investors who will help other ownership investors seek out and secure properties, but will not go through with the entire process of owning the home. Here is how it usually works. As a real estate investor interested in solely working with wholesaling properties, you will want to spend the majority of your time searching for profitable homes for sale. Although many investors who take ownership of a house are willing to put a good deal of time and energy into cosmetic concerns such as painting, flooring, cleaning up the yard or even remodeling an old kitchen, it is much more difficult to convince an owner investor to spend his or her valuable time on a property that has major structural damage. This could mean a great deal of time and energy on their part and this may also mean sinking a great deal of money into a project. So, a wholesale investor should look for properties that may need a little bit of polishing and cleaning up, but for the most part will not need any huge structural repairs, such as cracks in ceilings, walls, basements, or shifts in foundation, flooring, or major plumbing and leakage problems. Unfortunately, some structural problems may not come to light until you have put down a contract and up to $1000 of earnest money on the home, but at this point you can still pull out of the contract, or the contract may already be turned over to another real estate investor who plans on taking ownership and they can try to make a deal with the seller or back out of the deal completely. If you are new to the game of wholesaling houses, then you will need to also spend a good deal of time trying to come into contact with ownership investors and helping to secure a reliable relationship that will prove profitable in the end. The best way to come in contact with real estate investors is to advertise yourself as a reputable wholesale dealer. Advertisement can be done through the newspaper, local real estate magazines, local real estate companies, or even just by posting advertisements at the local grocery store or workout center. Usually it is best to begin advertising when you are already in line to set up contracts on houses or on a home, as you may lose the interest of ownership investors if you don’t already have homes available or lined up. This is simply because many ownership realtors don’t want to spend the time waiting for a good deal to come along when they could be out there working on a deal themselves. This can be the tricky part, though, because you don’t want to line up a bunch of contracts and place down payments on homes and then not have ownership investors to use as a backup. As you begin to make connections in the real estate business, you will realize that it does not take long to make these business connections, and you will soon be on your way to wholesaling houses hand over fist. As far as down payments go, you will need to go ahead and place a down payment on a home, unless you have an investor standing by after you place a bid on a home. Remember that when you are placing a bid on a home, you are usually required to put down at least earnest money, to ensure that you are serious about the bid, and most of the time this money will not be returned until closing on the property. By that time the property will be in the hands of the new ownership investor, so take this in to consideration when you are negotiating a sale of the contract with the investor. You may also need to place a down payment on the home, although many investors who work as scouts or dealers in the wholesaling houses business will suggest only placing a small down payment, of less than $1,000, so you are not losing too much money. Remember the idea here is to profit! Many real estate companies will let you get away with simply putting down as little as $10 and this means you are barely investing any funds to make a profit. This is the main idea you want to keep in mind! Finally, you will want to consider how you will negotiate with both the real estate seller and the real estate investor. Most wholesale investors will tell you that the best method of making cash off of a home is to put a bid on a home that is below the appraised or asking price of the home, or the asking price of the home once it is reconditioned. This will help to ensure that you are the winning bid on the home, as well as to ensure that a real estate investor would be willing to pay a few thousand dollars more on a home, affording you and them a profit in the long run. Keep in mind that if you look for homes where the sellers must move or are in need of finances quickly and are willing to take a negotiated price, you are more likely to have those sellers accept the bid, then if you are looking for a house where the homeowners have invested a lot of time and money into that home. One final note to keep in mind when working in wholesaling houses is that your job is not finished until the house is closed on, so don’t think that you can simply put a bid on a home for $60,000, sell the contract to an investor for $70,000 and walk away with your $10,000. Since you initiated the contract in the first place, you will need to be present at the closing of the home to turn the house over to the investor through the title company, but aside from this your job as a dealer or scout is fairly easy.
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This intel was contributed by larryg
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May, 2012
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