How to Wholesale Real Estate
This article will show a beginning Real Estate Investor how to become a Wholesaler. This is commonly the easiest way to break into the Real Estate Investing industry, and should teach you the basics to becoming a professional Real Estate Investor!
1. First I am going to assume you already know the basics of real estate investing and have a good relationship with a Title / Escrow company (or Attorney if you are in a state that requires Attorneys to be involved in real estate transactions). If you need some help understanding the basics I suggest you check out Jack Millers website and purchase some of his booklets.
They’re super cheap and packed full of good content. I have never been a fan of any so-called “Guru’s” training materials but Jack was the real deal! Also you should read as many real estate / sales books as you can get your hands on. A few suggestions of good books are “Answering The What If’s In Real Estate” by Paul V. Xavier, “Trump Style Negotiation” by George Ross, and “Zig Ziglar’s Secrets of Closing the Sale” by Zig Ziglar. All of these can be found on Amazon.com.
In the beginning you might want to pair up with a more experienced investor and offer to help them find discounted properties for them for free if they teach you the basics of contracts, escrow, and creative financing! The ultimate goal of a real estate wholesaler is to “flip” properties with no money down, none of your own credit, in a relatively short period of time! The goal is to find someone that has the things you want and then ask them to teach you how they got them.
So if you know someone that is wholesaling that has a nice car, nice home, and a hot wife / husband…then you will want to mimic that persons processes that got them those great things. So know that we got some of the BS out of the way, let’s dive into the good stuff.
2. A typical wholesale transaction looks like this:
You hunt down a motivated seller that allows you to put their property under contract at a discounted price. You then market the property for sale for more than your contracted amount and when you sell it you keep the spread your created. The goal is to wholesale “a contract” in the beginning until you have enough money to go out and purchase the home with your cash or your investors cash. A person can wholesale any type of property (single family, multi-family etc.) and any type of deal (regular sale, pre-foreclosure, foreclosure / auction property, bank owned home, and short sale). Once you learn the paperwork, and who the key players involved are, then you can pretty much start printing your money because it is very easy to wholesale your way towards financial freedom! We will review the details of how this breaks down in the rest of their training.
SIDE NOTE: While wholesaling has made me over a million dollars over the last 6 years I still want to stress the importance of investing. You see, wholesaling is not really real estate investing. You are simply hustling with your creative mind to make some quick cash. While a solid business system is key to being a good and profitable wholesaler you must reinvest your money into “cash flowing” properties that will earn your real money over time.
Having your money earn money is the only way to becoming truly rich and it is the secret that only wealthy people understand. You will be on the same page as me if you can answer this question: Can I stop working as a wholesaler today and still earn enough money to live my lifestyle? If the answer is yes then you have invested your money wisely. If the answer is no then you must continue wholesaling until you earn enough money to purchase solid cash flowing rentals and debt (mortgage notes and deeds of trust) that produce enough yields so you can sit back and watch your money grow!
3. Building out your buyers list is absolutely the most important step you will take in your wholesaling career and is counter intuitive from where most where most people start. Some want to start with finding properties…this does not make any sense to me. Always find your investor first then fulfill their needs and find them a property. Over the last 6 years I have built my buyers list up to almost 45,000 names, email addresses (most important info), and phone numbers. At first this might sound impressive, but you really only need a handful of experienced investors that don’t have the time to spend hunting down great deals! These will be your pool of buyers.
Here are a couple of ideas to help build your buyers list:
1) Network at your local real estate investor club meetings. Almost every major city has one or you can join the National Real Estate Investor Association.
2) Put out an Ad on CraigsList.com or BackPage.com that say’s “Investors Wanted…Local Property Wholesaler Selling Homes At Huge Discounts! Reply with Name, Phone Number, and Email Address to be added to our investor list”. Over time I have graduated to using a mixture between HTML ads (http://www.craigslistaddesign.com/) and text only ads posted during “high traffic” times.
3) Go down to your local foreclosure / trustee auctions and network with those bidding as well as those standing around observing. This is a HUGE untapped resource for finding tons of investors. Make sure you bring some marketing materials with you and have your 30 second commercial ready so you can make a good first impression.
4) Use social networking websites like Twitter.com, LinkedIn.com, CleverInvestor.com and Facebook.com to network online. Create a fan page and insert your email programs intake form so viewers of your page can join your list. My fan page is located at http://www.facebook.com/KleverInvestor?ref=ts&__a=32 so you can see an example. You will need to understand how to insert the HTML code of your email program (I use icontact.com) into the side bar of your Facebook page which can be a little tricky the first time.
5) Join other wholesalers lists and wait for them to accidentally send out their list. I can’t tell you how many times over the years this has happened to other wholesalers that accidentally sent me their entire buyers list. Plus it helps you see what your competition is selling and how they deliver their emails.
4. Now it is time to find properties to wholesale. I currently get my inventory from the auctions. This is a cash heavy business and is not easy to get into or do properly. I do not recommend you try this method until you have deep pockets and a clear understanding of how the auction business works in your area. But I do utilize many local wholesalers to help me sell my inventory once I buy it so a good place to start is networking with these professional buyers. Let them know you have a strong buyers list and that you will call them everyday to see what properties they purchased. You then can begin marketing them to your list via email or calling buyers directly. We even allowed some of them to hold open houses on the weekends, which not only marketed our properties but also helped them find more cash buyers.
Another good acquisition source are REO’s (bank owned homes) and Short Sales. Partner up with a good real estate agent and begin making offers on REO’s and Short Sales. If one gets accepted then you can begin marketing it during your inspection period. Just know that ALL banks will not allow a double (simultaneous) closing so you must completely purchase the REO or short sale first and then resell it for your profit. Ask your local title company (or attorney) how this can be done legally so you are prepared when you get your first one under an accepted contract.
NOTE: I have successfully double closed a few REO deals by utilizing multiple title companies but this can be difficult and time consuming to put together. For short sale and REO flips I suggest you create a relationship with a “Transitional Funding” source. If you Google “short sale funding” a few sources will come up. Make sure you are prepared for the costs associated with borrowing this type of money. Many times I thought I was making more money than I actually walked away with because it all went to the escrow company and to the transactional funding source! But even though the closing costs in this type of transaction can be expensive it is the only way to do short sale and REO flips legally and is all worth it in the end because there is less risk to you the wholesaler.
Lastly, targeting motivated sellers online with a good optimized website. Once set up begin a Google Pay Per Click campaign to drive traffic to your site. Now getting leads this way takes time and money but there are ways to do this cheaply. Try setting up a property acquisition blog on Blogger.
5. Knowing how to construct a wholesale flip is your next major objective. To break it down in its simple form there are really only three ways to wholesale a property. Either by “Assignment”, “Double Close” also known as “Simultaneous Closing”, or a “Traditional Close” If you “Assign” a contract everyone in the transaction will know what you are making. This would be done if you are comfortable with everyone knowing your profit. If you “Double Close” the transaction no one will know what you are making but getting a title company to do this nowadays is a chore due to all the heat they took once the real estate market collapsed in 2007. Double closing is also more expensive and takes away from your profit because the closing costs are so high. Since “Double Closing” a deal is becoming difficult to get approved you could end up completing a “Traditional Closing” using “Transactional Funding” to pay for the deal long enough for your title company to approve and close the transaction. So let’s review what a typical wholesale transaction looks like using each type of closing method:
Assignment:
When you put a property under contract, in the buyer section you put your name (or your companies name) and/or Assignee. This gives you the right to assign the contract to another buyer for a fee. When you open title for the sale you will give the title officer (or Attorney) the purchase contract as well as a one-page assignment form showing you assigned your interest in the property to a new buyer. That assignment form will display whom the new buyer is, the amount of the assignment fee, as well as how payout should occur. I typically use this technique when we are making a profit of $5,000 or less.
Double Close:
If you are making a spread of $5,000 and don’t want anyone to know what you are making then you will want to find a title company / Attorney that will allow a Double Close. This means you are going to use the back-end buyers funds to pass through you and pay off the original seller!
Traditional Close with Transactional Funding:
If you can’t find a title company that will allow a double close then use the same Transactional Funding you would for a short sale or REO flip or find a good hard money lender in your area and close on the deal. This way you simply complete the transaction with the original seller knowing you already have a contract and non-refundable earnest money (typically at least $1500) from the final end buyer.
6. Holding everyone’s hand through the closing and getting paid is your final objective. This is really hard to teach because each deal is dynamic but the basic concept is the same. First, make sure that your final end-buyers non-refundable earnest money is in escrow along with all the signed contracts / assignment forms. Next make sure your title / escrow officer (or attorney) has opened the file and ordered the proper payoffs and title commitments. Sometimes they are busy so a little bit of pressure from you will ensure that things don’t get delayed. I have had escrow officers forget to order HOA payoff statements, which caused the deal to delay long enough for the buyer to get cold feet and walk away!
SIDE NOTE: Finding a good Title company or real estate Attorney to close your transactions is HUGE. They are the most important team members you will have and can make or break your wholesaling career. My title lady will jump through hoops and even work on a Sunday to get things completed and completed fast. The goal is to drive your deals home in the fastest time frame possible, which reduces your risk from the number one deal killer…TIME!
Now all you need to do is make sure the original seller and final end-buyer are staying excited about the deal. Keep them separated at all times and never make the mistake of thinking that you can introduce them or leave them alone in a room together. I have lost many good deals because I was lazy and didn’t want to drive over to the property to let someone in for inspections / appraisals so I would just have him or her meet the original seller there. Every time I did that the deal blew up once they got talking.
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Posted in Wholesale Real Estate | 
Tags: How to become a Wholesaler, Real estate, Real estate investing, REO