Wholesale real estate: a beginner’s guide
How to Wholesale Real Estate: Step by Step
The first part of wholesale real estate is setting up your business. In the United States, this means that you will probably start by setting up a limited liability company (LLC) to manage your wholesale real estate business.
Once you’ve done that, you’re ready to jump into the real estate market and look for investment properties. Follow these steps to get into the wholesale real estate game.
1. Find a distressed property or a motivated seller
For wholesale real estate to work, you need to find motivated sellers of distressed properties. These sellers want to sell the property quickly and don’t want to use the normal channels of a real estate agent, mortgage lender, deposits and home inspections or appraisals.
Instead, they want to sell to a cash buyer who can close the property quickly before going into foreclosure. Motivated sellers usually sell the property for less than market value because they want to vacate the house quickly.
If you offer a price far enough below market value, you have enough room to put the house under contract at a higher price with your team of investors. This is important, so you make a profit or “finder’s fee” for facilitating the transaction.
Finding the owner of distressed properties requires selling yourself through direct mail, social media, and even word of mouth as a distressed property cash buyer. The more people who know about your services, the more houses you will have available to contract.
2. Negotiate with the seller
When you find the right property, it’s time to negotiate a deal with the seller. This is one of the most important steps in the process. If you bid too high, you won’t leave a profit margin when you sell the contract to the end investor. If you don’t bid enough, the seller may reject your bid.
When negotiating a real estate purchase agreement with the seller, be professional, courteous and give the seller reason to trust you. Tell the seller about your experience and how many other sellers you’ve helped avoid foreclosure or mortgage default longer.
It is also important to have a keen eye for detail. As you walk through the house, you need to say what improvements the house needs so you can use that in your negotiation, telling the seller how much money it will cost to fix the house to help you negotiate a lower rate .
The less you agree to pay the seller, the easier it can be to find investors who see it as a profit opportunity.
3. Sign the contract
Once you agree on a price with the seller, draft a wholesale contract. You can hire a lawyer or real estate agent to do this, or write one yourself. You’ll save more money if you do it yourself, but you run the risk of something going wrong. If you are unfamiliar with real estate contracts, consulting a lawyer may be a good idea.
4. Find an end buyer
To find an end buyer, you will need to rely on your network of real estate investors. While you may not know someone directly who is interested, someone you know may know someone. Build your network through social media and local real estate dating.
As you build your real estate wholesale business, you will build a group of real estate investors who will buy the properties you find. It is the final buyer or the person who will take possession of the property.
5. Negotiate with the buyer
Just as you negotiate the price with the seller, you will then negotiate with the end buyer how much you can earn on the sale of the contract. This is where you negotiate your transaction fees. This can be a standard fee that you charge or something specific that you and the buyer agree on.
6. Award the contract
To assign the contract you signed with the seller to the buyer, you must complete a Contract Assignment Agreement.
This agreement states that you assign the contract you signed with the seller to your end buyer for the agreed amount. The amount stated in the contract is the difference between the amount you agreed to pay the seller and the buyer’s agreement to pay you for the house.
The buyer agrees to buy the house and take possession of it. You (the seller) agree to accept the fee as an assignment of contract, giving you no rights to the house.
7. Close the deal
The final step is settlement. This is when all parties sign the documents, transferring the deed to the end buyer. The wholesaler (you) does not have to pay out of pocket. The end buyer pays all closing costs and the cost of the home. You pass the money on to the seller keeping only your profit or the difference between your selling price and the price you agreed with the end buyer.