Start Wholesale Real Estate Investing in 3 Simple Steps

Posted On Wednesday, 23 February 2022 20:16

Most individuals interested in investing are familiar with house flipping. You purchase a dilapidated property, fix it up, and sell it for a profit. But what if you could skip the “purchase” and “fix it up” steps and leap right into profit?

Enter wholesale real estate investing.

How Does Real Estate Wholesaling Work?

Wholesale real estate investing involves a wholesaler acting as an intermediary between buyer and seller. Rather than rehabbing derelict properties to sell at a premium, real estate wholesalers hunt down undervalued properties and pass the final transaction onto the buyer.  

This allows a real estate wholesaler to profit from the sale of a property by making an agreement with the seller to sell at (X) price, and a buyer to purchase at price (X+). The wholesaler gets to pocket any profit over the sale price (X) without ever having to finance the purchase or renovation of a property.

Example of Wholesale Real Estate Investing

Imagine a homeowner does not believe that anyone will buy their relatively derelict property. They don’t have the time or resources to renovate it themselves, so they continue to live in it, not believing they’ll ever receive a fair price. 

One day a wholesaler knocks on the homeowner’s door and offers to write up a contract to sell the house for $100,000 within 30 days. Using his connections, the wholesaler finds a cash buyer willing to purchase the home for $115,000 and assigns the contract to this investor. 

The wholesaler has made $15,000 profit in under 30 days, the investor has acquired a potentially profitable fixer-upper, and the homeowner has finally sold their home at a fair price. 

1. Build a Cash Buyers List

More important than finding a profitable property is the ability to efficiently find a buyer. As your wholesaling business grows, so will your buyers list. However, you must remember that real estate wholesaling is time sensitive, so you’ll want to build a decent list of potential buyers before you find your first property.

Here are some places you can look for real estate investors for your buyers list:

  • Networking Websites — Facebook, LinkedIn, etc.

  • Local REIAs — An REIA is a Real Estate Investor Association. Here you can potentially meet and learn from other wholesalers while you build a buyers list and learn about the local real estate market.

  • Classifieds — You can use traditional newspaper or magazine classifieds along with Craigslist.

  • Tax Record Research — The local county clerk keeps public records of tax delinquency. If an owner has fallen behind on property tax payments, they may be more likely to sell.

  • Foreclosure Auction — When a homeowner can’t pay off outstanding debt on their home, it may go to a foreclosure auction. Here you will find real estate investors interested in purchasing homes for cash.

2. Find a Property

Finding the right property is the most effort intensive aspect of wholesale real estate investing. The efficacy of the methods below is easily amplified by modern technology.

Software like PropStream aids real estate investors and wholesalers by taking the legwork out of data gathering and analysis by pulling from nationwide property databases and enabling targeted property searches.

  • Cold Calling — You can learn about the market by calling local real estate agents and private money lenders to learn about the market, or call the owner’s of home’s you're interested in.

  • Postcards — Mailing postcards to advertise your interest in purchasing home’s is another option that works well if you have a specific geographic area you're interested in.

  • Pull Lists — You can hop on websites like Zillow, Redfin, Trulia, HouseCashin Wholesale Property Marketplace and filter by your criteria.

  • Pre-foreclosure Listings — When a homeowner defaults on their loan they receive an official warning from a lender. If you can catch a homeowner between default and foreclosure, you can make them an offer that may end in a win-win for both of you.

  • Drive for Dollars — Tried and tested, cheap, and effective. Experienced real estate wholesalers will drive around an area creating a log of distressed properties that are ripe for wholesaling. 

3. Negotiate an Agreement

Before you rifle off an offer to a seller, you’ll have to calculate your MAO (maximum allowable offer) and your ARV (after repair value).

One such formula you can use to discover your MAO is:

ARV * 70% - Estimated Repairs = MAO

Your profit will be the MAO minus your contract price. 

Profit and Repeat

Wholesale real estate investing is a business, and it should be treated like one. As you grow your business and profit you will be gaining a deep understanding of the real estate market. With your profits and your knowledge you can eventually graduate to purchasing investment properties yourself.

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