A Beginners Step By Step Guide to Wholesaling Real Estate
If you’re interested in becoming a real estate investor and you’ve done your homework, you’ve undoubtedly come across Wholesaling as a great way to get started. Wholesaling is the process of flipping a property without actually buying the property. Because the Wholesaler isn't closing on the investment, they are able to flip multiple properties without needing the funds to close on the loans, making Wholesaling an excellent way to start a real estate investing career. So how do you wholesale a property? If you want to wholesale a property, you need properties. The first step to wholesaling a home is finding a motivated seller.
Step One: Finding a Motivated Seller
There are several ways to find motivated sellers. The most common practices are different forms of marketing. Here are three of the most common marketing methods for finding a motivated seller.
Direct Mail Marketing is a well known and established method for marketing for seller leads. The low cost of these mailers have made them a go to for many Wholesalers and Investors.
Cold Calling Leads is another great way to find motivated sellers. Most Wholesalers will simply buy a list from a lead source, but the best cold calling leads come from skip-tracing specific properties that meet your buying criteria.
Internet ads and social media ads are a great way to find homeowners that are looking to sell their house. But investors beware: This form of marketing is more complicated, more expensive and much more difficult for the inexperienced Wholesaler.
Step Two: Negotiating the Deal
Once you find a homeowner that's interested in selling their house, it’s time to negotiate a favorable purchase price. Every seller has an idea of how much they want for their house, but as the Wholesaler, you need to ensure that you get the property under contract with an “investor style” offer. An investor style offer is a price point that's deeply discounted from the current market value of the neighborhood. For example; If the market value is approximately $100k, a Wholesaler may attempt to get the property under contract for $70k. This would allow the Wholesaler to remarket the property to a Cash Buyer for $80k and make a profit of $10k on the sale. This is a very simplified example to showcase the process. There are numerous factors involved in negotiating a purchase price, like the rehab costs and the properties’ current condition, but the overall goal is to create a profit between your seller's purchase price and the end buyer's purchase price.
Step Three: Finding a Cash Buyer
In order to have a successful and profitable Wholesale business, you must have an excellent Cash Buyer List. As the Wholesaler, the goal is to sell the deals that you have under contract to a Cash Buyer. This means that you have to have a large list of Cash Buyers or “End Buyers” to sell your deals to. Many Wholesalers will argue that the size of your buyers list is more important than your method to finding motivated sellers. The Larger the list the easier it is to sell a property. Marketing a wholesale deal to a list of one thousand buyers is better than marketing a deal to a list of one hundred buyers.
The process for wholesaling a property is a bit more complicated than the simplified version above. Contracting between buyers and sellers can differ between States and the closing process can also be a bit different depending on the area. As a real estate coach I always recommend that newcomers to investing find a trustworthy mentor to guide them through the process. Once you have a working method for finding motivated sellers and you’ve build a large and active Cash Buyers list, you should be able to maintain a profitable Wholesaling Machine.