Real Estate Wholesaling: How to Find and Sell Property Deals
TL;DR - Wholesaling is a great way to begin your career in real estate. However, unlike rental income, it isn’t passive. You’ll have to find a good wholesale deal, negotiate a contract, obtain a buyer, and get your assignment fee.
You might love real estate. You might love real estate investing. Heck, you might even own a property or two!
But right now, you don’t have enough capital to invest in a new property. So you’re looking for ways to make money from real estate with little to no money.
What if we told you that there’s an option that’s perfect for you?
It’s called real estate wholesaling and it’s the best way to get a start in real estate without spending your own money.
If you want to learn about this awesome opportunity, you’ve come to the right place!
Real Estate Wholesaling
What is Wholesaling?
Wholesaling is an awesome way for someone with no capital to get started in the real estate industry.
Basically, a wholesaler searches for discounted properties that have motivated sellers.
Once they find and negotiate a deal, they get a contract from the seller stating how much they’ll sell for.
Then, the wholesaler finds a cash buyer who wants the deal and gives it to them for an assignment fee. This fee is typically around $5,000-10,000, but depends on the property's price. We call this assigning the contract.
If the wholesaler really likes the deal, they can close on the property themself and then re-sell it to a cash buyer. The wholesaler gets a higher price than they paid for the property and they don’t have to rehab at all. This is called a double close.
Wholesaling is possible by finding good deals.
How to Find A Wholesale Deal
The key to finding a good wholesale deal is to find a property that’s below market value.
But how do you do this? Especially when the market’s so strong right now.
Well, you have to find a distressed seller. Someone who wants to get rid of their property as fast as possible. Maybe they need the money quickly, they’re tired of holding onto the property, or they don’t have the funds to rehab the home.
Whatever the case is, the seller needs to be so motivated to sell that they’ll sell the property for less than what it’s worth.
Here are some places to find wholesale deals:
Real estate auction sites (Auction, ServiceLink)
Foreclosure sites (Foreclosure, RealtyTrac)
Does Your Deal Make Sense?
So you’ve found a distressed seller that’s willing to sell for lower than market value.
Now you need to make sure that you’re getting a good deal. If the deal isn’t good enough, no one will want to pay you a wholesale fee.
To do this, you have to calculate ARV and MAO.
ARV (after repair value) is what a fair market price would be for a property after all rehabbing is complete. It’s easiest to calculate this if you know the local real estate market, what investors are willing to pay, and how much a rehab will cost.
MAO (maximum allowable offer) is the absolute highest offer you can make to a distressed seller while still leaving a profit for the buyer you assign a contract to.
Here’s an example of the two.
Let’s say you’re looking at a neighborhood where single-family homes are selling for $100,000. The seller just inherited a property and wants to get money fast.
You’ve figured out (through a contractor in your team) that the property needs $10,000 in repairs before it’s in proper condition to rent. From this, you calculate a MAO of $60,000.
The formula is as follows.
MAO = (ARV x 70%) - Rehab Costs
So…
($100,000 ARV x 70%) = $70,000 - $10,000 Rehab Costs = $60,000 MAO
It’s important to follow the 70% rule in real estate. This means that, after rehabbing, you create a profit margin of 30%.
Getting the Contract
This is the most pivotal part of the wholesale process.
After all, without a deal, you can’t assign a contract.
As we mentioned before, it’s best to find a distressed seller. This way, it’s easier to convince them to sell at below market value.
Sales experience works well here. But if you don’t have that skill yet, here are some popular negotiation tactics.
Build rapport with the seller and empathize with them
Understand why they’re selling and explain you just want to help
Position yourself as the best solution to their problem
Remove as many contingencies as possible
Offer to pay in cash and close quick
Point out how many repairs you’ll have to do before the property’s rentable
Be disinterested - they’re the ones that want to sell, not you
Be prepared to walk away if the seller doesn’t meet the MAO
After you’ve reached a deal, you’ll get a contract that allows you to sign it over to another buyer.
Obtaining a Buyer
Once you have the contract in place, you’ll want to find a buyer for it. You might have to move fast depending on the purchase contract closing date.
This is why many experienced wholesalers have a list of buyers that they reach out to. They’ve built a relationship with investors over time and can unload wholesale deals quickly.
If you don’t have your own network, here are some ways to build one.
Attend a real estate networking meetup
Post the deal on local FaceBook investing groups
Reach out to investors on professional sites like LinkedIn
Go to courthouse auctions (where buyers need cash)
Speak with realtors that have clients that invest in wholesales
Now that you’ve found a buyer through your network, you need to negotiate with them. If you have a long relationship with an investor, it might be simple. But you’re probably starting out.
Before the buyer takes the contract off your hand, both of you need to agree to terms.
You want a proper fee for your time spent finding a distressed seller and below-market property. The buyer wants a good profit margin after repairs are completed.
Luckily, you’ve followed the 70% rule and left a 30% profit margin after repairs already.
Let’s use our previous example.
You have a deal where the ARV is $100,000. The deal was for $60,000 because repairs are $10,000. So we’re left with $30,000 in profit.
Depending on the buyer, there are two ways you could go about splitting the profit.
One - you can split it 50/50. You get $15,000, the buyer gets $15,000.
Two - you ask for a 10% wholesale fee. You get $3,000 and the buyer gets a property $27,000 below market price.
Either method works.
When you’re starting out, it’s beneficial to build a good relationship with buyers. You can take the lower profit for yourself in return for potential future business.
Or you can prioritize your gains in the present. Do whatever you’re comfortable with.
The Close
Closing in wholesaling works just like it does with normal real estate investing.
To read more about how to close, read here.
Since you’ve assigned the contract to a buyer, your hands are off the deal after you get your fee.
Thoughts About Wholesaling
If you’re just getting into real estate, wholesaling can be the perfect fit for you.
It requires little to no upfront capital, it’ll accelerate how quickly you learn the real estate game, and you can do it from anywhere.
But, it isn’t perfect.
Unlike rental income from properties, wholesaling is much more of a full-time job. It won’t allow you to build passive income.
In addition, you might need a real estate license to wholesale in some states. If you aren’t careful, your actions might be considered brokering a deal, which is illegal without a license.
So before you jump into wholesaling right away, be sure to consider these two factors.
If you’re up for the challenge, then wholesaling is a great way to start your career in real estate.
Happy hunting!
How We Can Help You
Does investing in real estate sound intriguing to you? Would you like to learn more? We’d love to be of value!
At Undoor, we pride ourselves on teaching new and experienced investors how to maximize their gains with minimal stress. Our goal is to help you fall in love with real estate and real estate investing. What we’re most passionate about is maximizing investment gains for people like you.
Do you want to get key insights and advice that’ll help you get ahead of the game? Don’t hesitate to contact us for any and all real estate wants or needs.