The Basics Of Wholesaling Houses
I compare wholesaling houses to golfing, it is simple but it is not easy. What could possibly go wrong? Golfing is simple; all you do is swing a club at a ball and direct the ball into the little hole in the ground, very simple right? Yes, the concept is simple but not necessarily easy to do. You need to perfect your swing, the angle you hold the club, and of course, use the right club to get the proper distance and be confident you can get the ball to cooperate with your intentions. There are a lot of little nuances you need to perfect to be a good golfer.
Wholesaling a home is also simple
Find a property, buy a property for cheap and sell for a profit. What could possibly go wrong? Again simple, but not so easy. You need to buy right, know your exit strategy going in, know all your up front and rear end costs and be confident you can sell on a timely basis.
Finding the property
Finding the property may prove to be the hard part, like golfing, you often need to take a lot of swings before you find a property that you can score with.
The key to finding a great wholesale property is to find property that has problems that the current owner is not able to or not willing to solve. These properties typically are not found on the multi listing service (MLS). Often they are not even listed for sale as the seller has not yet figured out how to sell a property that has issues attached to them.
Often these properties are found by wholesalers creating lists of potential sellers and sending postcards to them to try and fish out the actual sellers. These potential sellers are often identified by looking at tax records and identifying owners who have mailing addresses different than their property address. These people who own homes that they do not live in are the best candidates to be motivated sellers.
However, like golf it may take a lot of swings before you score. There are also lists that can be purchased of people who have identified potential properties as being wholesale candidates.
There are franchise opportunities available that provide the full wholesaling system. The education, the leads, the business knowledge to make you most profitable. Franchises of course are the full proven systems of the A-Z of wholesaling.
Buying the property
OK, so you found the property that fits your criteria. You identified how to solve the seller's problem, you identified your offering price based on the diligence you did to make sure there is profit. Plus you know what your exit strategy is. Now you simply want to share with the seller how your offer may create a win win for both parties. If both buyers and sellers do not recognize a benefit in the deal there will not be a successful transaction. Once this win win is identified you have scored.
Selling the property
The game is not complete until you sell the property. Now that you own the property (or have it tied up on an assignment contract) you complete your exit strategy. Fix first, then sell (fix and flip) or sell to the investor who does fix and flip.
Fix and flip
I find fix and flip tends to be most lucrative, but I have a passion for renovations. To do fixing yourself (typically means you play general contractor or at least the project manager), you want to have a lot of trusted tradesmen or contractors that can take care of all the renovation work professionally. Fixing and flipping is a business that will generate you a good name or a bad name. Do good work and create a great home for the end user and your brand will become sought after. However if you do a cheap rehab and the end users discover you took a lot of shortcuts, that will brand you negatively and you will not be in the business for very long.
Sell to the investor who flips
Often if your exit strategy is to sell to an investor, you may be able to simply assign your purchase contract to the investor for a fee. This strategy will require you to have a sizable list of buyers to be profitable doing these straight wholesale deals where you find property and sell to a fix and flipper. The strategy is a quick turnover to the flipper. The value here is a quick turn of your money get in and get out. You will need a list of people who you have previously identified as people who desire to buy these types of properties.
As soon as you tie up (control) a property, you want to share this with your list of prospected buyers, and sell for a quick profit. This does not mean get rich quick. A quick profit may be 5-10k depending on the value of the property. Your value position is finding and controlling the property, selling and repeating as often as possible.
The common denominator
Relationships in real estate investing are of course the links within the chain that makes you successful. A database full of tradesmen that you trust, a list of buyers and a list of sellers is paramount. This is very much a people business.
The more people you know in this small world of real estate investing the more successful you will be.