In the world of Real Estate Investing there are a wide variety of strategies, from "rehabbing" (a full remodel) to owning strip malls. Almost everyone says wholesaling is the easiest and least riskiest way to get into real estate investing. This is because the upstart capital is low, and you don't take ownership of a property. But how does one exact wholesale a property? The process isn't complicated, and can be broken down into three main steps.
Step 1: Finding an Investor
One of the most important things you can do as an up and coming wholesaler is meet other real estate investors. They can range from people that fix properties and resell them (rehabbers) to landlords. The main thing to keep in mind is you want to connect with investors that are actively looking for new properties. You want to to get to know what they look for in investment properties; this is very important when you start looking for sellers. One of the worse things you can do is find properties that nobody is interested in. Outside of the investing criteria you'll obviously want some way to contact them. You'll want their name, email address, and phone number. The best places to find investors are:
- Your local Real Estate Investor Association meetings. You'll want to network with everyone you can.
- Online classified ads such as craigslist. You can setup an ad to attract investors. In the ad it is best to direct them to a form for them to fill out. This will help weed out people that aren't really interested getting real estate deals, and this will also help as you won't receive spam from people that browse classifieds for email address.
- Drive neighborhoods looking for large dumpsters and a crew working on a house. Chances are that property is owned by a rehabber. You should take to the general contractor, and get the investors information. You can then call the investor, and offer your wholesaling serves for further projects.
- Depending on your county, you could pull property information from your county auditor and look for company names, or individuals that multiple properties. You can then send a letter to their tax mailing address offering your wholesaling services.
Keep in mind, you will want to pre-qualify the investors you find. You don't want them to back out at the last minute. Make sure they have done at least a deal or two. You don't want to take the time to find a deal for someone only to find out they are a "wannabe" investor, and can't or won't follow through. You also want to make sure they are financially able to obligate any contract they sign. The best thing to do is ask for a non-refundable deposit when signing a contract.
Step 2: Finding a Motivated Seller
For starters, a motivated seller is not your typical seller. They have a urgent need to sell unlike other sellers. They're probably not concerned with getting the most money out of a house. They might be relocating for a job, and just want to sell the house and move on. They could have inherited the house, and don't want to deal with the headaches that come with it. Each persons situation is different, and each has their own reasons why they need to sell.
The ways to find sellers can be nearly endless. Here are a few examples to find motivated sellers.
- You can drive neighborhoods looking for vacant, rundown houses, and try to contact the owners. You can get their information from the county auditor and use the tax address to send them a letter, ask the neighbors, or have a skip-trace done. (A skip-trace is basically tracking down a way to contact a person)
- For rent signs. Not all landlords wish to be or stay landlords. They might have had a few bad experiences and just want to get rid of the property. They could also be accidental landlords that rented their house out as a last option, and want to sell.
A few things to keep in mind.
- You always want to build rapport with the sellers. This makes the situation more comfortable, and eases any tension that might exist.
- You always want to know why the are selling. This is a very useful during negotiations.
- Never make the first offer. Your lowest offer might be higher than what they would take.
Step 3: Bringing it All Together
You have the seller and the buyer lined up, now what? First of all you'll want to sign a purchase and sales agreement with the seller, and make sure the contract is assignable. (Check your local laws in regard to the agreement and any assignment clause you may need). You then need to sign an assignment contract with your buyer. Once you have both you bring them to either a title company or attorney depending on how the closing process works in your state).
From there, the title company or attorney will do the required paperwork and process needed to close the deal. You will want to stay up to date on how the closing process is proceeding, and make sure the buyer and seller are happy. If either one decides to back out, then you can to go back to the beginning.
Once the deal closes, you should get a check from the title company or attorney for the difference between the price you had with the seller in the purchase and sales agreement and the amount in the assignment contract. After that it's just rinse and repeat.