Flip a Contract not a House = Wholesaling
|You want to get started in Real Estate investing but are concerned about the amount of money it takes, or you don’t know anything about real estate and are afraid of making a mistake, or you are already an active investor and come across good deals that might be right for you but don’t know how to profit from them. Here is an answer for you, wholesaling.
What is Real Estate Wholesaling?
‘Real estate wholesaling occurs when a party (the wholesaler) contracts with a home seller, markets the home to potential buyers, and then assigns the contract to one of them. The wholesaler makes a profit, which is the difference between the contracted price with the seller and the amount paid by the buyer. The goal in real estate wholesaling is to sell the home before the contract with the original homeowner closes.’ Investopedia
Years ago, my husband and I were doing some probate research (my personal favorite acquisition strategy), looking for our next fix and flip project. We found this incredible opportunity on Lido Island, in Newport Beach, CA, however, the estate wanted 1 million dollars which we didn’t have. This was a great opportunity for many reasons, but the key one was that the property could be subdivided into two lots that would equal 2 million dollars in value. Because we didn’t have the money to buy the property we had to let it go. Years later I learned that I could have controlled the property by simply getting it under contract with a small earnest money deposit. Yes, this is the one that got away (ha-ha). I’ve since learned how to control a property and wholesaling has changed my mindset. I’m no longer concerned with the asking price, because I know when I find good deals I can always profit.
Steps to Master to be a Good Wholesaler:
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Finding great off market deals. There must be enough room (or what we call meat on the bone) for the end buyer to make a profit.
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Knowing how to correctly set up the contract so that it can easily be “assigned” to the end buyer.
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Making sure the right contingencies are in the contract so that you can get out of the contract without losing the earnest money deposit.
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Marketing the opportunity to the right buyers. *Note: With OTA Real Estate tools, cash buyers can be identified in and directly marketed to.
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Having the relationships to make an A to B to C transaction handled correctly. This would include relationships with escrow companies, title companies or real estate attorney and transactional funding companies for bridge loans.
Also, be aware that there are different state laws governing wholesale transactions. The concern is that wholesalers are acting as agents without a license. That is why it is key to understand your state’s rules and to be transparent in your transactions.
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