Let me begin by saying that wholesaling is a simple process and can be extremely lucrative for those who decide to venture into this area. Here are a few quick and easy steps to help you get started right away.
Step 1: Find a Deal
The general concept of wholesaling is to find a property with signs of distress and purchase that property significantly below market value. Ways to find properties can vary from online searches (such as Craigslist.org), direct mail (sending out mail to a target audience within a specific area to introduce yourself and the service you provide), driving for dollars (targeting a specific subdivision or area looking for distressed or abandoned properties), established or establishing relationship (people inform you about properties that may be of interest to you), etc.
Step 2: Price Evaluation
Once you have found a property of interest. It is a great idea to determine the price the property is worth. Many people do this by performing a comparative marketing analysis. A comparative marketing analysis is created by researching the price range that similar properties have sold for within the area the property of interest is located or surrounding neighborhoods. To begin performing this analysis, you would check for properties that have sold, are pending sale and currently active on the market within the past 6 months. If you have trouble locating at least 5 comparable properties within the area or surrounding neighborhoods during the 6 months timeframe, I would recommend you extend the timeframe further without exceeding 24 months.
Step 3: Make an Offer
After doing the price evaluation, you would have a general idea on the value of the home and can consider a price you are willing to offer the owners for the property. In most instances, investors make an offer that is 50% below value including cost of repairs. It is important to consider the repair costs when making offers so that both you and the buyer yield a profit. Assuming that a distressed property is worth $125,000 as is and your offer is accepted by the owner at $62,500. Then you will enter into a contractual agreement to close on the property within a set number of days. At this point you would generally contact the title company or closing agent and submit the contract to them with a security deposit at a minimum of $500 (in most cases).
Step 4: Find a Buyer
Now that you have the property under contract pending sale, you may advertise the property on Craigslist.org or any other online outlet. If you find bandit (ex: WE BUY HOUSES) signs within the neighborhood of the property of interest or other locations, I would recommend you call them and present the deal. Now that you have agreed to purchase the property for $62,500 knowing that is worth $125,000. You may want to sell it to your buyer for 72,500. At which point you could create an agreement between you and the buyer reassigning the contract to them or participate in a double close with the title company. In this case you will be selling the contract to the buyer for $10,000.
Step 5: Closing
This is the final step in the process! Here is where you earn the difference of $10,000 from the purchase of the home and the sell of the contract. Additionally, the buyer would submit the earnest money deposit to the title company making up the $500 deposit amount submitted initially.
The overall process and concept of wholesaling is simple but not necessarily easy. It takes patience, research and persistence to find a good deal. Many investors choose to enter into the real estate industry through wholesaling because it is the quickest way to build capital.
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