wholesaling

[Gary Threadgill]

Hey BP,

I Am new to investing and have read that it would be best to start out wholesaling. So My questions are how would i get started in wholesaling?

How would i find deals?

If you dont actually own the property, and you are the middle man would you have to prove you have the funds to purchase the property for the seller to sell it to you?

[Chris Piper]

@Gary Threadgill There are a LOT of ways to make money with real estate. In my opinion, contrary to what some people think, wholesaling is the best way to get started, and here's why. You can literally complete a wholesale deal with almost no money. Most people starting out in real estate aren't millionaires looking for something else to invest their money into. Most people are looking for a way to live a better life by making more money, and possibly transitioning from a full-time J.O.B.(just over broke) to becoming a full-time real estate investor.

Here are some important things to understand about wholesaling before you decide if it is right for you.

1. It takes time and hard work.

The key to becoming a successful wholesaler is being able to find properties to put under contract, and having a list of cash buyers who want to buy what you have. If you don't have either of those things, it will be next to impossible to be successful as a wholesaler.

2. It is the cheapest way to get started, but may take some time to complete your first deal.

Building a cash buyers list of investors who actually have cash and are prepared to buy a property or properties from you takes time to build. You have to locate cash buyers, find out EXACTLY what they want, where they want it, and how much they are willing to pay for it. You should be using "Reverse Wholesaling" when you are getting into wholesaling. That means that you find out exactly what your cash buyers want, so you only put properties under contract that they want, and not just something that seems like a good deal to you. That is how you will be able to move properties quickly once you put them under contract. Because you already have a buyer that wants exactly what you have, and you know that in advance.

3. You need help and need to make connections

Unless you have a real estate license, you will definitely need the help of a good real estate agent. You can call around to your local real estate companies and try to find an gent who works with investors. Some will, and some won't. If an agent doesn't work with investors, don't waste your time or theirs taking to them. You need an agent who can pull comps(comparable sales) for you and show you properties in a timely fashion. If your agent is too slow or too busy to show you properties, send you listings, or send you comps, find a new agent. There are a million agents out there, and eventually you will find the right one for you.

Also, you need to have a good title company, and you need to make sure they work with investors as well so there will be no problems or delays in closing. Again, call around until you find one that is a good fit for you.

It also never hurts to get to know your competition(other wholesalers), because you may end up doing business with them. Maybe they have a property for sale that would be a good fit for one of your cash buyers, and you are having trouble locating good properties. That may result in you doing a deal with them. Or, maybe you have a property you can't get rid of for some reason, and you call them up and they take it off your hands. It's a win-win.

4. You need to get familiar with marketing

Marketing is the KEY ingredient to being successful. You need marketing to find cash buyers, sellers, as well as being able to sell your properties quickly. There are a lot of ways to market, and you should use as many as possible until you find out which ones work the best for you.

How do you get started:

1. Start building a cash buyers list

Do this by posting ads on craigslist and other free sites, going to your local Real Estate Investment club(google it), posting bandit signs(if permitted by law in your area) at busy intersections. Once they start calling, make sure you know your business, and can answer all their questions. If you slip up on an answer to a question they have, that will be a dead giveaway that you are a rookie, and you will likely lose them forever as a cash buyer. When the cash buyers start calling from your advertisement(s). get all the info you can on exactly what they want to buy, how often, what areas or zip codes, and how much they are willing to pay. Try to get a soft commitment from them meaning you tell them "If I find the exact house you want in the exact area and within your price range, are you willing to sign a purchase agreement right away?" Trying to get them to commit in advance, let's them know you are serious, and that you are contracting on a property which will be specifically for them. Let them know that when you call them with a property, that there will be no question that the property will be exactly what they want, and that you will be blasting every property out to your cash buyers list. This will let them know that they need to respond quickly before someone else buys it first. It doesn't matter if you actually have a huge cash buyers list, as long as the think you do. If they think they are your only cash buyer, they will know that you are new and inexperienced. Also, keep in contact with them so they remember you.

2. Make contacts and connections

Real estate agents, title companies, other wholesalers, etc. You can find other wholesalers by looking on craigslist or by calling "We Buy Houses" advertisements you see around town. Also, by connecting with people here on BP.

3. Finding properties to make an offer on

Utilize your real estate agent for this. Have them pull up properties in a price range you are looking for and in areas you are looking for(based on what your cash buyers want). Look for expired listings and listings at least 90 days old. The older the listing, the more likely the seller is to take a lower price on the property. You can also post some "We Buy Houses" ads on craigslist or on bandit signs around town(if permitted by law). Bandit signs had my phone going crazy pretty quickly.

4. Check out the properties

Have your agent block off a chunk of time where you guys can go look at several properties that meet your cash buyer's criteria. Check them out, make notes on the condition of the property, and what needs to be fixed/repaired/replaced. Be thorough when you walk through a property. Take plenty of pictures too because you will need them for your marketing, and if you need to recall the details of a property.

5. Determining what to offer

You need to figure all of your expenses and estimates before making an offer. When you are trying to sell your property, you need to sell at no more than 70% of the ARV(after repaired value) minus repairs. You need to determine how much profit you want to make on the deal, how much the repairs will cost your cash buyer, fees, transctional funding fees, closing costs, room for negotiating, etc.

For example:

If a house is listed for $100,000, you walk through and determine that it needs $30,000 in repairs, and by talking to your agent, you determine that in perfect shape the house will be worth $130,000, then you need to figure out your formula before you can make an informed offer.

FORMULA

ARV $130,000 X 70%= $91,000 Max Sell Price to Cash Buyer

LIST PRICE $100,000

-REPAIRS $30,000

-PROFIT $8,000

-CLOSING COSTS $5,000

-TRANSACTIONAL FUNDING $3,000

-ROOM FOR NEGOTIATING WITH SELLER $3,000

= $51,000 MPP (Max Purchase Price)

i USUALLY OFFER 85% of my MPP initially which would be $43,350. As long as you can acquire the property for no more than your MPP of $51,000, you will make money. Also, never be embarrassed of any offer you make. The seller will either accept it, decline it, or counter offer with another price based on your offer.

6. Making offers

I would recommend setting up an LLC and making offers in the name of the LLC. I would incorporate in Delaware or Nevada. Should be around $300 if you go to incnow.com. They will handle setting up everything for you. I have personally used them, and they are great.

Keep in mind that when you make an offer, you will be required to put up some earnest money as a deposit. If you are offering on home owned by an individual, it can be from $10-$100 or more, that's up to you and the seller to negotiate. If you are buying a Fannie Mae property, they require a 10% deposit of the sale price. This is NON-REFUNDABLE from Fannie Mae. If you are buying an REO(bank owned property), typically they want $1,000 for earnest money. Make sure you follow these steps and have your cash buyers in place prior to making any offers. If you make an offer on a property and it gets accepted, and for some reason, you can't find a cash buyer, you will lose your earnest money, and you may get blacklisted temporarily or permanently from making offers through whatever company you had to bail on. ALWAYS do what you say, follow through, and close when you make an offer. Reputation is HUGE in this business. Your agent will submit your offers for you. Make sure that you have a POF(proof of funds) letter before asking your agent to make an offer for you. Most people or companies will reject your offer if you don't submit a POF letter with your offer. Details about POF and funding in the next paragraph.

You will also need transactional funding, which is a MAJOR deal and a very important part of being successful as a wholesaler. Transactional funding is funding provided by a company who agrees to fund your deal, but typically it will only work when you do a back-to-back/double close. This means you close on the property on the closing date in the morning with the seller, and then you turn around and close with the buyer later the same day. Make sure that the title company you decide to work with is familiar with this type of closing. If any title companies tell you that those types of closing are illegal or not allowed by law, they are lying to you. Just keep looking until you find a title company that does them. They are 100% legal, and they are done every day.

Do a google search for transactional funding companies. Most of them really have no requirements as far as job time, credit, etc. As long as you have a purchase agreement between you and a seller, and a purchase agreement between you and the buyer, you shouldn't have any problem. Please note that once you have both purchase agreements, the transactional funding company may need up to 7-10 days notice prior to the scheduled closing date at the title company in order to have the funding ready for you. Make sure everything is in place and in a timely manner.

7. Selling to a cash buyer

Once you have made an offer and gotten it accepted, now you need to IMMEDIATELY start contacting your cash buyers to find a buyer for the property. This should be your one and only goal once your offer is accepted. If you cannot find a buyer and get them to sign a purchase agreement within the first week, drop the price. If you cant find a buyer by the end of the second week, drop the price to what you contracted to buy it for. You need to do your best to ALWAYS close, even if you don't make anything, at least your reputation will still be in tact.

Once you find a buyer, get them to sign a purchase agreement with you. Let them know that you require a $2,000 deposit form them. This will let them know that you are locking them into the agreement, and that if they bail, that they will lose their deposit. Once you get a signed purchase agreement from cash buyer, then talk to your agent and make sure that they get everything to the title company they need in order to close on time. You typically have 30 days to close on a property once your offer is accepted.

7. Closing and getting paid

Once everything is in place, you will show up at the closing in the morning to close on the purchase, then you will come back later that day to close with your cash buyer. Once everything is complete, the title company will either give you a check for your profit, or wire it to your bank account. If for some reason the buyer bails on you, and you are stuck with the property, let your agent know as soon as possible via email that you will not be able to close on the property unless you can find another buyer before the closing. Your agent might be mad at you, but better than not showing up for closing at all.

I know this is a lot of information, and I hope I covered everything, but hopefully some of you will find it helpful. Good luck everyone!