Wholesaling questions - long post

[Brandon Benth]

Hello all,

First want to thank everyone for all the information given out on the forums, I have learned a quite a bit from just skimming through various posts. I do have many questions of my own that I'm sure I can find, but am unsure of exactly how to word in the search bar. I'll ask my questions using my current situation just so I'm able to keep them concise!

I'm a total beginner. I've done some research into STR, but have heard that those are becoming more and more scrutinized by various markets, and have ultimately decided to scratch that strategy (at least for now).

Anyway, we now have an opportunity to look into purchasing our forever home, one that we've had our eyes on since we moved to our town 3 years ago (we were aquainted with the owners and knew they would be selling soon). If we were to move forward, and ultimately purchase the home, it would certainly hold up any plans of investing through LTR, STR, Fix/Flips, etc. because our money would be a little tied up. This has pointed me toward Wholesaling, as my understanding is you need little to no capital to get started. I believe I understand it correctly in that it is about putting a property under contract (with the contingency that if you don't sell the contract in a certain amount of time, you back out), then selling that contract to an investor with the property price plus a 'finders fee' who would then flip the property to resell for a profit.

My questions would start with things like:

Where to find your investor/buyers? How does one start creating a buyers list?

Where can a wholesaler find off-market deals? I'm mostly on Zillow or Realtor, are those good options?

Are there contract templates that anyone could share? Would BiggerPockets have one somewhere that I haven't found yet?

What is needed for a business side of this strategy? Would I need to start an actual business with the state for this type of strategy? Or could I do just fine as an individual?

Would any profits of this be taxable? Would starting a business for Wholesaling be a better idea tax-wise?

I see the online guys saying 'Virtual Wholesaling' and promoting their 'programs' or 'groups' but I just don't believe that those things are the end-all-be-all. Or is there anyone out there who has seen success in these? I assume they would work as your buyers list?

I'm not sure if this is the way to go, but with the potential to start out without much/any capital, it sounds like a decent place to start to earn a little extra income and do a good bit of networking at least.

Thanks again everyone!

[Jacob St. Martin]

Hello Brandon, I do not wholesale but I am very well acquianted with the process and can answer these questions: 

1. Investors find buyers by networking. It is really important to have a solid list of buyers, or one really good buyer with crystal clear criteria that you can go out and meet, before you get a deal under contract. In order to find these people you need to go to as many real estate meetups as you can, make posts on BP to connect with people, there are also some softwares that let you look up homese in a particular area that were puchased in cash. If you see a bunch, you could cold call the person doing that. 

2. Zillow and Realtor are deals that are on the market, not off. Unless it is in the for sale by owner section, which is often empty, every one of those houses is listed by an agent who is trying to get top dollar for their client. While there are some people who have wholesaled deals that are on market, it doesn't normally work well for a lot of reasons. First, if everyone can see it on market an investor in that market would just buy it if they thought it was a good deal. Second, wholesaling normally works because someone is desperate to sell their house and for some reason can't sell it on the MLS where they would get more money. This could be that it is in such bad shape that it can't be sold on the MLS, they need cash NOW and can't wait for a typical closing period etc. Additionally, your job as a wholesaler is to make everyone happy. This means that you buy the seller out of a problem, collect a fee for yourself, and get the investor a deal way below market value. Most deals on the MLS are listed at or right around market value. So it is really really hard to get a deal this way with enough meat on the bone to make everyone happy. Like I said it is possible though.

When it comes to sourcing off market deals there are many ways but here are some examples: Direct mail, driving for dollars, door to door, cold calling, physical ads like signs, online ads, etc. You are trying to find people who's houses aren't on the market and are motivated to sell. This is hard work and that is why you get paid a wholesaling fee. Cash buyers don't want to deal with this process but want the deal that is well below market value. 

3. There are contract templates out there. BP may have one, but normally forms are only for pro members. You can find a bunch of free ones if you search online though.

4. You do need to have an LLC for this but the good news is that setting up an LLC is really easy. There are tons of articles online about how to do it and you can even pay a little extra to have someone do most of it for you. It takes like an hour or two and then you have to wait a day or two.

5. All profits are taxable, unless you can manage to buy enough property and hold it to get enough depreciation to wipe out your income from wholesaling. 

6. Wholesaling can most certainly be done virtually, and some/most of these groups could help you be successful. However, these types of things only will help you if you have decided and committed to wholesaling, even when it gets hard. They also almost all cost money (at least the good ones), so if you have no money to start this is not the best option. They also are not your buyers list, they will give you the contracts you need and teach/coach you through the process of wholesaling while holding you accountable. 

In my opinion, wholesaling is not a good way to casually make some extra side money. It requires a lot of effort and substantial follow up. You might need to send out mailers for 3 months before you get a good lead and then you need to have the skills to close on that lead and have a buyer. However, a lot of people make a lot of money wholesaling, and you could too if you commit to it and don't give up. 

Here are some other options to think about:

1. Is this home so unique that you will never have an opportunity like this again? My best advice would be for you to house hack and keep buying more house hacks until real estate has made you enough money to buy your forever home and still have lots of cash flowing assets. Is there really not another home that you would like more?

2. If you know the sellers maybe they would seller finance to you or do some other sort of creative financing that might allow you to do both?

3. Maybe look into a flip? In my opinion this is a little bit easier to do casually. You can find a property that needs a lot of work on the market, or sign up for a wholesalers list and get that deal from them, do one flip, and you might make enough for the down payment on your house or another one. 

4. If you want to do wholesaling, go for it! 

I hope this was helpful, please feel free to reach out if you have any additional questions and please give this post an upvote because I spent a lot of time on it haha.