Wholesale - What are the steps?

Question

Hello everyone. I am a Real estate investor and I have been flipping houses for a few years now. Lately my business has been growing and I have other investors that work with me in order to help them make money. However, I have been getting a lot of questions about acquiring properties through wholesale. I had a few meetings and several investors like the idea that I am able to find really cheap properties because of my huge network. They explained to me that they'd prefer buying the off market properties and/or more of the ones I flip (listed properties for cheap prices) and asked if I was interested in the wholesale process.

I have researched and learned a lot of information about the process, but still want a better understanding of how things work.

What are the steps?

How do most people present the wholesale deal to the seller of the property?

How do you keep the end numbers from either the seller and the buyer?

Do you give the buyer the address of the property (for viewing) if you haven't obtained a contract with the seller yet?

What should or should NOT be included in the contracts for both the seller and the buyer?

Thanks in advance for any information, as this will help me transition faster in my wholesale venture! I appreciate any and all advice :)

Laura Alamery · Answer

@Summer Azul

Great questions! I have been wholesaling for over 30 years and the process is simple, once you have a system in place.

Steps -

• Choose the right geographical area. Research (using MLS, Redfin, Zillow) what is the sale activity. You want an area with strong cash sales and low days on the market.
• Build your buyers' list for the areas that you want to concentrate in.
• Start looking for properties matching your buyers' criteria.
• Analyze, negotiate and put under contract (between you and the seller - A to B transaction)
• Deliver A to B contract to the title company with earnest money (tell the title company to open escrow but don't quite order title yet)
• Now market to your buyers' list (your goal is to have a strong buyers' list, where 90% of your properties will sell to your list, not social media, craigslist, other wholesalers, etc. - this is crucial)
• Write a contract with your buyer (B to C transaction - deliver to title company - order title work)
• Proceed to closing

• Your first concern is to put the property under contract with the seller (A to B.) At that point you have equitable interest and become an owner per contract.
• When you deliver the contract to the title company or a closing attorney, you have "witnesses" that you have a contract on the property and deposit earnest deposit as your monetary consideration for the validity of the contract.
• At closing, make sure the title company prepares closing statements to show the transaction A to B separate than B to C.
• You never give the address of the property until you have it under contract. First of all you are not owner per contract yet (equitable interest) and second the buyer could g around you and there is nothing you can do about it.
• Keep the contract short and simple. The only clauses in there should be a business partner's approval contingency (your buyer) within xx days of acceptance of sale contract and of course permission to access the property.

Summer Azul · Answer

@Jerry Puckett Thanks for that tip! I will be sure to throughly go over my contracts and be sure to include the proper wording so that everything goes smooth. I am glad that you pointed that out! ;)

Jerry Puckett · Answer

Please don't do this. If you require "partner's approval" in order to perform, any Judge could declare that you do not have the legal authority to execute a contract. That one could come back to haunt you.

Subject to inspection should suffice and is a part of any standard contract.

John Franczyk · Answer

I use an alternative structure. Locating and negotiating a contract with the seller is its own skill set. I find that the people who do the rehab and flipping often don't want to be involved in that process.

Once I have the property under contract, I contact rehabbers on my buyers' list who might be interested. I then sell the initial purchase contract to the rehabber, with full disclosure of my wholesaling fee and the property purchase price. A good rehabber will appreciate the effort that the wholesaler puts in to finding the property and getting it under contract, and will willingly pay that wholesale fee. This requires knowledge of the market, including how much the rehab itself will cost. The BP wholesale calculator is a good tool for calculating maximum allowable offers and wholesale profits.

I use 2 contracts with the rehabber. The first is an assignment and assumption of the underlying purchase agreement. That document makes no mention of my wholesaling fee, and goes directly to the title company. The second contract is an assignment agreement that stays between me and the rehabber. That document specifies my fee. In an ideal world, I could just sell the contract, collect my fee, and let the rehabber handle everything after that. I prefer to stay involved with the seller, however, as shepherding the property through closing often requires some effort that the rehabber will not want to expend. I get my fee directly from the rehabber at the closing.

This structure requires careful wording in the original purchase contract, i.e. more than just saying that I "and my assigns" are purchasing the house. I include a more thorough clause that allows me an unqualified right to transfer any part or all of the purchase agreement to any third party.

The beauty of this structure is that it requires only a single closing and one set of closing fees, rather than a double close from the seller to me, and then from me to the rehabber.

Full disclosure here: I'm still relatively new at this, but I approach the whole thing from my own personal background of being involved in business financing transactions and closings with all manner of documents and legal issues for 25+ years. When I stepped away from that world, I attended a conference with a wholesaler who suggested this structure, and I find that it works well. I don't know if there is any one right or best way to do wholesaling.

I think that @LauraAlamery's intro is key -- you need to establish a system that you put in place and that works for you. My first wholesale deal, for example, almost went south very quickly because I underestimated the cost of the rehab. Staying involved through the closing gave me an opportunity to do some renegotiation. I didn't make a lot of money on the deal, but I also didn't lose any money.

Sheila Berry · Answer

Thanks Laura, This is very clear. The hard part has been building a buyers list.

Summer Azul · Answer

@John Franczyk Thanks so much for the different examples. I like the method of using 2 contracts with the rehabber (buyer) because it eliminates the double closing (which was the most complicated part I have dealt with so far). I am going to try this method on my new deal next week! I will be sure to keep you posted. Thanks again John :)

Summer Azul · Answer

@Sheila Berry I agree!.. I guess my next post will be "How to build a buyers' list?" haha :)

Summer Azul · Answer

@Laura Alamery Thank you for the detailed answer. You described, what i thought to be a complicated process, in a clear and easy manner! This has helped me to understand the steps and the correct way to go about a wholesale deal. I appreciate you taking out the time to explain :)

Sheila Berry · Answer

@Summer Azul Thanks for the detailed questions they have helped me clarify my own journey. I am not a fan of the transactional close, so 2 contracts will work.

Wholesale - What are the steps?

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