Wholesaling, and the endless supply of BELOW MARKET DEALS

[Leon Porter]

You are probably asking: What is a wholesaling business? I’m sure that if you are on Bigger Pockets, then you already know what wholesaling is. Now imagine you had an endless supply of properties to wholesale… how you handle that? Successful wholesalers are those who are capable of finding incredible deals and finding them consistently. This usually is the result of relentless lead generation, having a lot of years in the business, or a massive marketing budget.

What if I told you there was an easier way to find incredible real estate deals week in and week out? And no, this is not one of those “get started in real estate with little to no money” deals. This method involves capital. It requires discipline and commitment, and more importantly, it requires an ability to create processes and systems.

Okay, I’ve kept you waiting long enough. The method I’m talking about is purchasing foreclosure properties. Over 4 years, I worked for two investors who purchased an average of 100 foreclosure properties a year and built a business by wholesaling these properties and eventually using these purchases to kickstart their rental and flipping portfolio. This is how they went from one contractor and one part-time wholesaler to building a real estate business that wholesaled over 100 homes a year.

I will focus on the main aspects of the business and explain how each aspect contributed to building a million-dollar wholesaling business.

The Business Model-

The business model was simple: Purchase foreclosure properties at county foreclosure auctions. Each county auctions off hundreds of properties a month and an auction can range anywhere from 1 to 20 properties in a single day. A lot of these properties have a starting bid that is high; more suited for a retail buyer and not an investor. After all, the bank is trying to get as much money as they can for the property. Fortunately, other properties are being auctioned off 30,40,50, sometimes 60% below market value. These were the properties to go after.

Now I know you have a ton of questions; like, how did you know what the property was worth? Did you see these properties before purchasing? How do you know what they look like inside? Are the properties occupied? All valid questions. This brings us to the next and most vital part of the business; The Process.

The Process-

First, it’s important to know that almost every property up for auction is listed on a trustee's website. The trustees include information like the property address, the county it’s located in, the deposit amount, and a copy of the terms of sale. So right in front of you, you have a list of every property that will be auctioned off by a certain trustee usually for weeks to even months ahead.

We would take those properties and break them down by County. We were then able to determine what neighborhoods these properties were in and determine if it was an area our buyers invested in, or the neighborhoods we were looking to invest in. We then eliminated any property outside of those neighborhoods. After we determined the properties in the right neighborhoods, we could then run a rough analysis on each property and determine what the value could potentially be worth after a rehab. Since we knew when a property was going to go up for sale, we could also go by the property and check for signs of occupancy and if possible, gain access to the property if the bank had already taken physical ownership of the property. This was the case about 80% of the time.

Remember earlier when I said you needed capital for this type of business? At a foreclosure auction, you have to have deposits in the form of cashier checks to put down in the event you are the winning bidder. Deposits are held with the trustee while the property goes through the remaining foreclosure process (we will touch on that later), and can be anywhere from $1,000 to 100,000, and on occasion, a percentage of the final bid price. At any given time, we would have 50K to 100K in physical cashier checks at the auctions. These deposits are non-negotiable.

Gathering information on the properties before the auction, allowed us to go into the auctions with an understanding of exactly how much we could pay for that given property. If the property was occupied we might be willing to pay a lot less because we know we would have to spend more to get the tenants out, or if we were able to gain access to the inside of the property we could determine an estimated rehab cost which would in turn help us determine how much another investor could pay and still make a decent profit. The system we had in place allowed us to purchase several properties within a month. However the system was nothing without a team putting it to work, and that is what we will discuss in the next section.

The Team-

Here is a breakdown of the team members and what their role is. Firstly we had a team of VAs or Virtual assistants. We were able to find someone from overseas who ran a company that essentially managed a group of virtual assistants under one roof. The VAs we used would create the list of the foreclosure properties being actioned with specific information that we were seeking. They would also do some research on the properties by using instructional videos we had created and any time we needed a new system created they would help with that.

We then had a couple of employees whom we called field agents. They each had their county and they would drive to certain properties that were being auctioned off and take pictures, try to determine if it was occupied out vacant, check out the condition; and things like that. They would also handle after-action tasks. For example, if we purchased a property and it was vacant, they were responsible for securing the property or taking signed documents to the courthouse for evictions. Their biggest task though was attending the actions. They would be physically present and bid on behalf of the owners. Most of the time the owners were on the phone telling them whether or not to bid.

Finally, you had my role which started as an executive assistant to one of the owners, as it was still early in the company the owner still kind of did everything (Marketing, negotiating prices, answering calls), and it eventually turned into a jack of all trades role. My responsibilities were to market the properties, Craigslist ads, MLS, FB Investing groups, field calls about properties for sale, negotiate with buyers, secure properties (Lockouts), speak with occupants of properties we purchased, file eviction documents with the county courts, really anything that needed to be done was my responsibility. They eventually hired a full-time office admin to handle accounting and some of the administrative workload. Lastly, the biggest part of our team was our title company. We had a title company that was well-versed in assignment contracts and we required all settlements to be done by our title company to ensure the sale was processed smoothly.

The team and the system are what enabled the business to consistently produce, however, the process of buying a foreclosure property is what allowed all of this to work so seamlessly. This is the last cog in the chain that we need to discuss. I am not sure how foreclosures work in other states, but here in my state of Maryland, the foreclosure process is what allows it to be the best strategy for wholesaling properties.

The Foreclosure Process-

The foreclosure process is pretty straightforward: The bank or lender hires a trustee to represent their interest and the trustee has to file specific documents with the county circuit court, and the homeowner has certain deadlines to contest the filings filed by the trustee. The entire foreclosure process can take about 3-4 months. When the property is listed for sale at the auction it’s already about 2-3 months into the foreclosure process. So, after purchase, you still have about 30 to 45 days until you are allowed to close on the property. At the time of the purchase at auction, you have only paid the deposit. During that 30 to 45-day period, we would market the property to our investors for a determined price above what we paid. On average we added 10-15K as an assignment fee. We would then have the new buyer sign an assignment contract giving them legal right to the original foreclosure contract. We would also make them match the deposit we put down at the auction. So if we put down 10K as a deposit, the new buyer would put down 10K for the assignment contract. If we bid at the auction on a property and won the property for 50K, but the current market value was 65k, during that 30 to 45-day time frame before we could close on it, we would assign it for 65K, collect the deposit, and at closing the buyer would pay the 65K, with 50k going to the bank and the remaining 15K coming to us. Later in the business as it became more successful and had revenue to sit more freely, we would purchase foreclosures and keep them as fix and flips or rental properties. We would have the rights to 10-15 foreclosure properties at any given time and had the option of wholesaling them or keeping them for our portfolio.

And that is how a million-dollar wholesaling business was built.