What are the mechanics of a wholesale deal?

Question

I've looked all around BP and have read a LOT about wholesaling. I understand the principle strategy to be the following:

Buy a house on the cheap, then immediately turn around and sell it to someone who has the time/money/experience to renovate and flip/rent it.

What I don't understand and have had a very hard time learning about is actually how to do this. I've read about title companies, real estate attorneys, and banks being involved, but really, where do you go once you have a good deal and a buyer who you know can buy it?

I'd love an example, if someone could provide it. Let's say I find a house I can buy for 100,000 and I know someone who will (and can) buy it for 103,000. What's the process? Where do I go? What paperwork do I need and where do I get it? How much money will I need, etc.

Thanks!

Brionne Moss · Answer

Hi @David Grimm,

I'm pretty new at wholesaling so my answer is based off reading, but here's my go at it.

So based off of your example, you've already put the house under contract with the seller and have already found a buyer of interest. You would then need a separate contract with the buyer. There are several contracts for use that can be found on BP fileplace. Many choose to go with that 1-2 page contract since it is much more comprehensive. You also can choose the official state contract you can get from a local realtor.

In this contract, it pretty much states the buyer is completely taking over the contract you made with seller. You have the option to request a non refundable deposit (1 or 2k), with the option of refund only if something goes wrong that is out of the buyers control. Other than that it's pretty much a security blanket. The buyer should make the check out to the title company. Some wholesalers request it and some don't. It's up to you.

Now depending on your state, you would either have an investor friendly title company or attorney familiar with the wholesaling process already on standby. You will go to them to begin the closing process. In most cases, the wholesaler has the buyer pay for all fees including title expenses, closing costs etc. This means you aren't coming out of pocket at all. If all goes smoothly, the  title company ends out the necessary documents to the buyer and seller and proceeds with closing. You are not required to be there. You should then see your check in the mail shortly.

Hope this helps!

David Grimm · Answer

Thank you for your quick responses!

Thanks @Kyle J., I'm definitely going to look at that guide. @Brionne Moss, I appreciate the time you put into your response! As far as I know, everything seems about right with what you said. I'm going to look for some title companies or attorneys here who work in this area.

And yes @Renee Cato, that is one of the things I was wondering about. Thanks for the added clarification!

Renee Cato · Answer

@Jeremy Tillotson, would he state the $3k on his assignment contract to end buyer only OR would his purchase and sale agreement with the seller state the $103K  amount and then broken out as $3K on the assignment to the end buyer?

Is that what you're asking @David Grimm?

Kyle J. · Answer

BP has a guide on this topic that should answer all of your questions:

The Ultimate Beginner’s Guide to Real Estate Wholesaling

Jeremy Tillotson · Answer

@David Grimmthere are several ways to do it, but with a 3k margin, you would need to have a assignable contract, then assign the contract to end buyer. It really isnt that hard, You also could buy and close on the property and then resell it.

Jeremy

Renee Cato · Answer

Thanks @Jeremy Tillotson!  So, the purchase and sale agreement states the price of $100K; the assignment document states $3K. When marketing the contract/property to your buyer, you state the total price is $103K.

Jeremy Tillotson · Answer

In a wholesale deal where you assign the contract you are selling a piece of paper (the contract) not a piece of property. Without being a broker this terminology could get you into trouble in some states. Therefore you would assign the contract you have in place of say 100k to the end buyer. The end buyer would pay you (r have title hold in escrow) the 3k at closing you would have 3k. Either way buyer is paying 103k total,  but is still only paying 100k for the property, he is paying you 3k for the right to take your contract and buy it at 100k.

Not a lawyer or accountant so no legal or financial advice.

David Grimm · Answer

Thanks @Jackie Lange, that helped to clarify the process. I did not know there were two ways to close.

Jackie Lange · Answer

It is really MUCH better to build a buyer's list first.. then go looking for houses.  When you build the buyer's list, ask where they prefer to buy. Then only go looking in those areas.  It will increase your confidence in writing the contract to buy (with a contingency clause), if you know you have 4-5-10 investors who want to buy in that area.

You have several ways to close.

1.  assign your contract.  but you will still get paid by the title company when it actually closes

2. simultaneous close.

If you assign your contract, the buyer knows exactly how much profit you are making.  It has been my experience that the buyer will resist paying more than $3k, maybe $5k. The seller also knows that you flipped the contract and made a profit.  This could kill the deal UNLESS you have been up front and honest with the seller from the beginning to tell them what you will be doing.

If you do a simultaneous close, neither the seller or the buyer knows what your profit is. And the seller will not know that you immediately resold to someone else.  The title company usually closes the buyer transaction first. then the seller transaction about an hour later.

What are the mechanics of a wholesale deal?

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