How do wholesalers make money

Question

Doesnt the wholesaler have have the same access to trulia, loopnet, etc as the investor? How do wholesalers find properties dirt cheap?

Aaron Mazzrillo · Answer

As a wholesaler, I don't sell houses. I get paid by selling the assignment of my position as the buyer. My ability to find properties which I can put under contract at a price that allows me to assign the contract to a new buyer and get paid for it. I need to leave enough potential equity in the property for the buyer to invest money into rehabbing the property, sell it, cover all expenses of holding and the costs associated with selling, and still make a profit.

Rose Wilkinson · Answer

Davion, you are more than welcome. I am not much of a competor, I am more of a cooperator. :-)

What I mean by that is for one, even though there are thousands of investors looking for deals, there is so much opportunity in this marketplace that there is too much business for everyone to handle.

I have wholesaled properties to investors who also wholesale properties, and they have wholesaled deals to me.

What I absolutely love doing is taking over mortgage payments. You can wholesale those types of contracts as well. Here is an example:

You find a homeowner whose house is worth $100,000 and they only owe $70,000 on the mortgage. They are one payment behind. You can wholesale this deal to another investor and ask for a $5,000 assignment fee.

Basically let's say the investor paid you $5,000 dollars and caught up the home owner for $1,000 dollars for a total of $6,000 investment. Let's say the mortgage on the property is $650 per month and they put the home on a rent to own program for $850 per month. That means the investor would make $200 dollars per month off $6,000 investment, plus have $25,000 in equity!

$200 dollars income per month off a $6,000 investment is nearly a 40% ANNUAL return on their money! That means they will have the entire $6,000 balance paid off in 2 and a half years and have $25,000 equity. Not only that, investors love these types of deals because their is NO mortgage loans, NO qualifying, NO waiting around for 30 days. It can be done as soon as title clears.

I made $18,500 on a deal just like that. You can too. So, even if it is not steep enough to buy with cash, think about the seller signing over the deed to you and letting you take over payments, subject to existing mortgage. Think about how many home owners are out there who can't afford their mortgage! MILLIONS AND MILLIONS!

Even if they don't have equity in the home, advertise it as an owner carry to a retail buyer (not an investor) Ask for 20% of the top sales price down, in this example let's say $100,000. Explain to the buyer you will sell your rights to the contract for $20,000 and that they will own the real estate as long as they pay the mortgage. Tons of buyers out here who have lots of money but can't qualify. Possibilities are endless, my friend.

Am I worried about competition? No. I get 10 to 15 calls per day, and tons of other investors advertise. You just got to find 10 ... 20... or 30 ways to do a deal, and you never have to worry about competition, my friend.

Good luck!!!

Rose Wilkinson · Answer

Drive for dollars. Look for vacant, boarded up, run down houses without real estate agent signs in the front yard. Look up the owner on the tax records and ask if he wants to sell for a quick cash price. If he says yes, use this formula, although it is grossly simplified because I don't know what area you are in:

1. Find out the tax market value of the home
2. Estimate the repairs. (What I do is find out the square footage and multiply the square footage by $20 dollars for a complete over haul) 
3. Subtract the tax market value from repairs needed
4. Divide that figure by 2
5. Subtract your profit from that amount
6. Put the property under contract
7. Mark up the price to reflect your profit margin.

Here is a concrete example:

Tax records say $100,000 
Square footage is 1,500 
1,500 sqft x $20.00 = $30,000 in repairs

$100,000 tax record value - $30,000 in repairs = $70,000 as is

$70,000 as is value (divided by) 2 = $35,000 wholesale price

You must subtract your profit from the wholesale price, so let's say you want to make $5,000 on this deal.

You would offer the owner $30,000 cash, as-is.

Then you would put it on Craigslist for $35,000 and put that it needs $30,000 in repairs for a total investment of $65,000 and that it will be worth $100,000 when fixed.

Hope that helps a little.

Andy M. · Answer

Wholesalers probably spend more time finding deals than most other types of investors. Also good wholesalers will find deals that are not listed publicly. Half of my deals come from private sellers that never had a sign in their yard.

Davion Malwah · Answer

What a wealth of good advice and knowledge thank you both!

Davion Malwah · Answer

Thanks Rose, you're awesome.

So the best deals never end on the internet, I'm game :-D.

Rose is there a lot of competition in wholesaling in your area?

How do wholesalers make money

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