House Wholesaling for Dummies
We’ve found that there is so much conflicting information out there about what wholesaling is, how it works, and everything in between that we wanted to take a few minutes and make it SUPER easy. After all, that’s what we’re for. Buckle in, here’s your crash course on house wholesaling.
First, you start out by putting banner ads everywhere, putting signs up in a neighborhood, “driving for dumpsters” (NOT DOLLARS), or sending out a bunch of mail (our way). However it is that you’re going to establish a potential lead pipeline – you do that.
From there, you contact the seller. You establish that the seller does want to sell you their house (nice!) for $150,000. You know that it’s worth $200,000 (even nicer!) so you’re ready to move forward. Now you have three choices, or the three types is businesses that I want to talk about here that technically fall under house wholesaling.
The first one is called an assignment.
What you’re going to do is mark it up by $10,000 and sell it to people in the market who are going to turn around and do something with it. These are the “HGTV type people.” They’re going to clean it up, renovate it, stage it, and sell it. When they sell, they’re going to sell it at retail price (read: takes a while) with a realtor. In this instance, you’re getting paid out of escrow. This is because you’re getting a purchase agreement (PA) and “assigning” it to this HGTV type person. They’ll pay you $10,000 on the buy side, and you’ll be on your merry way since you aren’t representing anyone.
Option number two is to buy the house.
There isn’t much seller contact here, you just tell the buyer “I’m going to buy your house for $150,000” and close on it. There is no realtor involved, so you don’t need to worry about fees, etc. As soon as your purchase the house, you turn around and sell it to someone in a group of people that you’ve already pre-established as credible, viable buyers with who are ready to purchase (with cash). They’ll likely already have their own team of inspectors, etc. ready to take on the property because they’re usually professionals in the world of real estate.
With option number two, you have the luxury of charging a little bit more because you’re in charge of the deal. It’s important to note though that here, you aren’t price-gouging at all. We leave that for the HGTV type and the retail people – we’re wholesalers. These deals do ten to take longer, but here you’re making more than you were before. In this example, you would be making $25,000 instead of $10,000. And – you’re still well below what the house is worth.
The third way is to institutionalize the wholesaling.
If you think about, for example, McDonald’s, they have buildings of people who help them buy expensive property (or property in expensive areas) that they want.
In the third option for wholesaling, you’re essentially setting up an outsourced acquisition department. You’re truly acting as an acquisition arm for the HGTV people or bank branches (Jill and Steven work with a few of those), home builders, or whoever else you build a relationship with to head up the acquisition part of their deal.
That’s it! The three main wholesale business types explained. As wholesalers, we always have control over the deal, but we never price gouge. This is possibly where some of the confusion on wholesaling has historically come from. That’s not how this business model works. We do so well with our acquisitions, sell, and move on to the next one. If you were to price gouge, you more than likely wouldn’t last very long in this business because you wouldn’t have the buyers that you do.
You did the hard work. You set up the mail, paid for the data, paid for the mail, talked to the seller, and handed it to the buyer on a silver platter. These deals are investor to investor, and done in days. Now you’ve built a mutually beneficial relationship, and this buyer is going to keep coming back to you over and over again. Just ask Jill and Steven.
If you have any questions, please feel free to post them over in our House Academy forum. Steven, Jill, myself, and the rest of our staff are in there daily answering questions.
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