Not sure if you have noticed but slowly and surely real estate markets across the country are picking themselves up from off the mat and starting to fight another round.
Admittedly, “heat wave” may be a little strong for the market as a whole but not for the investor markets. You see, investors have always played vital roles in all real estate markets and the “investor market” within the larger market will always be the first sign of where the train is really headed.
As for one of the tools helping to fuel this market, wholesaling properties is playing a critical role on the market resurgence and hopefully you’ve added this strategy to your business as it has several key advantages that are worth cashing in on.For those who may be new to wholesaling, here is a quick breakdown of the process:
- You find a great deal and put in under contract – secure the rights to the property.
- You find a buyer to flip the property to whether it be a rehabber, retail buyer, or even another wholesaler for that matter.
- You assign your interest in the property over to the new buyer for an agreed upon assignment fee. (You sell your RIGHTS TO PURCHASE the property, not the property itself!)
- Buyer closes on the property and you get paid the assignment fee.
Here’s what a basic wholesale deal might look like.
- After Repair Value: $180,000
- Repairs: $5,ooo
- Wholesale Contract Price: $100,000
- Purchase Contract Price: $110,000
- Assignment fee: $10,000
In this example, you would put the property under contract for $100,000. You would then find an end buyer willing to pay $110,000 for the property. The property rights are assigned to the new buyer and you get what is left in the middle. And in this example, the assignment fee was $10,000. Not bad for a day’s work!
Now keep in mind, you have to get the property under market value. This example gives the buyer enough room to make a hefty profit after repairs, holding costs, and buying/selling costs.
If you were to sell the an end buyer, however, you could wholesale a deal that has a lot less meat on the deal because they’re not looking to buy houses at 40%-65% on the dollar, like rehabbers are. The good news is that with many of the legislative changes, you CAN sell directly to end buyers either via a straight assignment or a simultaneous closing.The benefit here is that you can sell deals that are much closer to market value AND make bigger profits.
You could also consider selling a “leaner” deal to a landlord, provided the numbers make sense and it has a positive cashflow.
Also, another great benefit of wholesaling is there are very few moving piece in wholesale deals.
We’ve touched on the players above and to recap; you have the property owner, wholesaler, and end buyers. Not very complicated and keeps it simple.
Now you’ll also want to make sure you have you have the right documents to get the job done.
There are two documents that you will want to know inside and out and make sure that are right for the types of deals you are looking to do.
- Purchase Contract, and
- Assignment of Contract.
The purchase contract is what you are going to use to secure your rights to the property from the home owner and the assignment of contract is the agreement between you and the end buyer. The assignment of contract is how you are going to get paid so you will for sure want to make sure this secures you and your interests. (Be VERY careful not to give your assignee ANY wiggle room, and if you can get your full assignment fee up front, that’s all the better)
With that in mind, here are 5 key reasons wholesaling is working for investors all over the country right now:
#1. Ultimate Protection Strategy
Many investors rightfully so are a little hesitant to “get back in the game” after a couple of rough years. Some may have believed that there was just too much volatility in the markets to take the risk and perhaps some are still licking their wounds from a few bad deals.
Whatever your reasoning may be, or maybe you are simply new to investing and want to safely get your feet wet, wholesaling is a great “protection strategy” to get your business either moving again or as mentioned to simply get started.
What is so great about wholesaling is your intent is to flip the property for a profit while never actually “closing” on the property yourself. The beauty of the wholesaling concept is that you can’t lose what you never put in the pot per say, as wholesaling allows you to control the rights of a property with little to almost no money. Literally, you can control a property for $100.
And the fact is if done right, that $100 isn’t even really at risk either! Yes, some will say you don’t even need to risk the $100 dollars and they would be right; but I have found it makes getting your deals accepted a whole lot easier if you have just a few dollars to show a little solvency.
Also, you are never closing on the property so even if you “screw up”, you are out $100. That’s a whole lot easier to take than closing on a house and realizing you made a critical numbers mistake that will cost you $10,000 of dollars.
#2. Easy to Get Into the Game
Wholesaling is also a great tool because it is an easy way to get into the game.
Per the example above, you don’t need hordes of cash to get started in wholesaling. Another kicker is you don’t necessarily need great credit or great anything else for that matter. The only great thing you need is a great deal!
There aren’t many real estate strategies or other business for that matter that you can get started in for less $100.
#3. High Profits
Wholesaling is also known to be one of the most profitable real estate strategies as well. I would even go as far as to argue that if you factor in your effort and time, it is the most profitable strategy out there.
Wholesale deals normally average roughly around 30-45 days to close. It doesn’t get a much faster than that in real estate! And, there is absolute no limited to the profits that you can make so the sky truly is the limit on your deals.
#4. Options and More Options
Wholesaling also leaves you a ton of options regarding flipping the property too.
In the past, generally you were wholesaling properties to rehabbers and sometimes even to other wholesales who would then in-turn do the same and these are both still great options today.
But, one of the great advantages of the current market is that many homes are being wholesaled to retail buyers or end buyers; the person who is actually going to be living in the house.
This is absolutely huge for investors. Your market just exploded and this allows you to not only get more money for your deals with the new increased competition for your wholesale properties, but makes it much easier to actually move your deals. A larger buyer pool and more options mean more deals get done.
#5. Simple Strategy
As mentioned, there real aren’t a lot of moving pieces to wholesaling. This is great whether you are an experienced investor or a newbie.
One of the biggest deals killers out there that doesn’t seem to get mentioned much is over complicating your deals. Complicated scares away would be sellers, investors, and buyers alike.
Keeping things simple will do wonders for your business and your frustration and can also make it a lot more fun and profitable to do your deals.
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