So you want to get started in real estate wholesaling, but you’re not sure where to begin? Today, we’ll give you a step by step plan so you can take the leap into your first wholesale deal.
What is Real Estate Wholesaling?
In a previous blog post we break down the anatomy of a real estate wholesale deal. In short, a real estate wholesale deal is comprised of a seller that is selling an off-market property for a steep discount, a wholesaler that has ratified a contract with that seller to buy it, and a third party investor that is purchasing the rights to that contract for a fee – often structured as an assignment fee. The third party investor will ultimately own the property, while the wholesaler receives the assignment fee for their work in finding the deal and negotiating with the seller.
Wholesaling off-market property can provide a great income and cultivate strong relationships within the real estate investing community. Real estate investors are always looking for good deals, and if you’re able to consistently locate them, you’ll make a lot of new friends.
Step 1: Check Your Local Laws
Not so fast! Jumping into real estate wholesaling without learning your local laws surrounding it could get you in some trouble. Certain states and cities have laws on the books around wholesaling, and it’s important to know them. You may need certain disclosures, licensing, or you may need to close on the property yourself first before you can sell it to another investor (we call this a double-close transaction).
These laws are changing frequently, so make sure you stay up to date to keep your business free of hefty fines or worse.
Step 2: Create A Plan
Okay, you understand your local laws and you’re ready to find a deal. Creating a plan for finding your first deal might look something like this:
- Identify a target area/neighborhood
- Research comparable property nearby – know your numbers!
- Create a marketing strategy to locate sellers
- Prepare the paperwork necessary to write sellers an offer
- Find buyers for your deal
- Set a timeline for finding your first deal to hold yourself accountable
Step 3: Know Your Market
The first part of your plan should be to target a specific area or neighborhood, and understand what property values are in that area. After all, you wouldn’t be able to make a proper offer without knowing what the house is worth. Chances are the sellers will believe their home is worth much more than it actually is, so providing them with more information about the market will help you better advise them and negotiate a fair price.
If you have access to the MLS in your area, this is a great place to find comparable property. Other sites like Zillow or Redfin have tools available to help with finding comparable property sales nearby.
Step 4: Create A Buyers List
Having a buyer available for your deal is going to be crucial to assigning the contract quickly. You’ll want to make sure you have a plan for this. Creating a buyers list can take time and effort. You may employ strategies such as using bandit signs, marketing on social media, and going to meetup events near you. You’ll then need to put together a marketing package for the deal, and start your email/text campaigns hoping to find a buyer.
There are even easier ways to find buyers now. Apps like Wholster make buyers lists obsolete by providing investors the opportunity to save their buying criteria right inside the app so you’ll know right away if there are investors looking to buy your deal. And when you list it on the app, those buyers will be notified immediately with push notifications. Creating listings is easy, and you’ll save a ton of time and money by not fooling around with emails, websites, and text services.
Step 5: Find A Motivated Seller
We go into detail on finding motivated sellers here. If you’re new and a marketing budget is tight, we recommend driving for dollars using apps like DealMachine. If you do have money for marketing, you may utilize direct mail campaigns for outbound lead generation, or Google Ads for inbound lead generation.
Step 6: Putting The House Under Contract
This is where things start to get interesting. You may find a very motivated seller who is eager to sign a contract with you on the first meeting. You may also have sellers that take weeks, months, or even a year (yes, a year!) to sign a contract. Don’t give up on them! Maintain a relationship and continue to follow up. Circumstances change, markets change – you just never know. Maybe you just need to brush up on your real estate negotiation skills.
Getting a house under contract is more than half the battle. Make sure that you’ve negotiated a price that works for all parties – the seller, you, and your end buyer – and that your contract is compliant in the state you’re operating in. As wholesalers, we are here to lift the burdens of property ownership from sellers, not to engage in unethical behavior. Treat your sellers right and you may even receive referrals from them in the future!
Don’t forget to send your contract to a local title company to start title work. You may only have a couple of weeks before contract expiration, so it’s important to line up title work ASAP.
Step 7: Assigning The Deal
You’ve created a plan, located a motivated seller, marketed your deal using Wholster, and signed a contract. And you did it within the goal timeframe you set for yourself – good work! Now you just need to assign the contract to an end buyer (or be prepared to close on the deal yourself) and get to settlement. If you were on top of it, title work is complete or nearing completion at this stage.
You may need to arrange showings with the seller to allow your buyer to see the property, estimate repairs, and do their due diligence. You may consider holding an open house where multiple investors can come look at the home. This can save time, and provide a bit of competition between potential buyers. Once you have a strong offer in hand, you should assign the contract and collect a deposit.
Step 8: Close The Deal
You did it! You reached your first closing on your first wholesale real estate deal. At closing you’ll receive a check for all your hard work, and you’ll have built a couple of great relationships along the way. You helped a seller unload a problem from their life, and another family may soon purchase or rent a nicely renovated home with their family.
In an ideal world, this is what it takes to earn your first check from wholesaling real estate. But, in reality, you’ll encounter bumps along the way, frustrations, doubt, you may even lose a little bit of money. These are the struggles of operating a business and happen to everyone in real estate. Don’t get discouraged! We as real estate investors are in the business of solving problems, and as long as we continue to offer those skills to others (and to ourselves) we will be blessed with opportunity.
How did the experience of your first wholesale deal go? Comment below and share your story!