Wholesaling exists in every industry. Think about it: when you go to the grocery store, you aren’t paying the same price for a bag of apples that the grocery store paid. The grocery store is just the middleman. That’s where you come in: to wholesale real estate, you become the middleman. You become the grocery store in this example. By utilizing your network and teaching yourself about the necessary paperwork, you can bring in the big bucks. Let’s break it down:
Get a contract in place with the seller.
When you find a property you want to buy, get a contract in place with the owner. Once the legally-binding contract is in place, the seller has agreed to sell us a specific property at a specific price at a specific time. As long as you arrive at the closing table on that date with that amount of capital, they will be selling their home. It also means that they can’t entertain offers or discussions from anybody else.
Real estate laws are dictated by state law, and some states have some caveats. But once the seller signs that they are going to accept some amount of capital in exchange for their house, they’re obligated in most states to go forth with a sale.
Is my state an “attorney state” or a “title state?”
Once you own the property, your next step is to send the contract to an attorney you trust so that they can begin the title search. In some states, as opposed to sending the contract to an attorney directly, you may need to send the contract to a title company. The title company will effectively perform the closing steps in the same way that an attorney does in other states. It just takes a quick Google search with the keyword “is [insert state] an attorney state or a title state?”
Whether you work with an attorney or a title company, they’re both making sure that the public record communicates that the property can be transitioned to you as the new owner.
Meet with potential buyers and pitch your deal.
While the title search is ongoing, you need to start to talk to potential buyers about this property. This is where the Pandora’s box of opportunities will open up for you! At this point in the process, you will decide whether you will purchase the property directly or choose to assign it.
You can choose the latter, and see who might be interested in buying the property and taking your position in the contract. In this case, you have to spend time talking with various people in your market (or in the market where the property is) to understand if there’s some level of interest in purchasing this property at the given price that would be interesting. You’re in a position to make money by talking to these buyers, and obviously, this is what you want. So you will be pitching this opportunity at an increased rate compared to what you have contracted the home for. This gap would determine your wholesale fee, or assignment fee (they mean the same thing).
The new buyer has to understand that you’re in a position of making money by passing along your contract with a profit, but if the property acquired is worth your asking price, the deal will be done regardless. You want to make sure that this property meets the buyer’s expectations at the full asking price that you’re offering.
Also, don’t forget the contracts have a specific time frame for closing, and you’ll want to find a buyer within that interval to complete the assignment agreement.
Contract to Purchase and Assignment Agreement.
For this type of transaction, you really only need two documents. First of all, there’s a Contract to Purchase that you sign between yourself and the original seller of the property, which is the offer. The second one is the Assignment Agreement which states that you agree with your end buyer to pass the rights that you had to buy that property. This act is the assignment itself.
Once that assignment is executed the end buyer is responsible for completely honoring everything that that contract stated at an inflated price.
Make a list of trustees
As you attend more and more networking events, and set deals in motion, you will want to develop a list of people who are your “VIP buyers.” They’ll be the people who you’ve done deals with before, who you know, were easy to work with, whose financing was easy, whose metrics were right, who didn’t back out last minute, and who you trust.
In the long term, to sustain the valuable business relationships you built, you’ll want to offer discounts to these buyers to ensure that they stick to your deals in the future. At the end of the day, if you make 25k on a deal instead of 30k, you will still do just fine. This way you can secure your future deals within your network.
To sum it all up:
- Talk to sellers and get a property under contract.
- Send that contract to an attorney or to a title office to make sure that your seller is verified.
- Talk to your financial teams or potential other investors to determine what’s the best way to go forward with this transaction. If you decide to go to another investor, you’re going to wholesale this property with an assignment contract. Once the assignment contract is signed by the wholesaler and the end buyer, which dictates a new price at the same terms, the only thing that you need to do now is just be on the team of both the buyer and the seller making sure that their needs up until closing are still being met.
- Signed the closing documents and then the attorney/title company sends out wires.
- Get the check.
- Rinse and repeat!
Are you a visual learner? We’ve outlined this whole process on video here: How Real Estate Wholesaling Can Generate Wealth For You
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