Wholesale deals in real estate provides quick cash profits with reduced risk. Just match up sellers and cash buyers (other investors). You don't need to hire contractors, complete repairs, or deal with picky buyers needing financing. Your credit is irrelevant and there are zero carrying costs. It's a fast start for beginners and a quick solution for experienced investors needing cash flow now.
Control without ownership lets investors make money on properties they don't own because they are not selling the properties -they assign the contract (paperwork) that controls the property's sale. The contract's equitable interest gets assigned to your buyer (the assignee), and you collect an assignment fee and your buyer closes on the property. Provided that you use the correct contracts you'll instantly reduce risk because you never take possession or own the property; instead, you control it.
Basically there are 6 steps.
Your first move is to find reliable cash buyers.
Generate motivated seller leads, negotiate with the owner and get the purchase and sale contract signed.
Do due diligence on the property, analyze the numbers and find comps for the property's current market value.
Estimate repairs and (ARV) after repair value of the property.
Assign the property to an investor on your cash buyer's list.
Hold the seller's and buyer's hands until the property closes.
The secret to a powerful cash buyer list is to know what your wholesale buyer wants then find real estate deals that match. Locate and mine for leads the hot areas of town where all the investors are currently buying and the areas where investors have just started buying. Your fave investor friendly Realtor can supply this information or you can get it from an online source like Realeflow.
Contact these investors and place them on your cash buyer list. Or refer them to your website to sign up and enter their
buying criteria. When you have wholesale deals in real estate available, they'll
be automatically notified. Here are 14 ways to find anxious cash buyers and grow your list.
Contrary to what most believe, you don't need thousands of cash buyers; just a few serious ones will do. Look for investors who reply quickly, who already have a buy and hold portfolio of rental properties, or investors that rehab and then sell the property to an end retail buyer.
Find motivated sellers and their current contact information using online software with a skip tracer service to generate leads. Look for the types of properties that you already have buyers lined up and waiting on.
Sometimes, a search, like for probates, will bring back all
different types of properties, some of which you may not have a buyer
anxiously waiting for on the sidelines. This is when to do a little
reverse engineering. Search
for investors, LLCs, and trusts that own properties in the neighborhood
and surrounding areas. Contact them through direct mail or phone and let them know you have a contract on a property in the vicinity of one of their rental
properties and would they be interested in buying more properties. (About 85% say yes)
speculate on the numbers when wholesaling. You'll want to look at ROI, potential cash flow, and capitalization rate. These are the same factors your cash buyer (assignee) will calculate to see if your wholesale deals in real estate are worth their cash investment. Here's how to analyze the numbers.
Due diligence is important. Not only do you need to analyze the property you also need to check the title. An investor friendly title company will charge a small free. Later, after you've closed multiple properties through their office, the fee will be waivered.
Get comps. Use a Realtor, the multiple listing service (MLS), online software, and county property appraiser. It is best to look for current comparable sales with the property in the same condition as the one you're about to place under contract. With these numbers, the repair estimate and the amount of assignment fee, you'll determine the maximum allowable price. (MAP)
Properties in excellent condition and in the same neighborhood as the one you are about to put under contract represent the after repair value (ARV).
Here's the details about finding comps.
The buyer (assignee) will want to hold the property, rent it, rehab it, or sell it to a retail buyer. There needs to be a big enough pie (profit) so that everyone gets some. Remember, wholesaling deals only works when everyone wins, you, the seller, and your buyer (assignee).
Complete a repair or rehab list with itemized materials and approximate costs. The more information you can provide about the property's physical condition, the easier and faster it will be to assign the contract.
It is also vital to represent the rehab amount concisely, so there are no misunderstandings. It establishes trust with your buyer and shows that you're a professional. No one likes to have their time wasted. Plus, you want a fast turnaround time, and you want to assign the contract now! So, send accurate property descriptions, pictures, reports of comparable sales, ARV, rehab estimates, and closing costs to your cash buyer.
Secure your wholesale deals in real estate and control the property with a purchase and sale agreement. Negotiate and write the contract with the property owner. Use a sample purchase and sale contract. To limit liability and save on taxes, write the contract using your LLC or Trust. Do not put your name on the contract or the name of your real estate investment company.
Not commonly known, but all contracts to purchase real estate are assignable unless stated explicitly in the contract that it's not. In most cases, if you are buying real estate from a bank, mortgage company, or a Realtor, the contract will contain a non-assignability clause. Find out how to legally work around non-assignable contracts.
Be sure your contract includes permission to show the property to prospective buyers. However, if your cash buyer's list has serious experienced investors all they'll need are comps, repair estimates, pictures and a video.
Get out your trusty phone and make a video. Walk through the property inside and out, show the good and the bad- you want your cash buyers to have an immediate idea of the property's condition. Also include a view of the street and surrounding properties. Send the video to your cash buyers list and post to your social media accounts.
Use An Assignment Of Contract
With wholesale deals in real estate, the buyer pays you to sign over the contract to them. Use an assignment of contract, once this form is signed, the buyer steps into your shoes. All the rights you negotiated in the original contract transfers to the new buyer (assignee), trust or company automatically.
Make sure your cash buyer is serious. Get a large, non-refundable escrow deposit- $ 5,000- $ 10,000 depending on the sales price. This creates a strong level of commitment from your buyer to get the deal closed.
Also, get a proof of funds (POF) letter or statement from their bank showing where the money is coming from for closing.
After you have assigned the contract, keep in touch with both seller and buyer (assignee) oversee that all the paperwork gets to the title company, all questions addresses, and all parties are ready to close.
If you collected an assignment fee at the time you signed over the contract to your buyer then, you're done with the transaction. However, most times, you will not get fully paid till closing.
When assigning a contract, your profit is disclosed to both the buyer and the seller. It's not always a good thing, especially if the assignment fee you're about to receive exceeds $ 7,000. In this case, a simultaneous or double closing is a better choice because it'll keep your assignment fee private.
The simultaneous closing is highly effective when a Land Trust or LLC is the buyer on the contract. You assign your beneficial interest of the trust over to whomever you're wholesaleing the property to. Plus, it resolves all seasoning issues since there is never a break in the title chain. Also, fees will be lower because it's recorded as a transfer, not a sale. And You, as an investor, are limiting your liability.
It can be a lot to keep track of, especially if you have several assignments going on at once. That's why we suggest that you do it right. Use a team of skilled professionals, automated systems, and real estate investment software to get your wholesale investment business racing like a Maserati.