Wholesaling is a Buy Low – Sell Low opportunity where the sell price is higher than buy price. For the investor who ends up buying from the wholesaler, it’s a Buy low – Fix- Sell High opportunity or Buy Low-Fix-Refinance/Rent opportunity. Both the wholesaler and the end investor profit in this win-win situation. Sometimes this end investor may wholesale this property further to a fellow investor.
An example:
Your phone keeps ringing from one of your newspaper ads that reads “We sell ugly houses to investors at deep discount”. You talk to all these investors and ask them the type of property they are looking for and their area of interest. Don’t forget to ask them if can they pay cash and close quickly. Note down all relevant information about this person and add it to your buyers list.
Once you have built a big enough buyers list you put an ad in the newspaper similar to before but this time it reads “We buy houses for cash and close quick”. Your phone rings from the ad. It’s somebody who wants to sell you their ugly house.
You ask them the details of their situation and decide that it’s worth your time to look at the property. You get to the house and negotiate to buy the house for cash at a deep discount. You take out two empty real estate contracts from your file and agree to buy the property for $55,000 in cash and with a closing period of 10 days. Also during the process make notes and figure out what would be the estimated repair cost to bring this property up to date.
Now you get back in your car and call your real estate agent to email you a Comparative Market Analysis Report for a property in resale condition. When you get home you check out an email from your agent saying that the property is worth around $135,000. Now you go in your buyers list and identify the investors who are looking for this kind of property in this particular area. You pick up the phone and start calling them one by one Hi Investor, I’ve found something which might be of your interest …..but you have to move quick. Its a 3 bedroom 1 bath single family house in Englewood at 5757 S Sangamon St. It’s got a brick exterior and needs work of around 30k. After repaired value is around 135k and I am asking 60k. When can I show it to you? The sooner the better? Great! I’ll see you at the property in 2 hours.
Investor likes the house. The investor signs an assignment contract to buy the property for $60,000 cash with closing in 7 days. Your contract price is $55,000 cash. Your profit is $5,000 cash, which you get at the closing table. You just wholesaled a property!
How can wholesalers protect themselves?
After a wholesaler has tied up the property with a contract to purchase, the next step is to protect his position in the deal in case the seller tries to sell it to someone else for a different price or terms. This could be done by recording the contract to purchase at the Recorder of Deeds office for the particular county. The same protection can be achieved by filing an affidavit or memorandum stating that the wholesaler has the contract to purchase the property along with a legal description. This is a better method since it hides the price and terms under which you purchased the property.
What are the reasons why I, as a real estate investor, should wholesale?
You want to get started in real estate investing with no money and very minimal risk.
You can find more deals than you can financially handle.
You are buying more deals than you can financially handle.
About the author:
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Hari Kusumakar is a real estate investor based in the Chicago area. He also runs the most visited real estate investment website. This website can be accessed at www.LocateRE.com. He can be personally reached at hari@LocateRE.com
Very good article, I started out as a birddog and am now wholesaling and acquiring properties. I had no money or credit, just some knowledge and an ability to analyze deals. My only comment is that for birddogs and wholesalers contracts are very important to keep potential buyers from trying to "back door" your deals. Learned this the hard way on a couple of deals.
Pierre,
Thank you for contributing to the conversation. That is an excellent point about ensuring that you have contracts in place to protect yourself as a wholesaler and and birddog because people will try to "back door" you.
Like yourself, I started out as a birddog and had this happen to me as well. It was fine because I viewed it as a learning experience and just never put myself in that situation again. We have an article on Birddogging that covers that point and many others that will be posted in the future.
Please continue to share your knowledge and experience with the group and we will all prosper in the process!
Invest With Passion!
Hi,
I wholesale houses for a living. I use wordpress to get my we buy houses on the top of google.
I just read your response to wholesaling. I want to wholesale property.
Do you have any advise for me so I can do this RIGHT?
Start building up your network of investors that are looking to buy property. That is the key. No need in having a deal locked up by contract if you don’t have anyone that is willing to buy it.
Hello, my husband and I are also in the Chicago area. We are just breaking into wholesaling and we have a pretty good buyers list but we have been looking for properties to lock into a contract. Any advice on what areas investors are really looking to buy in? So far most of our buyers are saying any area, but we have one property that is in the Roseland/Pullman area that hasn’t sold yet? Any advice would be greatly appreciated.
Hello Tiffany,
Sorry for my delay in responding. I have been on vacation.
Anyway, sounds like you two are off to a great start. Investors typically say any area because they don’t want to miss out on an opportunity to view a potential purchase and it is not costing them anything for the chance to look at a deal. In addition, most seem to believe it makes them look bigger than they really are.
The Roseland/Pullman property may be tough to move because there are soooooo many cheap purchase options available in those areas. You just have to continue to work for it to get exposure by continuing your networking. Seems like you two are aggressive in this area.
In my opinion, I think you really need to specialize in a certain target area of your choice. Not sure I would work in areas where the demand for property isn’t so high, but in areas that are extremely valued and likely to be the first to come back once the market does better. I am sure there are buyers in the Pullman/Roseland area, but just not as many as those in the northside or hydepark areas. Yes, these are different price markets, but they are likely to have more serious buyers in them and people that are willing to jump on an opportunity than Roseland when you can wait 5 more minutes and find another deal.
Hope this helps. Fire back any more questions you have and I will do my best to give you my opinion.
Wishing you well!