subject: What You Need To Know About Wholesaling Properties by:Steve Teta [print this page] Well first, what is wholesaling? As a quick overview wholesaling is taking a property that you have under contract and selling or assigning that contract to another buyer for a fee. How does this process happen? First you find a motivated seller and negotiate a sales price around 40-70 percent of the after repair value (ARV), obviously, the lower the better. You then take that agreed upon price and mark it up (depending upon how much money you want to make on the deal). You then market the property to your communitys group of real estate investors. Once you find a buyer, you simply assign the contract to them with your profit documented as an assignment fee. You then forward the contracts to your title company or closing attorney along with the buyers and sellers contact info and tell them to call you once your check is ready.
Finding Leads
There are multiple ways and marketing methods to find leads. In this article I will simply touch upon and mention some of the most common methods. Before doing any marketing to find motivated seller leads the first thing to do is figure out how much money you will have available to spend on marketing each month and create a budget. Once you have a budget you can pick and chose what you want to do for marketing.
Networking: Join your local real estate investor associations and business groups. Meet and network with like minded people and let them know who you are and what you do.
Pass out business cards and let as many people as possible know what it is that you do. You buy houses for cash & fast, etc. just let people know and leave them a card. You never know who may follow up down the road and its cheap!
Classified Ads: At first you can start with your local penny saver, etc in order to keep it inexpensive, then you can work your way to the local newspapers. These are classified ads and should read Ill Buy Your House Today! CASH! Or We Buy Houses! You get the point. Also, dont forget Craigs list, Back Page, and other free online classified sites.
Bandit Signs: This is a simple, cheap and effective way to get your phone to ring. They work. Handwriting the signs seems to be more effective and also saves money. You should write something like Ill Buy Your House Today! Cash!, etc.. Obviously dont forget to put your phone number. Just hang these signs (or us ground stakes) at busy intersections, exit ramps, or at the entrances and exits of shopping centers, etc. Basically anywhere where there is a lot of cars stopped or slowing down so they can easily read them. You may consider getting an 800# and answering service to handle your incoming calls.
Flyers:
Place flyers at bus stops, on bulletin boards at local supermarkets, convenient stores, pizza shops, barber shops, bus stops, etc. Again this is simple and cheap!
Mailers: Mailing letters and postcards to various types of motivated sellers. Most of these lists can be purchased from different list providers. Most can also be found in the newspaper and local courthouse for those who have a limited budget. The types of homeowners and lists to mail to are: Pre-foreclosure, landlords, out of state owners, owners of vacant properties, people with delinquent taxes, people in bankruptcy, people getting divorced, people who have inherited a property, etc.
Billboards, Radio Ads, TV Ads: Obviously these methods of marketing can be costly but effective. When your ready to step it up to this level you should check out different services that offer vanity numbers with nationwide marketing. With these types of services you can sign up for your zip code and all the leads generate for your area will be sent to you.
Buying the Property
So now that you know how to generate seller leads what do you do when someone calls you looking to sell you their house. As far as I am concerned, this is the most important part of all of this. If you dont buy right you will have a very difficult time wholesaling it. When a seller calls in make sure to ask the appropriate questions and gather all the necessary information about why they are looking to sell and everything about the property. You should create or get a seller lead questionnaire to help simplify this step. The next step is to look up information and comps on the property. Then inspect the property and make note of all the needed repairs, etc. Based on all the information you have gathered through your conversation with the seller and your due diligence on the property you can formulate your offer. In some cases you may want to submit a written offer and in other instances you can give a verbal offer. That is up to you. Make sure to have a standard purchase and sale agreement that can be assigned. You may want to check with a local attorney as to the correct contracts and paperwork you should use. Always allow yourself as long of an inspection period as possible. This is gong to be the timeframe you have to assign this contract to your buyer.
Selling the Property
The first thing you should begin doing before you even start marketing to sellers is building a buyers list. Your ultimate objective is to build your own buyers list and enter their names and contact information into a database so when you get a hot deal you can email it out to your list. You can build your list in various ways. It can be done by networking, using the Internet, putting out bandit signs (Handyman Special! Distressed Sale!, etc). This again will make your phone ring and you will begin to build a list of potential buyers for current and future deals. Also, when you have deals, in addition to emailing your list, you can do a voice blast to your buyers phone using services that can do that for you. The key is to have a big list of buyers. This is going to be your bread and butter. You should be continuously doing things that are focused around building and adding buyers to your list.
Okay, so you have a property and a list of buyers to market it to. Now you have a bunch of buyers contacting you about one of your properties. Remember, all we are doing here really is brokering our contract. We are putting a motivated seller in touch with a buyer and getting paid to do it. So, when they call, these potential buyers will want to do one of three things.
They will either annoy the heck out you with a bunch of questions, schedule an appointment to see the inside of the house, or make an offer right off the bat.
Obviously the ideal buyer is the third one. Think about it, we do not own the house yet, so it is going to be a little difficult with the current owner if we have 15 different people who want to see the inside of the property. If you dont have an immediate buyer but yet a handful of people who want to see the inside then you can handle this as you wish. Some people just make an appointment with the sellers for their buyers come by and inspect the house. You can just tell the seller you are sending an inspector or your partner over to see the property. Some people dont like doing this because of fear their buyer will go behind their back to the seller and cut them out of the deal. It does happen, but that buyer has to know it will be the last time they do business with you and word travels fast throughout the real estate investing community. If you are concerned about that happening, you could go there to meet the buyer yourself inspect the house with them if you wish. In your contract youve allowed for an inspection period so it should no surprise to the sellers that you have some people coming by to check out the property.
If youve contracted on the house at the right price then you should come across your buyer fairly quickly. If you havent found a buyer after a while and your inspection period is coming up then you will want to drop the price to try and move it quickly. In other words, if youve marked the property up $15,000 for your profit then perhaps cut it in half. Do whatever you have to do in order to make some money and make your seller happy. Understand that the key to success as a wholesaler is VOLUME. You want to be doing a lot of deals all of the time. So, if you lose one here and there, who cares. Dont get caught up in just one deal. Go after multiple deals.
Okay, so now you have found a buyer for your property. Great. The first thing you always need to ask them is how they intend to pay for it. Cash, hard money loans and conventional financing are the three possible ways someone might purchase your house. The first two make life a whole lot easier and should be sought after the most. Conventional financing can be a nightmare but that doesnt mean it cant be done as a last resort. The reason is conventional lenders will not accept an assigned contract and that is exactly what we have. So in order to work with a buyer who is using conventional lending we have to write a new contract between our buyer and our seller directly. If the assignment fee you are charging is small (under $5,000) then you can just collect that from the buyer right up front. Otherwise, you will need to write up an addendum to the contract that documents your profit. As always you should consult an attorney about this and how to structure the deal. Make sure to structure it so you are still a principal in the transaction somehow (since you are not a licensed realtor).
With cash or hard money you should always get a non-refundable deposit up front (at least $2,000) which is made out to you or if the buyer insists your attorney or title company. Once you have your deposit and contracts send all the information for both your seller and buyer to the title company or closing attorney. They should be able to handle all the details of the closing. At this point the only thing you should have to do is sit back and wait for them to send you your check.
About the author
Steve Teta is the owner and Founder of STS Real Estate Solutions, LLC and is an active real estate investor and wholesaler. To receive more information and your FREE report entitled How To Buy A Wholesale Deal Without Taking A Bath go to: http://www.stswholesaledeals.com/
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