After several articles discussing different investment strategies, we have finally come to one of the two investing techniques that I believe the new investor would be wise to consider. In this article, I will talk about wholesaling.
The new investor will find that the wholesaling strategy will allow him to enter the market more easily and with concepts that are easier to understand. There will be less risk and will require very little money.
The process is quite simple. You find a property that needs a lot of work and can be purchased under the market price. You put the property under contract and assign your contract to another buyer, someone who will take your place in the deal. This new buyer will probably fix the property up and either sell it or rent it out. Then, the property is flipped to your buyer for a price a little higher than what you paid for it.
Each part of this process needs some further explanation, so we will break things down to understand how it all comes together. But first, I want to mention an even easier way to get started using this technique.
Being A Scout
The scout or bird dog can enter the investing market by looking for properties and selling the information to the wholesaler. In this role, he can become an expert at locating houses that fit the investors criteria. As a scout he learns the market, how to locate properties and what neighborhoods to target. He will also receive a good education as he works closely with the wholesaler, seeing other aspects of how the deal is processed through to the end buyer. There are some beginners who become scouts and decide to do nothing more. They become experts at locating houses, which is the most difficult part in the process. The best scouts get paid very well for their services.
Find The End Buyer
The first step in the process of wholesaling is to research your market to find out what kind of properties your end buyers want to buy. This step will save you time and no doubt frustrationby looking for houses that you can pass on to other investors. You don’t want to put properties under contract that no one else wants to buy.
I would suggest that you develop a system to locate you end buyers. One way to do this is to place an ad in your local paper that would advertise a low end property for sale. This ad would generate many calls. From the calls, you would screen each caller to discover which ones fit your criteria as a potential buyer.
If they ask about the property in the ad, you can say that this house is not currently available, but you will have other houses from time to time and would like to know if you should contact them when you do. You could develop a sheet with questions for the prospects when they call.
Find The Property
The next step is to go out into the market place and find properties that your end buyers want to buy. Generally, these houses will need a lot of work. You will have to learn the difference between cosmetic and structural repairs. Many investors who do repair work, will avoid properties that need structural repairs. Along with knowing this difference, it will also be necessary for you to learn how to estimate the repairs that will be needed to get the house ready to sell.
You should focus your search by looking for people who have problems and a property associated with them. Search out people who are in financial distress as a result of job loss, divorce, medical bills, etc. These people may need to sell quickly. You need to discover where their pain is coming from. In other words, why are they wanting to sell. Knowing this, will give you an edge in the negotiations.
You could also drive neighborhoods and look for vacant or abandoned properties. Look for lawns with high grass and papers that are still in the newspaper holder. There will be other obvious signs that will give clues that the house is vacant. You can check with the neighbors to discover who the owners are and how to get in touch with them. If you can’t get any information from the neighbors, write down the address and research the public records to see if you can determine who the owner is and how to locate them.
You could also send direct mail pieces to Absentee homeowners. These are owners of houses who do not live in them, but the tax notice is sent to where they reside. There could be motivated sellers just waiting for your mailing to arrive.
Once you are successful in obtaining a signed contract, it will be necessary to take it to a title company or attorney so that the title can be checked. This is very important to do. You want to be sure that the person who signed the contract is the legal owner of the property. You will also be checking to see what liens are currently on the property. Whatever you find could affect the contract price that you and the owner agreed upon. There could be hidden or unknown liens that the seller wasn’t aware of. You will never want to present a property to a perspective buyer before you have the title work completed. This is unprofessional and could negatively affect your credibility among other investors.
Contact Your Buyers
From your buyers list that you put together earlier, call each of then to see if they are interested in the property. Remember, these are the investors you contacted to discover their buying guidelines, they are the best candidates for your property. If by chance you don’t find anyone interested, you could place an ad in your local newspaper. Your phone should ring off the hook, so be prepared for the calls.
The interested buyers will want to look at the property, so you will need to set up appointments for them. Even though you have done your own analysis of the work that needs to be done and expenses associated with it, they will want to evaluate the property themselves to prepare a cost estimate of their own.
Negotiate With Your Buyer
Once you have a verbal agreement with your buyer, you must put it in writing. This contract will be separate from the one you signed with the seller/owner of the property. Your plan will be to assign this contract you have with your buyer, over to the seller/owner. All this will be handled at the closing. You just have to make sure that you present to the title company or attorney the proper paperwork.
At this point, you take the signed contract you have with your buyer back to the closing agent and you set up the closing. You will communicate the closing date to the buyer and seller. The closing agent will review the paperwork to be sure everything is in order. I would recommend that you keep in contact with the closing agent as the closing date approaches. You don’t want any last minute snags before the closing.
The day has finally arrived. You should personally attend the closing. You not only have a check to pick-up, but your presence there will help the process go smoothly. The buyer and seller have probably not met as yet. You have been coordinating the whole process. It may even be that the seller did not know that you were going to assign the contract to another buyer, so you need to be at the closing to answer any questions that may come up.
In my experience wholesaling , I have found that it is easy to understand and not to difficult to coordinate the process from the beginning to the closing table.This technique requires very little money and the level of risk is low. For these reasons, I am going to recommend this strategy for the new investor. However, my article has only scratched the surface of this technique.In future articles, we will discuss each step in more detail.
At this point in this series, I have written all but the last article. I have in my opinion, saved the best for last. It is the investing technique that I personally favor and the one I work at presently. I hope you can join me for this discussion.
If these articles have been helpful or you have a question or other comment, please leave it in the comment box. Thanks.
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