Wholesaling: The best kept secret
In recent years, the idea of flipping homes has become a passion for many—including mainstream media. Television shows such as Flip this House, Flip that House, Property Ladder, and Flipping Out have provided viewers with an inside look into this lucrative field of real estate investment. Admit it. After watching one of these shows, you probably have even entertained the idea of jumping in and giving it a try. It looks easy, right? So, what is stopping you?
Flipping homes, particularly foreclosure properties, remains a great way for a beginning real estate investor to enter the arena of real estate investing. It is not an exaggeration to say that a large number of people have enjoyed success by flipping foreclosure homes. These people tend to share a common characteristic. They all have a propensity for being highly motivated individuals; and not just motivated in the sense of simply wanting to succeed. We are talking about a motivation that drives them to take the time and devote their resources to learning about the foreclosure process, to carefully establish the best real estate buying criteria that allows them to select the most potentially profitable properties from the various real estate listings, and to persevere even if the first few attempts do not yield the results they expect.
If you are looking for an easy, get-rich quick scheme, then stop reading right now because buying foreclosures and/or flipping homes is not going to deliver those results for you. Lasting wealth takes time to build and if you are looking for a shortcut, you will be sorely disappointed. However, if you have a genuine desire to succeed and can put in place a good system for buying and flipping properties, you are likely to do well at flipping homes.
At this point, you may still be setting on the fence, knowing that at this moment you lack the knowledge, finances or expertise to start flipping homes on your own -- and chances are you probably do if you are new to real estate investing. However, that doesn’t mean you have to continue sitting on the side lines while others make money flipping houses. You can still get involved and make some money while learning the process. How? Through one of the best kept secrets of real estate investing….wholesaling.
Wholesaling real estate has you basically playing the role of “middle-man”. Simply put, you are going to find a property, put it under contract, and then assign that contract to another buyer who will close on the property in your place. So, at no time do you actually own the property, but you will be able to make an attractive assignment fee for putting the deal together.
Here’s how it works. Say you locate a property owner who is experiencing severe financial distress. They need to sell their property quickly before it enters the foreclosure process. The property is worth $110,000, but you are able negotiate a buying price of $60,000. You fill out a sales contract with the seller that lists you as the buyer and you put down a small deposit at the time of signing.
Then, you go to working lining up an investor who is willing to buy the home, invest the needed funds to rehab it and sell it. Using our example, you know the house will sell at $110,000 in good condition. You find a rehabber willing to invest approximately $10,000 in repairs to bring it up to market value. You also know that this particular rehabber generally pays 65 percent of market value for similar properties. Therefore, you know you can sell it to them for $71,500. The rehabber agrees to buy the property at this price. This gives you an assignment fee of $11,500 for basically connecting two parties interested in doing a deal.
The beauty about being a real estate wholesaler is that you can begin to learn the process of flipping homes from the ground up without having to initially layout a large sum of money or assume a high level of personal risk. Remember, the only cash you laid out was the initial small deposit to the seller. Additionally, your strong network of investors and rehabbers you initially sell the properties to can become a great source of inside information and expertise when you are ready to take that leap to becoming a full-fledge investor or rehabber yourself. It is a great win-win situation for all involved and an idea that definitely warrants more thought.