Getting started as a real estate investor can be a little scary – unless you’re not actually buying the houses. That’s right you can not buy the house and still make money by using an amazing technique called wholesaling. This gives you the opportunity to earn while you learn but without any of the risks which could be associated with actually buying a house.
With a wholesale deal, you can make $3000 to as much as $30,000 or more in as little as 30 days. My 18 year old daughter made $12,000 on her first deal.
Why Should You Start With Wholesaling?
A wholesale deal is the ideal way to build your confidence and knowledge about the mechanics of a real estate transaction, the paperwork, negotiating, estimating property values, and learning repair costs before you move on to other, more complicated transactions. It’s important that you have a thorough understanding of all these elements to avoid mistakes when you buy your first house to rehab. The confidence you gain by wholesaling houses will help you tremendously when you get ready to take your real estate business to the next level.
How Does it Work?
You find a vacant and run down looking house! There’s no for sale sign in the yard. Through persistence and a little detective work, you are able to locate the owner and negotiate a “risk free” contract to purchase the property at 50% below the after repaired value. Let’s say your contract price is $45,000 and the house is worth $100,000 all fixed up.
To make your contract risk free, you will add a little contingency clause that says you must find another investor who will agree to rehab the house or you will not buy from the seller. Sellers love it when you do all the work for them! Ideally, you will only ask for a week or two to find the rehabber so the seller is not left hanging indefinitely.
When you have a signed contract for $45,000, you then immediately contact other investors who specialize in “rehabbing” ugly houses. Sometimes it’s best to get a little competition going by getting several rehabbers out to the house at the same time for a highest bidder sale or auction. Tell the rehabbers your starting price for the house is $48,000 and it will be sold to the highest bidder. In this example, let’s say that the high bid is $50,000.
When the high bidder is determined, you can either fill out a simple one page ‘assign of contract’ to sell to the rehabber for $5,000. Or you can fill out a separate ‘purchase contract’ to sell to the rehabber for $50,000. You’ll also want to collect an earnest money check from the rehabber which is made out to the Title Company or attorney. All paperwork is turned in to the title company or attorney’s office. Then, about one or two weeks later the transaction closes and you get a check for $5000.
IT’S THAT SIMPLE!
Think of yourself as the scout. You get paid to do all the leg work to find the deals. . For your service of scouting out the deals, you get paid $3000 or more each and every time.
So where do you begin?
To be successful you need to start with the end in mind by locating rehabbers to sell your houses to before you start looking for houses to buy. If you try to find the house first and don’t know any rehabbers to sell to, you’re just setting yourself up for frustration.
Get the weekly papers and look for the “we buy houses” type ads. Go to your local real estate investment club meetings and take time to find the rehabbers. Ask them what part of town they like to buy in and what price range. This will give you an idea of where you need to be looking. Keep a list of all rehabbers and their contact information.
Meanwhile, be on the lookout for run down houses. Some of the best deals are vacant and even boarded up houses. You won’t be able to knock on the door to talk to the owner, but you can ask the neighbors if they know how to locate the owners. You should also search the county tax appraisal records for the name of the owner. Then, your first stop needs to be the telephone book. Call every person with the same last name to see if they know how to locate the owner of the house. If that fails, send a letter or postcard to the owner’s last known address. You should also leave a note at the house just in case they come back to check the house. Be persistent and you will locate the owner so you can negotiate a great deal.
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