Category: Wholesaling

Categories
Wholesaling

Where to Find the Best Real Estate Wholesaling Deals

Like plenty of new investors, you may have decided to try out real estate wholesaling.

Using this investment method, the turnaround period is short, and you don’t need a lot of money (if any) to start—this is why a lot of first-time investors gravitate towards wholesaling.

However, to be successful at it, you do need to find the best properties for wholesaling. After all, not all deals have an equal potential for giving you the returns you desire. You’ll need to source houses significantly (ideally around 50%) under market value, and for that, you’ll also need to be dealing with motivated sellers. 

Finding these kinds of properties isn’t easy – that’s why not everyone and their mother is out there working as a successful wholesale. But to get you started, here’s a guide to help you source profitable wholesaling deals.

Offline Methods

There are two main kinds of wholesale deal sources: offline and online. Though many will consider online methods to be more efficient—especially in today’s digitally driven world—offline techniques also have their benefits.

Those who were successful at real estate wholesaling started their careers with these old-fashioned methods. Though these methods often require more time and resources to set up, you have a good chance of sealing your first deal with the help of these proven techniques:

Driving for Dollars

Before the internet, driving for dollars was one of the most popular ways to hunt for wholesale leads. If you’re tight on budget, this old-fashioned way can still work wonders.

You simply hop into your car and drive through target neighborhoods (i.e. places where buyers actually want to live or invest), looking for properties that show signs of neglect. Some signs to look for are the following:

  • Abandonment or vacancy
  • Overgrown lawn and plants
  • Boarded-up windows
  • Visible damages
  • Uncollected trash

Once you spot a potential property, use public records to find the name of the registered owner, and contact them to make an offer. Often, an unused property could be more of a burden to the owner than a boon – like the unwanted home of a deceased relative, for example – and they’ll be fairly motivated to consider letting someone take it off their hands.

Bandit Signs

Bandit signs are another low-cost and effective way to find deals in your local housing market. Often spotted on random street corners or busy traffic areas, these signs say things like “We Buy Houses” or “Sell Your House for Cash”. Place them in the neighborhoods you want to target for your real estate wholesaling deals.

However, before you start putting up your own, just make sure that these signs aren’t illegal in your area!

Direct Mail Campaigns

This involves sending out postcards or letters to potential sellers, expressing your interest in buying their property. Direct mail campaigns can be effective, though they’re a bit pricier and slower to generate leads than their equivalent online methods.

You’ll need to secure mailing lists and be persistent with getting a response. To increase your success rate, only target owners of pre-foreclosure properties, high equity or delinquent mortgages, probates, and other types of motivated sellers.

Networking

Joining local real estate investment clubs is a great way to find deals. There may be sellers that just haven’t listed their properties yet, which a network of agents, investors, and attorneys can inform you about. Making connections in the industry will also grow your buyers’ list, increasing your chances of closing deals on both ends.

Newspapers

Old-fashioned newspaper advertising can help you reach sellers who aren’t online. After all, 10% of all Americans aren’t online—equating to nearly 33 million Americans!

To avoid missing an opportunity for a real estate wholesaling deal, you can reach more people by posting “I Buy Houses!” ads in local newspapers.

Online methods

Online methods are often more convenient and faster at producing results, though they may not always be as effective as offline methods—and there’s plenty of competition online that you have to contend with, too! Nevertheless, you can still discover a lot of good deals online that you wouldn’t find otherwise.

Here’s how:

Wholesaling Website

Creating a website allows you to target a larger customer audience. With a single click, you can reach thousands more people—a lot more than you can reach with local signages.

Your website should sell yourself as a willing and capable real estate wholesaler, convincing people to trust you with their property. You should optimize your website with SEO, PPC advertising, and social media marketing (as well as retargeting ads) to generate leads and seal more deals.

Expired MLS listings

Expired MLS (Multiple Listing Service) listings are properties that weren’t sold by the date specified in the listing contract between the seller and the listing agent. There aren’t a lot of properties that get this far, but a real estate agent or broker should be able to help you find these deals.

To do this, focus on a particular city or neighborhood, check the properties within, and get in touch with the owners of the expired listings to show your interest in their property. Usually, they’re pretty motivated to sell, since the property has already sat on the market for a long time with no buyers coming forward.

Online Forum and Auction Sites

Craigslist, Hubzu, ForSaleByOwner, and Auction.com are places where people often post to sell quickly. This makes them potential gold mines for real estate investors, and wholesalers in particular. If you move faster than your competition, you can snag some great deals from these websites.

Final Thoughts

For you to be successful in real estate wholesaling, you have to make numerous offers to seal enough deals—both online and offline.

Once you find a motivated seller with a distressed property, make sure to move fast to get them under contract. Then, follow through with assigning the rights to your buyer and collecting your fee, before beginning your search anew!

Any other sources we’ve missed? Which one’s your go-to strategy to find deals?

Image Courtesy of PhotoMIX

Categories
Wholesaling

Can You Wholesale Real Estate 100% Online

Wholesaling real estate appeals to many investors, because it allows you to invest in properties without any upfront capital of your own, or the headaches that come along with owning and maintaining a physical property. 

Now, with work-from-home seemingly here to stay, more and more people are searching for ways to get into property investments (while they can still hopefully secure a good deal on a home from a motivated seller) – only they want to do it 100% remotely. 

But can you wholesale a property completely online, without ever seeing it, or meeting your buyer or seller, in person? Let’s consider why or why not. 

What is wholesaling real estate?

Wholesaling real estate is essentially matching sellers to buyers, and taking a fee for your troubles. There are a few different ways to carry out the process, but in general, it works like this:

  1. A wholesaler finds a motivated seller and negotiates to purchase their (often distressed) property at a below-market-value price.
  2. They sign a purchase agreement.
  3. The wholesaler finds a buyer and signs an assignment contract, assigning to the buyer the right to buy the house at a slightly higher price (the amount specified in the initial purchase agreement + the wholesaler’s “assignment fee”).
  4. The wholesaler hands over the paperwork to a local title company, the buyer and seller close on the deal, and the wholesaler receives their fee.

How can real estate wholesaling be done online?

Viewings

Wholesaling digitally is not impossible. In fact, according to the National Association of REALTORS®, more than half (52%) of homebuyers in 2019 found their home through the internet. And, because of the pandemic, shifting to online viewings  is only going to become more common.

Nowadays, you can use 3D tours, video calls, and Google Street View to get a feel for the property and its surroundings, no matter where you are in the world. 

However, there are some definite cons to wholesaling without ever viewing a property in person: 

  • You’re limited to what’s listed online. Many wholesalers find the best properties by driving around target neighborhoods and looking for distressed houses. If it’s already advertised online, chances are you won’t be able to negotiate as good a deal, since there will be agent commissions to pay (although you can still find some deals this way, and by focusing on FSBOs). The other option is to have an awesome inbound marketing strategy – more on that below!
  • You can’t catch hidden problems. 3D tours and video calls will never completely make up for seeing a property (and the area it’s located in) for yourself. You can work with a local inspector or field agent on the ground, who will give houses a once-over for you, but you’ll have to ensure you trust them to spot any potential problems with a discerning eye.
  • You won’t be able to negotiate contracts in person, which can make it a lot harder to read the seller and build a rapport with them. 

That being said, lots of experienced investors do buy houses sight-unseen. So, if you want to know how to wholesale online, here’s what you need to consider next:

Building a cash buyers list

The goal of a wholesaler (once they’ve negotiated a Purchase Agreements) is to find a buyer for the property. To do this efficiently, you need to build a list of contacts—either owner-occupiers, or individuals/companies that are looking to buy distressed houses and flip them at a profit.

Typically, you build this network by sending out mailing lists, taking out ad placements, or attending in-person events. The goal? Make distressed sellers come to YOU. Just keep in mind that, for every 100 ad impressions you get or emails you send out, you’re probably only going to get 1 response – maybe up to 3, if you’re really lucky. So it’s a numbers game. 

Fortunately, though, there are also lots of ways to develop your cash buyers list completely online, by:

  • Joining real estate groups in MeetUp.com or Facebook
  • Running ads on Facebook, Google Ads, or other social media platforms
  • Setting up a website and gathering emails through a signup form – then sending out regular newsletters to your mailing list with details of all your available properties

Ideally, you’ll want to get the contact information and purchasing criteria of these buyers, and keep a simple database of their requirements and preferences, like:

  • How can I contact you for real estate deals?
  • Which area do you want to invest in? 
  • What kind of properties do you prefer? What do you want to avoid? 
  • What type of investment are you looking for? Is it cash flow, house appreciation, flipping, or do you want to live in the home yourself?
  • How quickly and often can you close deals? 

Negotiating the Purchase Agreement

Once you’ve found some properties and have a cash buyers list, you need to evaluate each deal based on the following:

  • The market value of the property
  • The cost of repairing/renovating the property
  • The Assignment Fee you’ll be taking as part of the wholesale deal

Keeping these three things in mind will help you calculate your maximum allowable offer (MAO). 

Then, you have to negotiate with the seller to agree to a price that leaves room for you to make your profit as a wholesaler. This is where working online becomes potentially tricky: at some point, you’re going to at least have a phone conversation (or several) with the seller, and without meeting them face-to-face, you need to have some pretty great skills as a salesperson to seal deals consistently over the phone. 

Except, of course, if you’ve done a great job advertising your wholesaling business online, and motivated sellers are beating down your door trying to sell you their houses. In that case, the sales calls should be pretty straightforward!

For more wary sellers, you can try using video calls, but many won’t be used to Skype or Zoom, and many others won’t bother giving you the time of day. A lot of homeowners balk when they hear you’ll be putting in an offer without viewing the property in person – however, if you have a local agent going to view properties on your behalf, this isn’t usually a problem. 

Once you’ve signed the Purchase Agreement, the next step is to start advertising the deal to your buyers list – and for that, you’ll need marketing photos. Even without visiting the property, though, you can get these relatively easily, either by asking the owner to take some for you, or getting your local representative to do it. 

Closing the deal

Another common concern when wholesaling (even in person) is that, once the buyer and seller both see the amount you’re receiving from the deal as your Assignment Fee, they’ll want to back out, because they think it’s unfair that you’re making a profit from the sale. 

When wholesaling real estate online, this can be even more of a danger. All they have to do is stop replying to your emails, and work out an arrangement between themselves in person. For that reason, a double closing may seem like the better option for online wholesaling. 

In brief, the difference between assignment and double closing is:

  • Assignment of Contract is when you have the property under contract and you transfer those rights to another party (without ever owning the property yourself).
  • Double Closing is when you buy the property yourself, then immediately (often on the same day) sell it at a higher price to another buyer.

You’ll still need to have a representative attend the closings on your behalf, but it is possible to close on a house remotely, using e-signatures. 

Closing wholesale deals online can therefore have several benefits, like:

  • You don’t have to wait long for physical documents to be signed, making it faster and more convenient.
  • The back-and-forth requires less energy than driving to in-person meetings.
  • Distance is a non-issue, so you can work with buyers and sellers who are out-of-state, or even out-of-country.
  • Everything is documented properly, with a digital paper trail.
  • You can access all of your essential documents in one place using cloud storage.

Summary

So, can you wholesale real estate 100% online? Yes, you can. 

Should you wholesale real estate 100% online? That’s another question.

Most forms of real estate investing are not a way of generating passive income – unless you’re investing in a REIT (real estate investment trust). Typically, even with wholesaling, you want to view the property in person to make sure you’re getting what you paid for (and not taking on any nasty, expensive surprises which will prevent you from re-assigning the contract to a potential buyer). 

However, if you have trusted partners on the ground who can meet with buyers and sellers and attend viewings and property inspections on your behalf, then wholesaling online becomes a lot less risky. 

And, with our world becoming increasingly driven by technology, virtual wholesaling will probably only become more popular in the coming years. 

That’s because now, with just a working laptop and fast internet connection, you can:

  • View properties (sort of)
  • Build your cash buyers list
  • Negotiate Purchase Agreements
  • Close the deal and collect your fee

All from the comfort of your own living room! 

Image Courtesy of Pixabay

Categories
Wholesaling

Wholesalers: Clauses you want in your contracts!

An attractive perk of wholesaling real estate is how you can flip houses with no money of your own, or even good credit. People hear about this and want to jump into the business right away! However, most of them don’t even know how to properly structure wholesaling contracts – so what clauses do you need to include in yours? 

Let’s take a look at one kind of wholesaling agreement – an Assignment of Contract – and the types of language these documents should contain to protect wholesalers during deals. 

How Assignment of Contract Works

There are three players in every wholesale transaction: The wholesaler, the seller, and the buyer. The steps are:

  1. The wholesaler finds a good property at a good price, and signs a Purchase Agreement with the Seller (the owner of the house).
  2. The Purchase Agreement gives the wholesaler entitlement to ‘assign’ or sell the property agreement to a buyer.
  3. To assign the agreement to the new buyer, the wholesaler finalizes an Assignment Agreement to legally transfer their purchase rights to the buyer. 
  4. Handing over the baton to the buyer may cancel out the wholesaler’s legal liability and/or obligation towards the seller. 
  5. Now, the buyer can purchase the property directly from the seller, as per the original terms of the Purchase Agreement.

In this process, your job as a wholesaler is to be the middleman. You find a good deal, secure the rights to it (using a Purchase Agreement contract with the seller), then assign the contract to a real estate investor or owner-occupier (using an Assignment Agreement with the buyer). Your goal is to at least make sure that each of these agreements includes the important clauses–which we’ll be going through below.

The Purchase Agreement

  1. CONVEYANCE – This term refers to the act of legally transferring property from one entity to another. So what you want is to ensure that the property’s fee simple will be delivered to the buyer (or a representative they assign) by a General Warranty Deed. It should be free from any liens, restrictions, encumbrances, easements, or encroachments (even those not specifically referenced in this contract).
  2. PRORATIONS – This clause is to ensure that property taxes and rents will be prorated based on the current year’s tax (without any exemptions, like discounts). All taxes should be current.
  3. DEFECTS – Have this clause to hold the seller accountable for any defects that might be found. Essentially, this clause should state that the seller assures the property to be without hazardous substances, any violation of zoning, environmental, building, health, or other governmental ordinances or codes; and that the seller affirms there are no known facts regarding this property that could adversely affect its value.
  4. NO JUDGEMENTS – The seller should confirm that there is nothing threatening the equity of the property. There should be no bankruptcy pending, or contemplation by any other title-holder.
  5. POSSESSION – The contract should state that possession of the property, its occupants, and all the keys, will be handed over to the buyer when the title is transferred. If the property is vacant, then possession and all the keys to the property will be given to the buyer once the contract is executed. All leases, advance rents, and security deposits should be transferred to the buyer as well.
  6. RIGHT TO ASSIGN – This clause, along with the next ones, are where you should dictate your intention to wholesale the property. Without this clause, you can’t legally wholesale the deal, so this is a pretty important one. It should say that you, the buyer intends to assign the contract to a new buyer and the seller’s approval is not needed. Then have the seller initial the provision. Assure them that they will still get the purchase amount as agreed.
  7. NO RECOURSE AGAINST BUYER – Upon default, the seller’s only solution is to retain what the buyer had put down as earnest money – they have no legal recourse to take any action beyond that against you, should you back out of the deal. 
  8. CLOSING DATE – You want to give yourself as much time as possible to find someone to buy your contract. So negotiate at least 45 days or more. 
  9. “AS IS” and INSPECTIONS – Make sure that this contract is contingent upon your inspection and approval of the property, before they transfer the title. The seller should provide you access and opportunity to inspect the property thoroughly (including all the power and utilities). If you accept the property, the contract should indicate that it’s in “As Is” condition. If you decline, then the buyer should notify the seller within 10 days from the day of the contract signing. 
  10. PROHIBITIONS – You don’t want to limit yourself to just this property or to one buyer, so make sure there is a clause that allows you to still accept future assignments. You should not have any prohibitions to do so. 
  11. ABILITY TO RENEGOTIATE – State that you can renegotiate the price. For example, specify a certain amount to be deducted for repairs. But if the property exceeds $20,000 in repairs, you should have the ability to back out, or renegotiate the asking price. 

With that contract done, next, you need an Assignment Agreement to govern the second half of the wholesaling process. 

The Assignment Agreement WHERE DOES WHOLESALER MAKE THEIR MONEY?

  1. This contract should say that you are “transferring” or assigning your right as the buyer to another party. The new party will now become the new buyer, and this now effectively closes the Purchase Agreement contract. 
  2. In an assignment, the buyer can see the purchase price you have with the seller, so they could be put off when they see you’re making money off the deal. In this case, they may try to negotiate their own deal with the seller. 

There’s a way you can try to protect against buyers cutting you out as the middleman and going directly to the seller instead: 

a.) In the purchase agreement, there should be a clause that allows the wholesaler to immediately file a claim of interest against the property. 

b.) Then, go right away to the local county and file that claim of interest. 

c.) Now it’s recorded in the chain of title for the property, so if a buyer tries to go around you and go straight to the seller, they can’t get a clean title, because your claim of interest will be on record.

3. If the purchase contract gave you more leeway, this time, you want to be as strict as you can with the buyer, to prevent them from backing out at the last minute and compromising your deal with the seller. 

Here’s one clause you might find useful for keeping your buyer on schedule. This clause penalizes them for any delay in closing. If they feel uncomfortable with agreeing to a $300-500 penalty, then they might not be very serious in the first place, so it’s not really that big of an ask. Here’s an example of how you can word this: 

ASSIGNEE  must close title on the property subject to the AGREEMENT by ____________, 20____. If seller of property subject to said AGREEMENT is ready, willing and able to close title on the above date but ASSIGNEE  fails to close title on or before said date, ASSIGNEE  will pay ASSIGNOR a per diem of $____________ until and including date of closing.

3. Aside from this, you’ll also want clauses which will make it as difficult as possible for the buyer to back out of fulfilling their Purchase Agreement, so ensure things like the property condition and price are clearly articulated and non-negotiable. 

4. Finally, your assignment contract should also say “X is the amount I’m being paid as an assignment fee” – this is your profit, which the buyer pays to you when you sign the assignment contract. Only then do you sign over the purchase agreement to them. This way, it doesn’t matter if the buyer closes on the house or not, because you’re now out of the deal and have made your money already.

Once you’ve drafted your contracts up, have them reviewed by a local attorney who’s familiar with wholesaling contracts to see if it complies with your local laws. Not a lot of companies are used to dealing with wholesalers, so make sure you work with a lawyer who is. 

Any other clauses we’ve missed? Share with us below!

Image Courtesy of Anna Shvets

Categories
Wholesaling

7 Steps to Real Estate Wholesaling

People outside the real estate industry don’t realize how difficult it is to source wholesale deals. They might think this kind of investing is relatively easy, since wholesalers don’t have to do renovations or deal with tenants, but the difficulty of this strategy is actually in sourcing good deals.

So what tools can wholesalers use to source good deals quickly and consistently? Let’s look at 7 ways you can find both buyers and sellers for your wholesale deals:

  1. Find Motivated Sellers – Many wholesale deals are sourced from owners who haven’t even thought about selling before you, the wholesaler, came into the picture – so their properties won’t be listed on the MLS or traditional real estate listing sites. You need to find and directly contact them, and one way of doing this is to build a professional network of deal-hunting “bird dogs” to track down motivated sellers and look for distressed houses to pass along to you.

2. Get Properties Buyers Want – Look for distressed properties, or ones with delinquent taxes–most homeowners of those are eager to sell, and only a little negotiating from you could help secure a deal at a reasonable price. However, you also need to look for properties with desirable features in locations that you know are attractive to investors and other potential buyers, otherwise your contract could expire before you find a suitable purchaser. Find target neighborhoods that fit your criteria and drive around them to find distressed houses, or contact the county records office to get a list of tax-delinquent properties.

3. Promote Yourself Online – If you don’t have an online presence, you’re missing out on perhaps one of the most crucial channels for potential customers to find you. Have a website or page with a Lead Capture Form where visitors can submit their contact details, and keep these for sending out future email blasts with details of your available deals. Then you can increase the reach of your website by promoting it to targeted markets on multiple online platforms, helping passively bring you more potential sellers and buyers.

4. Connect with Hard Money Lenders –  Sometimes cash buyers don’t have the total purchase price of a property upfront, so they call up a hard money lender. That means hard money lenders also know a lot of cash buyers that they can refer to you. (Plus, they’re incentivized to connect you to these buyers, in case one of your future deals would require their services to close!

5. Build a Large Network – Having a community of investors at your disposal who are interested in buying wholesale deals makes it faster and easier to market your deals. Network with real estate agents, investors, and landlords in your area – either online, or through in-person groups, like your local REIA.

6. Visit Courthouse Auctions – Since buyers need to have all cash in courthouse auctions, this is a great source for finding cash buyers. Try to drop by courthouse auction sessions early and regularly to network with the people there, and add them to your email mailing lists.

Wholesaling real estate is a great way to get into the property business without any upfront capital. All you need are the tools listed above, persistence, and great negotiating skills to become a successful wholesaler.

Any other tools we missed? Tell us in the comments section below

Image Courtesy of Deva Darshan

Categories
Wholesaling

Wholesaling Real Estate during COVID-19

The coronavirus pandemic has had a serious impact on real estate investors, even if (this time) the economic downturn isn’t tied to the housing market. 

Already-low inventory has been thinned even further by sellers choosing to wait out the crisis, buyers are reluctant to invest amidst this economic uncertainty, and many have taken a hit to their liquid assets (and are now prioritizing liquidity more than ever before). 

So, what does all of this mean for wholesalers in the current market? Here are some points to consider when brokering wholesale deals during the coronavirus pandemic:

Focus on Inbound Marketing

Wholesalers traditionally rely on outbound marketing methods to source new deals and secure buyers – things like sending email blasts, making cold calls, and attending networking events. All of these strategies involve a lot of time and energy on the wholesaler’s part to track down new leads.

However, with people stuck at home and spending more time on the internet than ever before, wholesalers should consider optimizing their inbound marketing to enhance their sales funnel during this crisis. Having your own website, blog, or YouTube channel, running digital ads, and boosting your social media presence are all ways you can get noticed by buyers and sellers who are actively searching for properties in your area. It takes a considerable initial time investment to get these up and running, but if you’re stuck at home now, too, then what better way to spend your time than building funnels which will bring leads to you passively?

More Conservative Offers

Panic in the markets, combined with desperate sellers, creates an opportunity to get good wholesale deals, which means you can and should be more conservative with your offers in the current environment. Buyers will also be looking for a deal, so 70% of ARV minus repairs might not leave you with enough room to make a decent profit wholesaling in this market. 

COVID Extension Clause 

To protect their contracts against extenuating circumstances due to the pandemic, many wholesalers are now including an option to extend their agreements with the seller if necessary. If your contract stipulates that you need to find a buyer within 60 days, add a two-week extension that can be triggered to give you more time to close deals during the crisis.

Wholesaler Collaboration

Inventory was already at an all-time low in most parts of the country prior to the outbreak, and now it can be even harder to find enough suitable properties to keep your wholesaling business running consistently. 

We’ve seen wholesalers respond to this by reaching out to the competition – other wholesalers – in order to work together, rather than against one another. Wholesalers operating in the same area put together a shared spreadsheet of all of their current deals, and offer a finder’s fee to anyone who’s able to bring them a buyer for it. This can help you both fast-track deals in this uncertain market, and generate a steady stream of income from the finder’s fees you receive on other wholesalers’ deals. 

Real estate wholesaling is still alive and well in the era of COVID-19, but wholesalers have had to adapt and innovate in order to keep turning a profit during these unprecedented times. 

Many of these trends will likely continue in the age of the new normal, so if you want your wholesaling business to thrive both during and after the pandemic, consider incorporating these areas into your strategy now. 

Image Courtesy of Curtis Adams

Categories
Wholesaling

Wholesalers: Should You Obtain Your RE License?

Should real estate wholesalers operate with or without a real estate license? There are a lot of mixed opinions about this, and legality varies by state, but as long as you make sure that you abide by the law, you may not need to have a real estate license to wholesale properties. Let’s look at some of the pros and cons of acquiring a real estate license, as opposed to operating as a real estate wholesaler without one.

Benefits of Wholesaling with a Real Estate License

  • May offer increased credibility with sellers, buyers and associates in the industry.
  • Gets you access to the Multiple Listing Service (MLS), although most wholesale deals are done on off-market properties, meaning you won’t find them listed on the MLS. 
  • You could use your RE license to earn additional income, if you want to earn commissions on selling properties, but this is a whole different beast to wholesaling, so ask yourself – do you want to be a real estate agent, or a wholesaler?
  • Being a licensed agent also serves as a good starting point when growing your network, by giving you the chance to connect with brokers and agents, who could potentially bring you future wholesale deals. This is also a great way for beginners to learn more about the ins and outs of the industry.
  • Not worrying about state requirements which the number of annual transactions you can do without a license.

Drawbacks of Wholesaling with a Real Estate License

  • Acquiring a real estate license requires ongoing time and money.
  • Bear in mind that if you’re a licensed agent, you can only work if you’re employed by a brokerage, which means that they are entitled to a commission from each sale you make. What’s more, being part of a brokerage means you’re limited by the policies set out by the firm, and therefore you might not be able to conduct business in the same way that you would independently.
  • By law, you are also required to disclose that you are a licensed agent, which could negatively impact your ability to source deals and put you at a disadvantage, when compared to an unlicensed wholesaler. This isn’t necessarily always the case, but it’s worth being aware of.
  • Potentially getting fined, or worse, for exceeding state limitations on the number of annual transactions one can do without a license.

Regardless of whether you decide to operate as a wholesaler with or without a real estate license, there are certain risks you should always be aware of. To safeguard your credibility, as best practice, it’s always important to carry out proper due diligence by staying informed about your state laws. We highly recommend consulting a real estate attorney for their legal opinion. Also, be extra mindful of the language you use when sourcing deals and marketing them, so that all parties involved understand what your participation in the transaction is. 

 

Image Courtesy of Subhan Saad

Categories
Wholesaling

How Wholesalers Can Monetize Land and Increase Value

Land leasing is a good option for achieving long-term returns on your investment

Land is a form of real estate often neglected by wholesalers. Most wholesalers flip properties, but flipping undeveloped land has unique advantages of its own. It requires less upfront capital, and there is less competition.

The typical land wholesaling model is the same as property wholesaling: you enter into a contract with a motivated seller to purchase the land below current market value, and then either flip the land or sell the rights to the purchase contract to a third party for a profit. But one added benefit of land wholesaling is there are options to further increase the value of raw land while you have it under contract, by subdividing it into multiple parcels or applying for a change in zoning.

Rezoning to Add Value

Rezoning, or changing the use district of a particular parcel of land, is a common way to increase the value of non-residentially zoned land. By changing the use district of industrial or agricultural land to residential or commercial use, you can increase the value of your land by anywhere from 100-400% of its original value. You don’t have to own the land outright to apply for rezoning – just make sure that rezoning is permitted in your contract with the seller if you intend to change its use district before flipping it.

The process of applying for rezoning can take a few months or up to 2-3 years, and in addition to meeting all the requirements set by your local authority, it’s also important that you research and understand your city’s plans for development in the future. For example, changing from a residential to commercial use district could either increase or decrease the value of land, depending on whether or not the city has plans to prioritize commercial development in that area in the coming years.

Splitting Parcels

Subdividing land, or splitting a single plot of land into two or more parcels, can increase the value of land and the total amount of rental income you receive from it. Legally subdividing a property can be a lengthy process – it usually takes several weeks or months from start to finish, and will require that you submit an application to the local authority for approval. You also have to take into account the zoning restrictions and specific rules in your area (such as the minimum permitted plot size) when splitting your land into parcels, and will need to hire a surveyor to plat the land. Usually it costs between $1,000-$3,000 to subdivide a piece of land into two parcels, but the benefits of doing so can be considerable. Smaller parcels are more affordable, and thus appeal to a larger number of buyers and tenants, and it’s possible to increase profits on a single piece of land by as much as 100% when selling or renting it out as two smaller parcels.

As long as it’s permitted in your contract with the seller, you can subdivide land while still under contract, but you will need to close with the seller before selling the individual subdivided parcels outright. The major benefit of this wholesaling strategy is that you can subdivide a plot into 4 parcels, for example, and sell 2 of them outright, leaving you with 2 parcels that you own free and clear.

Don’t be scared off if you find a great piece of land to wholesale and you’re worried it will take too long to rezone or split. Instead, negotiate with the seller on a longer purchase contract as it doesn’t hurt to ask. If that doesn’t work, you can also try more of a partnership agreement with the seller, where you do all the work and then split the profits.

How to Monetize Undeveloped Land

Once you’ve sold some of your subdivided parcels and closed the contract on a land wholesale deal, you can sell the remainder of the parcels outright, or monetize them in other ways.

Developing raw land yourself can be a costly and time-consuming process which may not be feasible for wholesalers operating in different states. There are other ways you can generate income from land without having to develop it. These options do take more time and energy than simply selling your land immediately, but the result is higher profits on each plot you own in the long term.

Rent your land to a small business venture

Land leasing is a good option for achieving long-term returns on your investment. If you market your property to the right audience, you’ll find there are a whole range of unexpected business plans which only require raw land to get started. Archery ranges, escape rooms, and drone race tracks are just a few examples of businesses that will pay to rent land, even without any structures or facilities in place. These businesses generally require plots anywhere from .2 – 3 acres in size, so even if you don’t have a huge amount of land, this can still be a viable option for you.

Put up a parking lot (without paving paradise)

Having a parking lot can be an inexpensive way of monetizing your land. Even if your land isn’t near a very transited area, you shouldn’t necessarily discard this option.

Try to think of who may have parking needs and may want to pay lower fees than those charged in downtown areas. A perfect example would be truck, bus and coach companies, since these usually prefer inexpensive options to keep their vehicles overnight, as opposed to expensive central locations. For some of these clients, you won’t even need to pave the land, and they usually pay somewhere around $10 per vehicle for parking overnight.

Rent-to-own

Rent-to-own is a type of transaction in which the tenant is given the opportunity to buy the property outright after a maximum lease period of 5 years. The tenant usually pays you an initial deposit of 3-5% of the property’s value as a purchase option. A portion of the monthly rent then goes towards the purchase price of the land, and after the initial leasing period, the tenant can exercise the purchase option. If they choose not to proceed with the purchase, you can begin the process over again with a new tenant once the agreement ends. It’s also possible to monetize land using a lease-to-own agreement while you still have the land under contract. With a sandwich lease agreement, you can sign a lease-to-own contract with the seller, then sign a separate lease-to-own agreement with a tenant-buyer of your own, who pays a higher rental rate. Once the lease term concludes, you can complete the agreement with the seller and close the deal with your tenant-buyer.

Partner Up!

If you’ve got a free and clear piece of land, it’s an asset, that like cash, you can invest in a deal. In this case you can put up your land as your part of an investment in a new construction or development project. Look for active builders and developers in the area of the land and see what they’re interested in doing.

If you subdivide into parcels, wholesaling land could lead to you owning some plots essentially for free. Whether you decide to sell these outright or pursue a long-term monetization strategy for the land you own, any revenue you receive will be 100% profit, and that’s perhaps the biggest advantage of the land wholesale investment model.

Image Courtesy of Marek Mucha

Categories
Wholesaling

How To Market Wholesale Deals.

How to market deals without large adcertising budgets?

The two most important skills that real estate wholesalers can have are sourcing great deals on properties for sale and finding solid buyers for their purchase contracts. In order to maximize the number of potential buyers you reach, it’s therefore crucial to know how to advertise contracts for sale in an efficient way (without running into any legal issues).

Wholesaling itself is legal, but keep in mind when marketing your deals that selling someone else’s property without a license is not permitted in many states. You should always make it clear in all marketing materials that you are selling a purchase contract, not the home itself, otherwise you could run into legal issues. If you’re unsure, talk to a specialist real estate lawyer to make sure you are doing everything above-board.

With that in mind, here are some of the best ways to market wholesale deals to potential buyers without the need for a large advertizsing budget:

Networking Events

One of the best tools a wholesaler can have is a great network of potential sellers and buyers. When you have an extensive network, you open up greater possibilities for word-of-mouth advertizsing. Up to 50% of word-of-mouth referrals lead to a successful sale, which makes it the most powerful kind of marketing, and what’s more, it costs basically nothing.

Going to local networking events is a great way to meet people in your area who could one day become your customers, or help bring you potential leads. You can find networking events taking place in your city on Eventbrite.com or Meetup.com.

You could also consider joining industry-specific groups, like your local REIA, or a business club, such as Business Network International (BNI). Alternatively, there are also one-off real estate industry events which you could attend to find buyers and sellers in your area.

Linkedin

Linkedin has become an essential online marketing tool for sourcing leads and generating sales across a variety of industries. Its free version allows you to filter searches based on a person’s type of job, position, location, company size, and more, meaning you can target your marketing messages at potential buyers in your area.

Linkedin allows you to send a connection request with a message to those who fit your target customer profile. If you don’t have enough time to sift through hundreds of professional profiles and contact them individually, don’t worry – there are many tools, such as Scrab.in, which you can use to automate your marketing efforts through Linkedin.

Cold calls

You may think cold calling sounds fairly last century, but the truth is that cold calls are still an effective marketing technique – although less effective than referrals, cold calls still have a 2% successful closing rate.

If you’re nervous about the idea of calling up strangers, there are tools you can use to send potential customers a ringless voicemail instead, meaning you won’t have to speak to leads one-on-one until they call you back and express interest in the property. You can find contact details for your target market by using paid tools, like Skip Trace Lists.

Social Media

Social media is one of the best options for marketing wholesale deals, because it provides a huge potential reach and requires less time and effort than other forms of advertizsing. You can upload a description of the deal and pictures of the house to attract buyers, while also helping you build visibility for your company or personal brand. Having a dedicated Facebook, Instagram or other social media page to promote your wholesale deals will also make you easier to find for buyers searching for homes in your area.

In wholesale deals, communication is key when dealing with both the seller and the buyer, so always communicate clearly and honestly about the fact that you intend to market the property deal. When advertizsing deals, you should disclose the current state of the property, and provide an estimate on any necessary renovation costs, as well as the estimated property value after repairs.

Image Courtesy of Martine Savard

Categories
Wholesaling

The Wholesalers Buyers List: How To Effectively Market Your Properties

Image courtesy of Lukas

Being a successful property wholesaler is contingent upon not only locating a viable property, but more importantly, being able to find an end buyer – and quickly.

Whether you’re assigning contracts or double-closing, you want to move the property as quickly as you can. There’s no point in getting into a property if the potential for getting rid of it quickly is low. Your buyers list can be an invaluable part of your business. It provides the ability to contact serious, interested parties, as opposed to blindly cold marketing wanna-be investors. Since your buyer’s list is your lifeline to steady profits, you need to know the essential details regarding your properties, as well as the needs of your potential buyers.

What Is a Buyers List? 

Your goal as a wholesaler is to contract properties below market value and then, as quickly as possible, pair that property with a buyer. Starting your search for an end buyer after you’ve got a property under contract will only eat into any profits by accumulating holding costs. Often, you may be forced into buying the property yourself. A buyers list is your inventory of real investors who you can contact to offer your wholesale properties. Building a useful buyers list can take some time, so networking is key. To help grow a list, start associating with real estate professionals, entrepreneurs, and investors. Many communities have an REI club, but you can make connections through other channels such as online real estate forums, Craiglist, Facebook, property auctions, networking events, or from the bandit signs you’ve placed. 

Organize Your Buyers List

For your list to be useful, it should be kept organized and updated, prioritizing the most serious buyers or the ones most likely buy based on a set of parameters. Keep contact info current, take notes about the neighborhoods or property types buyers contacts on your list are looking for, so you don’t waste time and energy contracting houses you won’t be able to assign. Nor will you be trying to sell them a property that doesn’t interest them. Using a customer relationship management system (CRM) is an effective way to compile pertinent information across several channels, including social media. By analyzing the information in a CRM, you’re able to present properties to the investors most likely to buy, before resorting to emailing your entire list. 

Educate Your Buyer

Understanding the wants and needs of the investors on your list will save you and your buyers time. Property investors are busy and don’t want to be bothered with every contract you’re trying to assign. When looking for properties to wholesale, you should have a buyer profile already in mind before closing the deal. If you think a property will suit a buyer from your list, present them with a concise package, don’t just bombard them with tons of information or data that they’ll have to crunch themselves. Provide vital information first, such as location, terms of the deal, property photos, a list of expected repairs, and estimated ARV. If, after a quick review, there is something that piques their interest, you can delve into more specific details. 

To be a successful wholesaler, you should have a reliable buyers list at your disposal to effectively market any property under contract. Not all buyers on your list will be interested in hearing a sales pitch for all houses you’ve got under contract. Keeping your buyers list loaded with dependable contacts and updating it as needed will help you move those properties quickly to keep the

Categories
Wholesaling

The Down ‘n Dirty Of a Wholesaling via the Double-Close

To be a successful property wholesaler, you need to find a property, get control of it, and move it as quickly as possible. One of the biggest challenges a wholesaler faces is handling a buyer or seller that wants to cancel a deal when they find out what the wholesaler is making. That’s why it’s wise to be familiar with the double-close, where the seller and buyer close separate transactions and never meet.

What is a Double-Close?

Often a wholesaler puts a property under contract, as a buyer, but then assigns the contract to another buyer at a higher price. With a double close, the wholesaler actually purchases and takes legal possession of the property, then has a separate closing to sell the property to their buyer. Though the double-close does add an extra step and expense, it doesn’t necessarily delay the whole process; many closings are still completed almost simultaneously. Also, if you’re tired answering the question, “Is what you do even legal?” The double close removes any whisper of impropriety or illegality.

Benefits of Doing a Double Close

Financial Confidentiality: When assigning the purchase contract for a deal, your original seller and end buyer will eventually know your contract price, the final contract price, and can do the math to figure out what you’re making on the deal. Either one of them can feel jilted and try to force you to renegotiate, taking money out of your pocket. Theoretically, you could sue either or both for nonperformance of their contract, but that may take a while, and a judge may not look favorably on the transaction.

Using a double-close avoids all this. 

How To Perform a Double-Close

Since you, as the wholesaler, legally take ownership of the property, there are two closings, hence the name, to complete the deal. The first transaction is between you and the seller, where you are buying the property. In the second closing, you are the seller, so your buyer is purchasing the property from you. The two transactions can even occur in the same office on the same day.

Double-Close Challenges

Let’s be realistic, if it was easy, most wholesale transactions would use a double-close over a contract assignment. So, let’s look at why many wholesalers avoid using a double-close.

Purchase Funds: It’s much easier to get a property under a wholesale contract you plan to assign, then coming up with the funds to actually buy the property yourself. Lack of funds is why many investors are initially attracted to wholesaling to begin with. 

Solution: Use your network to look for sources willing to do Transaction Funding. Transaction Funding is what it says – it’s a very short-term loan to facilitate a transaction. Most of these types of loans are for less than a week. Because the lender can’t make much profit on interest for only a week, expect fees and high-interest rates. If you do the math though, you’ll find the actual cost is reasonable. 

Costs: Two closings result in two sets of closing costs – even if you’re closing on the same day. One for the transaction where you buy the property and one for when you sell it. 

Solution: There’s no way to get rid of costs like title insurance and recording fees, but if you establish a relationship with a closing company/agent, they may be willing to waive or reduce some of their specific fees.

Finding Closing Company: Years ago, the double-close got a bad reputation because wholesalers were doing closings where they used the end-buyer’s money, to fund their purchase from the seller. This is pretty much no longer allowed, hence the need for Transaction Funding. Still, many closing companies/agents won’t do a double-close (with Transaction Funding) or require a minimum amount of days between the two closings. 

Solution: Use your network to find a closing company/agent that understands the double-close and will work with you. 

Many wholesalers were trained to simply assign contracts and view the double-close as illegal, and too complicated, and so not worth the hassle. As we’ve outline though, the double-close may be something to consider. The extra steps and costs may help you close more deals, while also protecting the spread in those deals. 

Photo by Andrea Piacquadio

x Powerful Protection for WordPress, from Shield Security
This Site Is Protected By
Shield Security →