For beginners hoping to join the already thriving world of house flipping, the logical first step is to start by Wholesaling Properties. To wholesale a property is to by buy a property at a cheap price, and then sell the contract to a real estate investor before you have to pay for it. At this point, the investor will close the deal in your place.
Wholesaling is great if youâ€™re an up-and-comer because you donâ€™t directly have to deal with any of the repairs and renovations. Also, you donâ€™t have to pay for the property yourself as long as you sell the contract on time.
If you know the right steps, you can profit considerably from Wholesaling Properties, and thus climb the ladder in the real estate world.
1. Market Yourself And Find Leads
The first step to Wholesaling Properties is to find the right house to buy. Unfortunately, most of the time the houses arenâ€™t simply going to fall in your lap. You have to be active and assert yourself to find great properties.
You want to market yourself in more than one way. The more you put yourself out into the world, the better chance you have of finding a good steal.
One of the most important strategies in the real estate world is networking. People in the business are always looking to buy and sell properties. All it takes is a little talking before you might find out that a person has a cheap property ready to offload.
There is never a wrong answer when looking for a place to find potential sellers. Whether it be at foreclosure auctions, REIA groups, through ads you post on craigslist or wholesalers lists, it is always a good idea to shake hands, talk shop and exchange business cards.
The MLS or â€œMultiple Listing Serviceâ€ is a database for real estate agents, that lists all available properties for sale in the area. The reason why MLS is great is that the properties it lists are more up to date than other advertising platforms like newspaper or Internet websites like craigslist. You will almost never find a property on MLS that has already been sold and no longer available.
Sometimes a good way to find distressed properties is by driving around town looking for vacant homes. You might even find a great property that is unlisted and that no one knows about yet.
2. Decide Which Houses Are Best For Wholesaling Properties
The first step to deciding whether a house has potential for wholesaling is to examine it thoroughly. You want to take note of any damage and look out for any rooms that need remodeling. Even though you wonâ€™t have to fix any of these problems, the investor that you sell to will.
The kitchen is very important when considering if the property is worth buying. Kitchen remodels, on average, cost around $20,000. So if the kitchen is in shambles, the property is probably not worth it.
Other things you should keep an eye out for are things that could affect the integrity of the structure like a termite infestation or a cracked foundation. If an investor sees damage like this, he will most likely become disinterested in buying.
Make sure that both you AND the investor, who you will eventually sell to, will profit from the property. Make sure to do the math and determine the cost of renovations. If the investor isnâ€™t going to make a considerable amount of profit after the repairs, he wonâ€™t be interested in the house.
When buying houses that would make good Wholesaling Properties, you should always follow whatâ€™s called the 70% rule. Essentially this rule states that you shouldnâ€™t pay more than 70% of the ARV or â€œafter repair valueâ€ of the home.
Most sellers will not want to offer you their property this low, so you will have to negotiate down considerably. You should almost never be persuaded to buy a property for more than this percentage because, chances are, you wonâ€™t make a profit.
If the seller still wonâ€™t budge after negotiation, move onto another one. If you followed step 1 and marketed yourself, you should have many other leads that you can follow up on.
4. Find A Buyer
To find an investor, you can use many of the same marketing strategies from step 1, like networking, advertising, and using MLS.
In addition to these, you can use other modes of communication like bandit signs. Youâ€™ve probably seen bandit signs before around your town. They are small signs you can find hung on telephone poles, lampposts, traffic signs, and on the front lawns of many homes. Bandit signs are cheap, effective ways to get your name out in the publicâ€™s eye.
The more you put your home out on the market, the greater chance you will have of selling your property fast.
Once youâ€™ve assembled a potential buyers list, you might consider starting a mailing list. This way you can let the right people know when you have a property ready to sell.
5. Seal The Deal
Once youâ€™ve received some offers on your property, you need to decide which one is going to be the best option. You want to find the deal thatâ€™s right for you, but make sure you do it quickly. The longer a property stays on the market, the more expenses you will have to pay on it, and the less you will profit in the end.
Remember that cash can be a better option than finance because there it has more finality and less uncertainty.
Finally, make sure, above all, that you profit from the deal. You most likely didnâ€™t become interested in real estate just for fun. Just follow these important steps and get what you deserve.