Wholesale Like A Pro With These Five Pointers
If you want to know How To Wholesale, make sure you learn these clever tips.
When people think of real estate investing, they usually imagine something along the lines of house flipping or long term buying and holding. However, a crucial part of the real estate world that is often overlooked is wholesaling.
As you might know, wholesaling is the act of finding a property and then, instead of buying it, putting it under contract and finding a buyer to close in your place.
Wholesaling bares much less risk than standard house flipping and can be appealing to people that have not yet built up a sum of expendable income.
Below are a few critical ways to improve your mindset and execution when wholesaling.
1. If Your Offer Gets Rejected, Don’t Give Up!
Price negotiation can be a tricky ordeal. You might have to balance submitting a more appealing offer than the other bidders, meeting the seller’s needs, and making sure that the price doesn’t exceed your MAO, or maximum allowable offer.
You might haggle back and forth for a while before reaching a stalemate. The seller’s bare minimum asking price is still higher than your MAO and there’s no budging on either side. So you part ways and forget about the house right?
Well not necessarily. You should always check back with the seller a few weeks to a month later. If the house still hasn’t sold, the seller might be willing to negotiate down further than he originally wanted to.
2. Ask Your Buyer To Prove His Intentions
One of the greatest parts about being a wholesaler is the fact that you don’t have to spend any of your own money. To make sure that this happens, you can’t just simply find a buyer.
Even if the buyer agrees to purchase the property, he might back out do to a finance problem. Other times, buyers will take advantage of sellers. A buyer might agree to purchase your house, and is telling other sellers the same exact thing. In the end, he chooses the house that he wants and leaves the other’s hanging.
There are a couple ways to avoid be taken advantage of:
Proof Of Funds
If the buyer agrees to pay in cash, have him provide a proof of funds letter insuring you that he does indeed have the money to back up his offer. If he continually declines, you might want to look elsewhere for a buyer.
Earnest Money Deposit
An earnest money deposit is exactly what it sounds like—it’s a sum of money given by the buyer up front to ensure that he intends to buy the home. In a competitive market, the deposit is usually around 2 to 3 percent of the purchase price.
3. Make A Backup Plan
Even if you get a proof of funds or an earnest money deposit, deals can still fall through. The best thing you can do is to have a backup plan.
Although you don’t always necessarily need to have your own money to wholesale, it’s not a bad deal to have some just in case. If you can’t find a buyer, you will be responsible for paying for the property yourself.
Another failsafe you should have is a substitute buyer or buyers on hold to reach out to if it comes to that.
4. Network, Network, and Network Some More
The bigger your buyer’s list roster, the better prepared you are to handle a failed closing. Even if your main candidates don’t work out, you always have dozens more to fall back on.
To build up your buyers list, make sure you are constantly networking and meeting new investors. But don’t just stop after your list grows to a certain point. You should always keep attending REIA meetings to find new potential buyers in the business. But your search doesn’t have to stop there.
You’d be surprised how many people are interested in investing in real estate. The people are all around you; from family to friends to coworkers to the people you golf with or play cards with. Make sure you meet these people so you can update your list regularly.
5. Know What The Buyers Are Looking For
When you are wholesaling, more specifically reverse wholesaling, you need to put the end buyer’s needs above your own perception of what makes a good property.
Maybe you find a good fixer-upper when your buyer really wants to buy and hold and let the property appreciate.
Maybe you think it’s a good idea to buy a family-style house, but the investors might know that a new university is being built nearby and they want smaller houses to rent out to the college kids.
Whatever the case, communicate and find out what the buyer is looking for. Find a product that your buyer wants, don’t try to force on one him that he doesn’t want.