To begin a wholesale deal, you need to make sure you have your resources available to you at all times. Make sure you have your sellers, buyers, and investor’s lists and that they are updated frequently. You need to constantly meet new potential partners, and create relationships, that will be involved in your future deals.
The first step to begin wholesaling is to find a property that you can purchase for a low price. This is where you must become an expert in finding the right properties your buyers want. To begin with, you must become an expert in the area in which you are very familiar with and know the value of the various types of properties in that area. You can also find buyers at real estate investors clubs and ask them what it is they are looking for. This way you can concentrate on their demands while you get familiar with the hot areas around you.
Your seller’s list will contain the names of motivated people and organizations that need to sell properties for a variety of reasons. Some people want to upgrade or downgrade from their current home and may be anxious just to get the home sold. Others may have already moved to another home and want to get rid of the current one fast to end paying the mortgage on it. Another reason is a family death and sometimes family members or loan holders simply want to get rid of the home as soon as possible. Banks need to cut their losses for homes that in foreclosure and may even be willing to sell to you at a very low price.
Bankruptcies, IRS foreclosures, and government auctions are also excellent potential markets for sellers. In fact anyone that has a property that is not working for them and wants or needs to sell that property for whatever reason is a good candidate for your seller’s list.
You will now need to analyze all the information you have on the property, such as the amount of square footage, number of bedrooms and bathrooms, lot size, neighborhood, condition, basically everything and anything that you can use to effectively market the property to your buyer. You should, if possible, inspect the property yourself to make sure that all the information you have for the property is true and represented correctly.
Here’s where the three big numbers come into play. Your negotiation skills are extremely important here to make sure you get the property at the lowest price possible. You may need to explain to the seller that the price they are asking for is too much for the property in the condition that it is in or the neighborhood it is in. Maybe you know that your buyers would never pay that price for that type of property and the seller would be sitting on it until they lowered the price. Remember that the money you make on a wholesale is made on the purchase but collected on the sale. So the purchase price must be well under market value of the property plus any repairs your buyer may need to make on it.
Next, you have to look at the potential costs of the repairs. If the property needs a new kitchen, new flooring, or other updates and repairs, then this is all going to cost someone money. Lots of unexpected repairs and updates will eat away at your potential profit. If you are going to do the repairs, get a reliable contractor through referrals. Estimate 10-15 % for overages as there are many ways you can go over budget such as broken windows, etc.
You need to learn how to estimate repairs and get good at determining what repairs and upgrades need to be done in priority and what would be nice but not that necessary if you reach your budget limit.
Now you have to determine how much you can sell the property for once it is completely repaired. It is extremely important that you have all the information to determine the value of the property after repairs, such as what are the comparable properties in the area worth or how much similar properties have sold for.
It is possible that your buyers or investors may ask you how much you think property might sell for in that area. Knowing that info helps you negotiate with your buyer and gives you leverage to let the buyer know what they can get for the property as opposed to what you are looking to sell it for. To find the market value of your property, look at properties in the same street or block with similar square footage, number of bedrooms and bathrooms, pool or garage.
Obviously knowing what you could sell the property for in no way means you will sell it for that price. You will also have expenses such as taxes to pay, closing costs, and commissions to factor in. Know the total amount of these costs before you buy the property. You need to think just like an investor in this instance. Once you have done all this, you can acquire the property from your seller and ask for a fair price on the sale.
The next step is finding a buyer for the property. Using your list you will send the property to all your buyers and offer your deal on the property. Again you will have to negotiate to get a price that your buyer is willing to pay and makes a profit for you. On the email you send your buyers marketing the property you will include the specific information regarding the property. For example number of bedrooms, number of baths and any repairs or updates that are needed in your opinion. These marketing emails should include 3 to 5 strategic pictures that show a main common area, 2 bathrooms and at least 1 bedroom. You also want to make sure you have a shot of the kitchen and an amazing picture of the front of the house. The purpose of this email is to inform the buyer enough so that they spark interest in the property and also leave some mystery so that they run to see it that same day.
Once you come to an agreement with the buyer you need to close the deal. The closing is also known as the settlement. You do the closing, sign all the appropriate documents, and then cash your check.