You’ve heard the old adage, “you’ve got to spend money to make money,” right?” Well that’s definitely true in real estate wholesaling. Except here’s the catch: it doesn’t have to be YOUR money.
Imagine this: you see an amazing deal hit the market. It’s a property that’s easily worth $150,000 once it’s rehabbed, but you aren’t in the rehabbing game, or have too many other properties in-progress to take this one on too. But you don’t want to walk away—this one is ripe with potential.
So what do you do? If you’re like me or you’re one of my students, you make a bold move: you make an offer. I’d lob something reasonable their way—let’s say $85,000 to cover the $75,000 they owe on the loan (for example) and another $10,000 to get them out and into their next home. The cost of doing business.
Now, here’s the kicker: I’d offer them a quick close based on their timeline, as well as an all-cash transaction to sweeten the pot. Then I’d offer a $20 deposit to get the deal done.
Really. $20. I even know wholesalers who put down $10. Believe it or not, most motivated sellers will take this nominal earnest money so long as you present it in a confident, matter-of-fact way.
And just like that, you’re under contract and have plunked down just a few dollars to get the ball rolling. The next step? You’ve got to find a buyer who’s ready to take over that contract fast, before closing rolls around.
Done right, wholesaling is one of the easiest ways to make money in real estate investing. From that $85,000 I could easily make $15,000-$25,000 with no more than sending a few emails and dialing up a few of my favorite rehabbers.
Sounds pretty good right? So let’s back up and dig into how wholesaling works — I promise you’ll love what you see…
The mantra of the first-time wholesaler
To be a successful wholesaler you need to adopt one simple, powerful mantra: I don’t need money to make money in wholesaling. Say it again: I don’t need money to make money in wholesaling. Any time you feel unsure, repeat that over and over until you’re back on track. This is your mantra. Get any other notions of investing and financing out of your mind. Trust me.
When I started out in real estate investing and wholesaling, I had nothing—I had zilch in the cash department. I’d lost everything—my job, my savings, my investments and more when the tech bubble burst in 2000. I could barely afford to make ends meet. I definitely wasn’t the guy rolling in and plunking sacks of money down on the negotiating table.
But I knew I could do it and I wanted to do it. So I rolled the dice and leveraged my Real Estate Investor mindset to connect the dots and spot smart deals. I had already connected with some rehabbers and knew once I got a great deal under contract, I could count on at least one of them to spring into action and purchase the property from me. One did and just like that, we closed and I got paid — big time. I was hooked.
How to find — and flip — a wholesale contract
So back to the example at the beginning of the post. I’m $20 in—literally $20 in—and am ready to go under contract with the seller-accepted sales price of $85,000. On the line of the sales contract that asks for the buyer’s name — my name — I simply add “and/or assigns” after “Nick Vertucci.” This gives me the ability to assign the contract to a buyer I locate in the coming days or weeks to buy the property.
My next stop? I take that contract and my earnest deposit check—that $20!—to a closing agent. Be sure you’re working with an investor-friendly closing agent. They’ll be used to do deals like these and won’t balk at a $10 or $20 earnest deposit. With the deposit in hand, along with a signed purchase agreement, your closing agent will open escrow and kick off your journey to close.
You’ve always got an out clause…
This is the stage of wholesaling that often throws an inexperienced investor. Your purchase agreement—which you’ve signed—states that you’re responsible for that purchase amount. In the example above, it’s $85,000. But take a breath—every contract has an out clause. Your contract should have a standard inspection period as well as a closing date. Additionally, you’ll have contingencies built in that protect you, should you be unable to secure financing. If you can’t find a qualified buyer you can cancel the deal inside your inspection period without losing your earnest money. If you decide to back out for any other reason after the inspection period expires, you’ll be out your earnest money–just $20 in this case.
Finding a buyer
But that won’t be you. You’re razor-focused on finding a solid buyer and getting this contract flipped fast.
If you’ve done this before, or even if you’ve spent some time laying the groundwork, chances are you have a good cash buyer list. Who makes the cut? Rehabbers and other investors you know that buy distressed properties from wholesalers and other “handyman specials” with the intent of fixing them up and flipping them. They’re always on the hunt for a great deal and eager to work with quality wholesalers who they know can supply great discount deals. And, because rehabbers usually come to the table with cash on hand or access to private or hard money, they’re extremely easy to slot into a purchase contract, even at the 11th hour.
No list? No problem, but you’ve got to kick it into high gear if you’re going to close on time. It’s easy to spot cash buyers in very overt places. Think Craigslist, bandit signs and foreclosure auctions for starters. Scour these sources and see who rises to the surface and don’t be afraid to make the first move. Often a quick email, phone call or in-person intro is all it takes to kick off a very profitable relationship.
Other spots to source buyers? Check the MLS in your market for likely buyers. Build relationships with local real estate agents. Through your agent, you’ll be able to spot who’s closing lots of deals in short periods of time. You can also search public records. A few weeks post-close, sales become public record and it’s easy to research these types of deals with a few quick clicks.
Also consider posting online. There are countless wholesaler/rehabber sites and other destinations for investors. State the basics—you’ve got an amazing deal, it’s discounted by 60%, you anticipate X upside for the right rehabber—then see who gets in touch. Everyone in the industry knows it’s a rapid-fire process, so if there’s interest, you’ll know about it soon enough.
When you do hook a potential buyer, simply explain the basic parameters and offer to set up a quick call or meeting to review the specifics.
Get to close — now
In these “flip” situations, you have two methods to close: the assignment method or the double close method. What’s the difference? A double close involves a full contract and some added steps. When you double close, you’re actually closing on the property yourself and in most cases selling the same property minutes or hours later. With this closing method, you’re not sharing how much you make on the deal with anyone.
The assignment method is quick and painless. You’re simply assigning your paperwork (purchase contract) and equitable interest in the property to an end buyer. With this method, everyone will see what you’re making on the deal. If you’re OK with that, go for the assignment approach. It’s less costly and takes much less time to wrap up. If you want to preserve privacy though, opt for a double close.
The final step? CLOSE. Everyone—you, the seller and the buyer come to the closing table and the buyer funds the deal and gets title to the property. And you? You walk away with some serious cash after having invested little more than a couple of bucks—literally—and a few hours of back and forth to get the deal to this stage. Definitely well worth it.
There’s lots more wholesaling info to unpack. Check out my site and sign up for an upcoming workshop. Trust me, you want to learn more. Wholesaling is insanely profitable and insanely easy. I’ll show you how to get started.