Module 1 What is wholesaling? Part 2

by | Mar 11, 2019

The short answer is that you can get a property under contract, and then sell the contract to another buyer.

There are just three parties here: Party A, Party B, and Party C. Party A is the current property owner.

Party B is the person who makes an offer on that property (the wholesaler).Party A and Party B come to terms and execute a legally binding contract for the sale of that property. So far so good?

Party B actually does not intend to buy the property. His or her objective is to actually sell the contract.

Party B would like to find another person to buy the sales agreement from him—the contract—and that other person will buy the property. Party B would like to profit from his efforts by identifying a good deal, so he, Party B, sells the contract to Party C. Party B wholesales the contract for a fee. In other words, Party B charges a wholesale fee to Party C in exchange for Party C purchasing the rights of the buyer. Party C now steps into the buyer role in the sales agreement and executes the transaction, actually buying the property from Party A. Party C is ultimately the person who purchases the property.

Graphically this looks like:
A  B = original sales agreement
B  C = wholesale deal
A  C = C buys property from A

I’m going to give you a couple of examples here from my own experience, one on each side of the table. In one example, I will be Party B. In another, I will be Party C. Smithton Avenue

Smithton Avenue was my very first experience wholesaling properties. It was almost accidental the way it came about. A lot of times, people refer to me as the modern day Forrest Gump. This is an example of one of those circumstances here.I was out looking for properties for myself. As usual I had found more than I could take on myself and was dreading the thought of deciding which one to turn loose. As I’m walking through it, I thought, “Maybe I’ll postpone one of my other transactions or postpone one of my other remodeling projects so I can focus on this.” I was contemplating what to do because I didn’t want to let this property fall through the cracks.My phone rang and it was one of my fellow investors saying, “Hey Gary, if you come across anything out there, do you have anything you might be willing to sell? I have a friend who is a dentist. He would like to get into investing but he doesn’t have a lot of time. Obviously he wants to work with someone he can trust so I thought of you.”I said, “As luck would have it, I’m actually in such a property right now. Introduce your friend to me, and I’ll show him the financial analysis on this property. If he’s interested, I’ll sell him the contract.”

I didn’t want to just turn this property loose. I didn’t want one of my competitors (who’s not so friendly) to get it. Most of us have a great working relationship. We call it cooperative competition. But there are certainly exceptions.

The dentist in question came to me as a referral from a friend, but didn’t have a lot of discretionary time to spend looking for investment properties. He wanted to get a good deal and work with reputable people.As I said, I was standing inside the property. I went back over my notes and decided to go ahead and consummate this, to make sure the property was completely under contract.At the time, I really didn’t know what wholesaling was. I understood the concept but had never done it before.

This literally was my first time. I had never studied it. I just happened to have the experience fall in my lap, and thankfully I executed everything properly… but it just goes to demonstrate how simple this can really be when you’ve operated honorably and ethically, and always look for good deals. In this training program, I can show you step by step how to position yourself to have properties come to you on a regular basis and also have a corral full of qualified buyers.Just like a lot of investors, we can’t buy everything, right?

Immediately after I hung up the phone with my friend, the dentist called me and we struck the deal right there on the spot. I got the property under contract, and put in an assignment clause so I could assign the contract to this dentist.

I knew that in order for me to transfer the right to purchase the property, I had to build that into the original sales agreement. On the purchaser’s identification line, on the front page of every sales agreement, you identify the property, you identify the seller, and then you identify a buyer. In this case, when you identify the buyer, you write “Your Name” and then in parenthesis, “and/or assigns.”I know some of you are saying, “Hey, we can’t do that anymore with banks.” I know, I get it,and I’m going to show you how to get around that. Prior to investing, I was a banker. Then I became a broker and really took off after that.

So I signed the contract that day, not knowing a lot about the wholesaling business, I only asked for a small $2500 fee. The whole thing was done in minutes. It took literally almost no work. I was already out there doing the analysis. But this time I was able to leverage the research I’d done on a property I wasn’t ready to purchase for myself.When you want to be in business, you’ve always got to be aware of the points of leverage. How can you leverage your time, your effort, your energy, and your activities? If you’re already investing, you can’t buy everything. We all want to but we can’t. You might as well profit as much as you can by leveraging your activities, and wholesaling is one of the ways you can do that.

I earned a quick and easy $2500 for not really doing any extra work other than executing a wholesale agreement. Once I signed the contract, there was a separate agreement whereby the buyer agreed to take over the contract. We’ll talk about that later. I did no advertising. Obviously in this case, the buyer fell into my lap. Later on, we will talk about advertising.All I did was locate the property, do the financial analysis and determine it was a good deal. I know I should have asked for a larger fee but at the time, I just thought, “What do I think this guy would pay?” He might have paid $5000. In fact, he probably would have paid $5000 or $10,000. It was worth it. Of course he readily agreed to $2500. There was no negotiating.Ultimately, the dentist bought the property from the original seller and I got a wholesale fee of $2500. We’ll get into more details later on. This is just a simple example.

It’s not just a one fee, pay to play business. Sadly, most wholesalers are doing exactly that.They’re simply assigning contracts and collecting a fee, and that’s it. But that’s a job. They’re trading time for money. It’s not actually a business.Instead, I’m going to show you how to build a business so you can literally get paid as many as five times for every single wholesale deal. Write that down! Don’t just get paid once. Get paid multiple times—as many as five times for each wholesale deal. Let’s go over an example here.

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