Not sure where to begin or even if you have or need money? Try Wholesaling! Visit www.MyInvestmentServices.com after you read this to learn more.
What is wholesaling? The short answer is that you can get a property under contract and then sell the contract to another buyer. Here is a brief explanation in practical terms. Assume the owner of a property is Party A. Another person, Party B, makes an offer on that property. 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 does not intend to actually buy the property. He would like to profit from his efforts in identifying a good deal so he, Party B, sells the contract he has to Party C. He does this 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 in the sales agreement to buy the property form Party A. Party C actually follows through and buys the property from Party A. Graphically this looks like:
A -> B = original sales agreement
B -> C = Wholesale Deal
A -> C = C buys property from A
Here are two examples of wholesale deals I was involved in. In the first example I was Party B. In the second example I was Party C.
Smithton Avenue was my first experience wholesaling properties. It was almost accidental the way it came about. I was out looking for properties for myself. As usual I had found more than I could take on and was dreading the thought of deciding which one to turn loose when I got a call from one of my fellow investors who had a friend looking for an investment in my neck of the woods. This other person was a dentist and didn’t have a lot of discretionary time to spend looking for investments. I was literally standing in the very property I was to eventually wholesale to this other investor. I had gone back to go over my notes and reassure myself that of all the good deals I had this was the one I could most easily let go of and miss the least. I knew what wholesaling was at the time I just simply hadn’t done one yet. I wanted to buy every property I had determined to be a good deal. Sound familiar?
Right after I hung up the phone with my friend the dentist called me. We struck a deal right there on the spot. So, I got the property under control with my own offer. My offer had an assignment clause in it so I could assign the contract to someone else. And that’s what I did. I assigned the contract to the dentist and asked for and received a $2,500.00 fee. It was truly as simple as that. I had to do almost no work to strike that deal. $2,500.00 may not seem like a lot of money but keep in mind that at the time I knew nothing about wholesaling. I had not yet been in a wholesale transaction. I did no advertising. The end buyer landed in my lap. All I did was locate the property and do the financial analysis on it to determine it was a good deal. I certainly should have asked for a larger fee but I didn’t know any better. I thought I was doing pretty good by getting $2,500.00 for doing almost nothing.
I never even had to go to a closing for this one. The end buyer (C) bought directly from the seller (A) and sent the check for $2,500.00 directly to me in the mail!
There a few lessons in here that we will expand upon further but first I want to give you an example of another wholesale deal where I was on the other end.
1304 Superior came across my radar screen at a time when I was investing quite heavily. It was located in a part of town I was not completely familiar with yet but it was in my sights as an area to explore for future investing. The way it came to me was through another fellow investor who had his real estate license with the same brokerage company. He and his brother (who happened to be running for city council at the time) were well known local investors. They had come across an estate sale that involved multiple properties. They only wanted and could afford two of the three properties that were being sold as part of the estate. They had all three properties under contract as a package deal. They called me because they had heard I was an active investor in the area.
This third property was actually pretty nice. It was completely sided with all the trim wrapped in aluminum. It sat on a large corner double lot. It had a great front porch and new windows. In other words it had great curb appeal. The inside had all the original hardwood floors, crown molding, chair rails, and hand rails. Even though it didn’t have separate gas, and it was being used a single family home, it did have separate electric and could easily be setup as a two unit. And that’s exactly what I did.
I asked the other investors what they wanted for the property. They wanted only $16,000.00. It took me exactly .001 second to accept their terms. I spent another $16,000.00 splitting and renovating the property. When I was all done I refinanced it at 80% loan to value on a $75,000.00 appraisal. You do the math. As you can see I made $60,000.00 cash on $32,000.00 purchase plus rehab. That’s a $28,000.00 cash gain plus another $15,000.00 in equity all because I bought a property wholesale for $16,000.00. In other words, I more than doubled my money PLUS I had $1,200.00 per month in rent coming in.
We actually did the entire transaction at the closing table at one time. In other words: A -> B, B -> C, and A -> C all occurred in one sitting involving the seller (A), the wholesaler (B), and me the end buyer (C). Wholesaling has served me well in my investing.
For more information please visit MyInvestmentServices.com, call 1-800-931-2605 or email Beverly@WinRealtyAdvisors.com.
Written by Gary Wilson, May 28, 2014
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