Updated: Feb 27
Wholesaling in real estate investing has allowed a lot of investors to break into their first deals and establish their businesses in the real estate market. Because of its exclusive characteristics, wholesaling lends itself readily to new investors who might not be equipped with funding to pursue more traditional real estate investments.
What is wholesale real estate investing, and how does it work? Read on to find out!
What Is Wholesale Real Estate Investing?
Wholesale real estate investing is the process of acquiring a purchase contract (also known as a Purchase & Sale Agreement) couple with an “assignment clause” on a home and then assigning the said contract to a buyer.
The process starts when a real estate investor gets a wholesale real estate assignment contract from the owner of a certain property.
This contract authorizes the investor to assign or sell their option to purchase the property to someone else for a price that reflects the purchase price of the home plus a profit for the wholesaler. The profits from a wholesale deal can vary from one property to another. Normally the final buyer will be another investor who either intends to fix and flip the home or make it a rental property. By securing and then assigning the contract, the wholesaler can sell the property without ever actually owning it.
What does it takes to be successful in wholesaling?
Just like any other type of investment, successful wholesale real estate investing starts with locating the right property for the right price. For a wholesale deal to be successful, it’s crucial to know that the final buyer is likely to be an investor who is also looking to make a profit on the property they are buying.
In other words, the selling price on which you secure a contract should be low enough to enable you to build in your profit on the deal while still maintaining a worthwhile profit for the investor to whom you eventually assign the contract. When identifying such properties, it is crucial to establish knowledge of the market value in the area. Since the investor who buys the property may well plan on fixing and flipping it, it’s also crucial to the cost of necessary repairs.
Lead Generation for Wholesaling
There are various ways to find the elusive properties that make great wholesale deals.
One of the simplest ways to find properties is to contact homeowners who are in pre-foreclosure proceedings. These owners are highly motivated to sell their properties due to their financial situation, a fact which can be useful when it comes to acquiring the wholesale real estate assignment contract on a property at the right price.
DealMachine is an app that makes it possible to do two things:
• If you are trying to locate a seller’s whereabouts, it pulls this information from multiple data sources to provide you with several different points of contact (phone numbers, alternative mailing addresses, email addresses).
• Send out mail solicitations to the owners of specific property owners, hand-picked by you.
Having this app on your phone enables you to drive to the physical location of the property, snap a picture and send out a pre-written postcard to the owner (which includes the photo in a prominent position on the card), asking them to call if they’re interested in selling.
This is another service and well-known platform for generating direct mail lists.
• This service is extremely popular because of its convenience.
• It has Decent customer service.
• The platform gives access to data anywhere in the United States.
• It has very flexible filtering criteria in determining the recipients that go into the desired list.
• It is convenient, with no subscription required – very easy to generate lists in a short while.
MLS stands for Multiple Listing Service. It is the official trading platform for Real Estate Professionals and Brokers. It is where properties are listed for the trading to begin. The main benefit of MLS systems is that you can search and retrieve information about all homes for sale by all participating brokers.
These systems also contain hundreds of fields of information about the features of each of the listed properties making it a suitable tool to find wholesaling leads. The fields are determined by real estate professionals with knowledge in the local market space.
Cold Calling and Texting
Cold calling as a sales tactic has its part to play in the sales process, but only if it is planned and done properly. This style can be used to approach potential clients and set up meetings
If there is one aspect of selling that can cause sales reluctance, then it has to be cold calling. But it is part and parcel of reaching out to engage, acquire and connect with new customers.
Of course, we all would prefer qualified inbound leads to sell to. However, the reality is for a business to grow, it needs a multi-effort approach to finding new customers.
Driving for Dollars
Driving for dollars is the act of driving through a specific neighborhood whilst taking note of specific properties that are distressed or abandoned.
Once these leads have been established, the goal is to reach out to these property owners to start new investment opportunities.
This strategy is useful whether you are looking to flip, hold, and buy, wholesale. It works particularly well if you are running on a limited marketing budget since it doesn’t require you to spend a lot on direct mail or other forms of paid advertising.
The more properties you can find and target, the higher your chances will be of finding a great wholesaling deal.
Direct mailing to foo-market sellers is a good way to reach out to homeowners who may be looking for a quick way to liquidate their properties.
As primitive as it may sound, erecting signs in your local area is a good way to generate possible wholesaling leads. This method enables you to connect with sellers who may not easily be identifiable by other means.
It’s also cost-effective because the cost of several signs can be offset by as little as one successful wholesale deal. Because your municipality may have laws governing the use of roadside signs, ensure that you are compliant with all regulations that apply to your advertising practices.
Though signs and direct mailing materials such as brochures, catalogues newsletters and postcards are still effective, we ought not to overlook the power of more modern forms of advertising.
Pay-per-click ads and social media marketing are quite effective for real estate professionals, including wholesale investors. By using these methods in combination with more traditional ones, you can expand your reach and find more potential properties.
Building a Network and Branding: The Other side of the coin
Branding is important even from the get-go, so don’t forget it.
Everything you do resonates from these initial guidelines you’re about to create, the way you talk to your clients, the way people perceive you as a company and the way you look!
Finding the right property to wholesale can consume a lot of time and effort. While you are scouting properties trying to find your first suitable deal, you ought to be networking with the investors who may buy the properties. Even if you have not found your first wholesaling assignment contract yet, it’s not too early to begin building your buyer network.
Local real estate investment club meetings are excellent avenues to meet investors who are always on the lookout for profitable properties. Just as social media can aid you to connect with sellers, websites such as LinkedIn can also equip you with potential buyer leads. When you connect with buyers, your goal should be building lasting business relationships. While most sellers will only provide you with one property, buyers are likely to be interested in multiple future wholesale offers.
Importance of a Wholesaling Website
1. Listing Details of Each Wholesale Deal
Having a website is essential for running any kind of business in this market, let alone a real estate investing business. Having a website for wholesaling houses makes your real estate investing business more credible. That’s why the number one reason to have a website for wholesaling houses is to list your successful wholesale deals. Doing that clearly shows visitors two things:
2. That you’re a successful and serious wholesaler
The key to wholesaling houses is letting the investors you sell to feel reassured that your properties will be profitable. Listing the details of your houses, and a breakdown of the success of your wholesale deals is the number one reason to have a wholesaling houses website.
3. To Quickly Build Your Cash Buyers List
Having an easy to use the opt-in form on your wholesaling website is a simple way to make your visitors leave their information with you. As a wholesaler, getting other investors’ information is key to building a strong cash buyers list.
4. To Send Push Notifications When You Have a Deal
How often do you come across push notifications while you are on a website? The chances are, you see them a lot. Push notifications boost engagement in website visitors by 88%. That’s insane!
Once you have your wholesaling website up and running, setting up your push notification is easy. Now you will be able to send push notifications to your site visitors and show them the properties on your listing page! What a great way to push your inventory.
5. Show Casing That You Are the Real Deal
By showcasing all of the successful properties, and the price breakdown of all of them, you show every one of your visitors that you are high-quality real estate investors.
A wholesale website allows you to show the properties you’ve sold. It’s awesome to scroll through and see all of the deals you’ve done.
As your client base increases, it becomes difficult to stay in touch with each client individually. You probably interact with dozens of existing and potential clients daily, and information about them may be stored in various places. Whom should you call back and when? What do you need to talk about?
You can easily get confused with old-fashioned client databases and even lose clients as a result.
Modern CRM software enables you to create a single contact database and have a 360-degree view of your clients. Specifically, real estate CRM allows realtors to:
• Have all the important information on hand
• Create a single database of contacts and segment them according to different criteria and parameters
• Communicate with clients effectively and give clients their complete attention
• Understand the causes of poor business performance based on key metrics and make necessary changes
• Dive deep into client needs and create accurate client profiles based on personal information
• Measure efficiency by tracking conversions and creating sales leads
• Focus on the most valuable opportunities
• Provide the best client experience throughout the entire buying process
• Reduce manual work
Today, a customer relationship management system is a must for real estate agents, not a luxury. Now that you understand how important a CRM is, the key question is whether you need to use a ready-made real estate CRM or invest in a custom system.
Calculating After Repair Value (ARV)
Fix-and-flip real estate investors determine the value of a home-based on its After Repair Value (ARV) and then calculate their budget based on that number. One of the ways investors determine the ARV is by doing sales comparisons with other properties in the area.
There are three crucial steps in calculating ARV
• 1: Identify 3-5 comparable properties
• 2: Calculate the average price per square foot
• 3: Multiply the average price per square foot by the square footage of investment property to work out the market value
The after repair value formula is:
ARV = Property’s Current Value + Value of Renovations
There are a few factors to consider when calculating the after repair value including;
• Condition of the property (upgrades, finishes, features, etc.)
• Construction and style of property
• Age of the property Size of the property
An exit strategy is crucial because it not only guides an investor’s decisions throughout a deal but also dictates how to maximize profits. While fast implementation is most important when facilitating a transaction, don’t attempt to initiate a deal without assessing potential exit strategies. As an investor, it is important to gauge each scenario with the end in mind. That is, have a definitive plan for each property before you buy it.
Investors should have a clear perspective of how they plan to profit from every real estate investment before even meeting with a prospective seller.
Familiarizing yourself with each real estate exit strategy can save your business a lot of money over time. It is never wise to enter into negotiations with a seller without knowing how to exit from the deal.
Such blind ambition increases risks and eviscerates any chances to negotiate from a position of power thus reducing potential profits while increasing risks. To add to this article, there is also a book on amazon called The Beginner's Guide To Wholesaling Real Estate: A Step-By-Step System For Wholesale Real Estate Investing and i think it would useful.
Related article: How To Turn Zombie Homes Into Profit
To learn more about investing from Robert Kiyosaki (Rich Dad Poor Dad) click here