Wholesaling real estate explained in the simplest terms
For whatever reason, every time I try to explain wholesaling real estate it fly’s over everyones head. I think most people understand the concept, but they have so many questions. They want to understand it, believe it, but then their conventional wisdom kicks in and creates more doubt.
It took me a while a grasp the concept. I’ll never forget when I first read about wholesaling real estate. I thought it wasn’t real. There is no way people are actually doing this and making the kind of money they claim they are. It’s just not possible. Boy was I wrong…
So what is it wholesaling real estate?
Wholesaling real estate is simply the act of selling a purchase agreement to another investor, usually a cash buyer, for a fee. So basically the end buyer is paying you a fee to buy the contract (and rights to purchase the property) from you.
It starts with speaking to a potential seller, evaluating their house, negotiating a price and coming to terms. Once you both sign a purchase agreement, you then add in your desired assignment fee and mark up the price. Make sure your purchase agreement has a clause that allows you to assign it. Once you have a signed contract, you then have the right to market that contract (and property) to your list of cash buyers.
Once you find a buyer, you will have them sign an assignment contract. Usually a one page document that will assign all of your rights and interests in the property over to the new buyer for an agreed upon price. Remember, this price will be higher than what you negotiated with the seller. For example, you put the house under contract with the seller for $100,000 and you sold it to another investor for $110,000. Your assignment fee would be $10,000. You follow? So you make 10k on this deal.
Find a wholesale friendly title company and close the deal
You find a title company that is good with assignments, they close the deal and everyone is happy. The seller gets a fair price and sells their house quickly. Usually as-is, no repairs. They don’t pay any realtor fees or commissions. Easy peasy. In many cases, wholesalers will even agree to pay standard seller closing costs. Seller gets what they want.
The end buyer gets a great deal on flip, or a rental property. He’s happy. And finally, the wholesaler makes 10k for putting the deal together. Win-win-win!
It’s really not that hard. Once you’ve done a handful of deals, it keeps getting easier. You would be surprised how quick a deal can come together. There are times when I might invest an hour of my time and make 20k on one assignment. Even better, sometimes the leads are free.
So there you go. There is wholesaling real estate in a nutshell. I hope this was a straightforward explanation and you understand the basics. I know you have zillion more questions. Stay tuned for the answers!
Related: How to JV a Wholesale Deal