Grasping the Concept of Wholesaling Real Estate
Where do you begin to learn wholesaling real estate?
One of the issues that has often kept newbie investors from getting started is understanding the concept of wholesaling. While the definition may be simple, “Buy a property at one price and sell it higher”, the bigger concern is how this can be done without having money to buy the property.
It is somewhat ironic that as Students start making offers and actually getting deals under contract, they struggle with how the rest of the closing process works. This includes getting the contract to a closing agent who is investor friendly, working with the seller to come to closing, finding an end-buyer who will close with cash only and actually what documents need to be signed at both closings.
I hear this quote all the time, “I can’t wrap my head around the concept of how the process works!” In my opinion this is an excuse for not failing forward and just doing deals. Whoever the closing agent, he very much understands the process and will guide the investor through it. It is imperative that you ask the closing agent beforehand if he does double closings; if not you’ll need another closing agent. If the seller or his listing agent picks the closing agent, you’ll need to find another closing agent for the second part (“leg”) of the closing.
Don’t be penny wise and pound foolish by allowing your seller and end-buyer to see what you are making. Recently, a Student, against my wishes, showed the seller and buyer what he was making which was an $80,000 profit. Both the seller and end-buyer objected and threatened not to close and he had to reduce his profit to $20,000. His issue was that his closing costs would be $5,500 more if he did a double closing.
That’s a $60,000 mistake by not listening to my forty years of experience and, as important, believing the seller and buyer! One of the oldest and truest axioms in real estate investing is, “Sellers are Liars and Buyers are Liars!” Remember this quote to protect yourself from being gullible from the parties to your transactions. We only assign contracts if the profit the buyer and seller will see is less than $10,000 and sometimes that is even objectionable to both parties.
Since your closing agent(s) will guide you through the actual closing process, your second biggest hurdle is finding and contracting with an end-buyer. It is critical that your end-buyer is in place preferably before your inspection period is over or you could lose your Earnest Money Deposit (EMD).
I suggest you get help in structuring your Purchase and Sale Agreement (Contract) so you are protected from things you don’t know you could be doing incorrectly and to make certain you’ll get your EMD back if you cancel because you can’t find a buyer. While real estate gurus have tons of contracts available when you purchase their courses, ultimately you are personally responsible for the success or failure of the contract. Many deals are lost because a seller wants his attorney or Realtor® to review his contract and the guru contract you used is too onerous. If possible stick to using state-approved Realtor® contracts so you are a professional on the same page as agents and attorneys.
Once you complete one or two wholesale deals, the closing process will become second nature. This is not to say that the closing will be easy and many things can crop up such as code violations, liens and various title issues. All of these can be worked out and if they can’t simply go on to the next deal!
To your limitless success,