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Wholesaling

How To Find Cash For Your Flipping Deals.

You have a found a great property for a fix-n-flip, but you don’t have the money, or it’s tied up elsewhere, perhaps another flipping project. Though those gurus on late-nite TV will rant about how you can buy a home with no money down, it’s tricky and much more complicated than they make it seem. In a more realistic scenario, you will need to come up some cash or collateral to fund your next project.  

Here are the most common ways to raise cash for your next house flipping deal:

Private Investors or Partners

Look to friends and family when preparing for your initial funding

If you have close friends, family members, or business associates, who either have the money or have the ability to access a loan, they can be a good place to start. Don’t expect them to do it for free. If you have a bit of cash, you can pay them interest on the loan and pay it back in full after the sale.

If you’re confident that you can make it work, prepare a business plan and a contract that outlines the details including purchase price, rehab costs, ARV, and how the proceeds are going to be divided in the end. Both of you need to have realistic expectations of what kind of profit is available to each of you.

Full disclosure: if you haven’t done so before, know that doing business with family and friends can be a delicate situation and put pressure on your existing relationship. If the investments run into problems or fails, it can cause a rift or worse yet, you’ll fall entirely out of contact.

Another option is to find an investor that will allow you to work off your end with sweat equity. If you have the knowledge and skills to do some or all of the work on a property flip, you may find an investor willing to trade you for your portion of the labor. After the sale, you’ll split the money according to your agreement. You won’t make as much money as doing it all yourself, but it’s a good place to start. This strategy will provide you with the means to save up some cash to eventually, fund your own deals.

Hard Money Lenders

If you feel more comfortable keeping it impersonal, you can contact a hard money lender. They are real estate investors willing to provide you with a short-term loan. Because these lenders are familiar with the industry, there are some advantages:

  • Will provide approval for distressed, investment-grade properties that require work
  • Credit rating and other loan requirements are more lenient than a bank
  • Loan approval is quicker, allowing you to bid on deals and compete with other buyers
  • National companies make loans all over the country

Real Estate Investment Associations & Groups (REIA)

Most cities have real estate investment associations or groups, so join several in your area and start regularly attending meetings. REIAs bring together people with expertise that you can benefit from, including not only investors but lawyers, accountants, and contractors. Free advice is worth its weight in gold. These like-minded folks may be willing to fund your rehab, or at least be able to recommend someone.  

Raising money and structuring your next rehab isn’t horribly difficult, but it may take some creativity. It may mean combining strategies to get the deal done. After flipping your first property, you’ll be able to roll-over any profits to fund your next deal. In time, you’ll be able to finance your own deals, and perhaps, greenhorn investors will start coming to you when raising cash for the next flip.

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Wholesaling

5 Reasons To Start Wholesaling

Get your feet wet as a real estate investor by wholesaling houses

You want to get into real estate investing, but you don’t know how to start because you’re short on cash, nor do you have access to borrow funds.

If real estate is really what you want to do, then you have to find a way to do your first deal. One way is to start packing away money for a down payment – but, who knows how long that’ll take. Another option is to get started wholesaling properties. 

We’re not going to get into explaining what wholesaling is here, you can Google that or read our previous posts. So, let’s cover why you should consider Wholesaling.

There’s no reason why you can’t start wholesaling right away, but there is a lot that goes into it. Before you start searching for a house to put under contract, you’ll want to study up or find yourself a mentor, as there is a bit of a learning curve. By the way, the best place to find a local mentor that knows the market you’ll be working in is by attending REIA meetings!

Let’s take a look at some of the advantages of starting your real estate career in wholesaling.

1) It doesn’t take a lot of money. There aren’t many businesses that can offer you a low-cost barrier to entry accompanied by low overhead. Since that was keeping you from buying your first property, wholesaling allows you to kick-off a new business venture with very little of your own cash. You’re not purchasing the property, only getting it under contract, so you don’t need a large lump of cash to put down.

2) A low credit rating won’t hold you back. Since you’re not actually taking possession of the property, you need very little cash on hand. Your buyer is the one who would need to apply for a loan or pay cash for the property. 

3) There are always distressed sellers to target. No matter the area or economy, people are always looking to get rid of properties. You aren’t concerned with the condition of the property because you’re not paying to fix it up. Eager sellers provide the leverage you need to find money-making opportunities.

4) The potential for quick profits is high. Since you’re not waiting to find tenants nor for renovations to be completed, the faster you find a buyer, the sooner you cash your check. This is where having the proper contacts and a reliable buyer’s list comes in. 

5) It’s a free real estate education. Wholesaling allows you to learn the real estate business from the ground up. By not being “cursed” with having a lot of money, you’re forced to learn the complex aspects of real estate investing using other people’s money. You’ll learn to vet properties, instead of buying them blindly hoping to turn a profit until your bank account runs dry. By starting at the bottom, you’ll also acquire a gift for spotting new opportunities.

Wholesaling requires motivation and an ability to network with people. Many wholesalers use it as a stepping stone to flipping or landlording, but many successful wholesalers choose to just stick to wholesaling. 

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Is Real Estate Wholesaling Illegal? Not If You Follow These Strategies

What is a wholesaler? Someone who buys and sells houses quickly, making minimal if any repairs. The goal of the wholesaler is to acquire a property far below market price and then quickly sell it off to another investor, usually a flipper or landlord.

The Down and Dirty

A wholesaler finds a motivated seller and gets the property under contract. Once under contract, the wholesaler finds another investor to buy the property for a higher price — ideally, without ever taking ownership. The wholesaler makes money on the spread for In effect, “brokering” the deal.

Then Why Do People Think It’s Illegal?

Rumors of this business practice being illegal spread because: 1) People don’t understand the process, and 2) Many wholesalers actually do it unethically and some illegally.

Making It Legal

To make the transaction legal, the wholesaler needs to get the property under contract BEFORE finding a buyer. Otherwise, they are acting as real estate broker — which they can usually only do if properly licensed (please check your state laws). By the way, it is legal to have a prospective buyer or a pool of investors in mind when negotiating with a seller, as long as you don’t contact anyone about a specific property before signing an agreement with the seller.

It’s often illegal to use a “simultaneous closing” to close both your purchase transaction and the sale transaction at the same time. Years ago simultaneous closings were commonly used by wholesalers to use their buyer’s funds to close on their purchase with the seller — using the two separate transactions to hide how much they making from the wholesale deal. The transaction with the seller hid the sales price to the buyer, and the transaction with the buyer hid the purchase price with the seller. Laws have since changed making simultaneous closings very difficult to do legally. So, many wholesalers now use transactional funding to hide their profits from buyer and seller.

What’s the Attraction?

Wholesaling is attractive to beginning investors because wholesaling doesn’t take a lot of money. All you need to do is get a property under contract, which may not even require an earnest money deposit. Then you just need to find a buyer. It’s essential to put some study time in to understand the process and avoid any legal mistakes, but it’s not that hard. Many greenhorns start out working with a mentor, sharing part of their profits In exchange for expertise.

Finding properties can be as simple as driving through neighborhoods with plenty of distressed homes and contacting owners, using bandit signs or staying in the front of your contacts via Facebook. The internet connects buyers and sellers through real estate forums, Craigslist ads, etc. More experienced wholesalers often are members of real estate investing groups and employ professional services to help them find their deals.  

How To Find Buyers

Quickly selling the property to someone else is key. Wholesalers keep a buyer’s list which will include flippers, other wholesalers, or other investors willing to make the needed repairs. Much like finding houses to purchase, real estate groups, Craigslist, emails, and Facebook help build a buyer’s list.

It’s Still Sounds Kinda Sketchy

Wholesaling is a sector of the real estate industry that people have strong opinions on. Okay, it’s legal, but is it ethical? Opponents claim that wholesalers prey on uneducated sellers.  Many sellers are unclear on the value of their homes and are desperate for quick cash. Meanwhile, the wholesaler knows they are paying much less than the property is worth. So, what’s stopping the seller from calling a real estate agent to get the actual market value for their home? Actually, nothing. What’s stopping the seller from selling to someone else at true market value? Again, nothing. It’s really no different than someone going to a pawnshop for fast cash Instead of waiting days/weeks/months trying to get the best price.

Final Answer: No, wholesaling houses is not illegal. It is a quick way to make a good return on your money.  It can be a juggling act of sorts, but by having several houses or blocks of houses under contract simultaneously, wholesaling can be very profitable with little or nothing at stake.