Should real estate wholesalers operate with or without a real estate license? There are a lot of mixed opinions about this, and legality varies by state, but as long as you make sure that you abide by the law, you may not need to have a real estate license to wholesale properties. Let’s look at some of the pros and cons of acquiring a real estate license, as opposed to operating as a real estate wholesaler without one.
Benefits of Wholesaling with a Real Estate License
May offer increased credibility with sellers, buyers and associates in the industry.
Gets you access to the Multiple Listing Service (MLS), although most wholesale deals are done on off-market properties, meaning you won’t find them listed on the MLS.
You could use your RE license to earn additional income, if you want to earn commissions on selling properties, but this is a whole different beast to wholesaling, so ask yourself – do you want to be a real estate agent, or a wholesaler?
Being a licensed agent also serves as a good starting point when growing your network, by giving you the chance to connect with brokers and agents, who could potentially bring you future wholesale deals. This is also a great way for beginners to learn more about the ins and outs of the industry.
Not worrying about state requirements which the number of annual transactions you can do without a license.
Drawbacks of Wholesaling with a Real Estate License
Acquiring a real estate license requires ongoing time and money.
Bear in mind that if you’re a licensed agent, you can only work if you’re employed by a brokerage, which means that they are entitled to a commission from each sale you make. What’s more, being part of a brokerage means you’re limited by the policies set out by the firm, and therefore you might not be able to conduct business in the same way that you would independently.
By law, you are also required to disclose that you are a licensed agent, which could negatively impact your ability to source deals and put you at a disadvantage, when compared to an unlicensed wholesaler. This isn’t necessarily always the case, but it’s worth being aware of.
Potentially getting fined, or worse, for exceeding state limitations on the number of annual transactions one can do without a license.
Regardless of whether you decide to operate as a wholesaler with or without a real estate license, there are certain risks you should always be aware of. To safeguard your credibility, as best practice, it’s always important to carry out proper due diligence by staying informed about your state laws. We highly recommend consulting a real estate attorney for their legal opinion. Also, be extra mindful of the language you use when sourcing deals and marketing them, so that all parties involved understand what your participation in the transaction is.
Land is a form of real estate often neglected by wholesalers. Most wholesalers flip properties, but flipping undeveloped land has unique advantages of its own. It requires less upfront capital, and there is less competition.
The typical land wholesaling model is the same as property wholesaling: you enter into a contract with a motivated seller to purchase the land below current market value, and then either flip the land or sell the rights to the purchase contract to a third party for a profit. But one added benefit of land wholesaling is there are options to further increase the value of raw land while you have it under contract, by subdividing it into multiple parcels or applying for a change in zoning.
Rezoning to Add Value
Rezoning, or changing the use district of a particular parcel of land, is a common way to increase the value of non-residentially zoned land. By changing the use district of industrial or agricultural land to residential or commercial use, you can increase the value of your land by anywhere from 100-400% of its original value. You don’t have to own the land outright to apply for rezoning – just make sure that rezoning is permitted in your contract with the seller if you intend to change its use district before flipping it.
The process of applying for rezoning can take a few months or up to 2-3 years, and in addition to meeting all the requirements set by your local authority, it’s also important that you research and understand your city’s plans for development in the future. For example, changing from a residential to commercial use district could either increase or decrease the value of land, depending on whether or not the city has plans to prioritize commercial development in that area in the coming years.
Subdividing land, or splitting a single plot of land into two or more parcels, can increase the value of land and the total amount of rental income you receive from it. Legally subdividing a property can be a lengthy process – it usually takes several weeks or months from start to finish, and will require that you submit an application to the local authority for approval. You also have to take into account the zoning restrictions and specific rules in your area (such as the minimum permitted plot size) when splitting your land into parcels, and will need to hire a surveyor to plat the land. Usually it costs between $1,000-$3,000 to subdivide a piece of land into two parcels, but the benefits of doing so can be considerable. Smaller parcels are more affordable, and thus appeal to a larger number of buyers and tenants, and it’s possible to increase profits on a single piece of land by as much as 100% when selling or renting it out as two smaller parcels.
As long as it’s permitted in your contract with the seller, you can subdivide land while still under contract, but you will need to close with the seller before selling the individual subdivided parcels outright. The major benefit of this wholesaling strategy is that you can subdivide a plot into 4 parcels, for example, and sell 2 of them outright, leaving you with 2 parcels that you own free and clear.
Don’t be scared off if you find a great piece of land to wholesale and you’re worried it will take too long to rezone or split. Instead, negotiate with the seller on a longer purchase contract as it doesn’t hurt to ask. If that doesn’t work, you can also try more of a partnership agreement with the seller, where you do all the work and then split the profits.
How to Monetize Undeveloped Land
Once you’ve sold some of your subdivided parcels and closed the contract on a land wholesale deal, you can sell the remainder of the parcels outright, or monetize them in other ways.
Developing raw land yourself can be a costly and time-consuming process which may not be feasible for wholesalers operating in different states. There are other ways you can generate income from land without having to develop it. These options do take more time and energy than simply selling your land immediately, but the result is higher profits on each plot you own in the long term.
Rent your land to a small business venture
Land leasing is a good option for achieving long-term returns on your investment. If you market your property to the right audience, you’ll find there are a whole range of unexpected business plans which only require raw land to get started. Archery ranges, escape rooms, and drone race tracks are just a few examples of businesses that will pay to rent land, even without any structures or facilities in place. These businesses generally require plots anywhere from .2 – 3 acres in size, so even if you don’t have a huge amount of land, this can still be a viable option for you.
Put up a parking lot (without paving paradise)
Having a parking lot can be an inexpensive way of monetizing your land. Even if your land isn’t near a very transited area, you shouldn’t necessarily discard this option.
Try to think of who may have parking needs and may want to pay lower fees than those charged in downtown areas. A perfect example would be truck, bus and coach companies, since these usually prefer inexpensive options to keep their vehicles overnight, as opposed to expensive central locations. For some of these clients, you won’t even need to pave the land, and they usually pay somewhere around $10 per vehicle for parking overnight.
Rent-to-own is a type of transaction in which the tenant is given the opportunity to buy the property outright after a maximum lease period of 5 years. The tenant usually pays you an initial deposit of 3-5% of the property’s value as a purchase option. A portion of the monthly rent then goes towards the purchase price of the land, and after the initial leasing period, the tenant can exercise the purchase option. If they choose not to proceed with the purchase, you can begin the process over again with a new tenant once the agreement ends. It’s also possible to monetize land using a lease-to-own agreement while you still have the land under contract. With a sandwich lease agreement, you can sign a lease-to-own contract with the seller, then sign a separate lease-to-own agreement with a tenant-buyer of your own, who pays a higher rental rate. Once the lease term concludes, you can complete the agreement with the seller and close the deal with your tenant-buyer.
If you’ve got a free and clear piece of land, it’s an asset, that like cash, you can invest in a deal. In this case you can put up your land as your part of an investment in a new construction or development project. Look for active builders and developers in the area of the land and see what they’re interested in doing.
If you subdivide into parcels, wholesaling land could lead to you owning some plots essentially for free. Whether you decide to sell these outright or pursue a long-term monetization strategy for the land you own, any revenue you receive will be 100% profit, and that’s perhaps the biggest advantage of the land wholesale investment model.
The two most important skills that real estate wholesalers can have are sourcing great deals on properties for sale and finding solid buyers for their purchase contracts. In order to maximize the number of potential buyers you reach, it’s therefore crucial to know how to advertise contracts for sale in an efficient way (without running into any legal issues).
Wholesaling itself is legal, but keep in mind when marketing your deals that selling someone else’s property without a license is not permitted in many states. You should always make it clear in all marketing materials that you are selling a purchase contract, not the home itself, otherwise you could run into legal issues. If you’re unsure, talk to a specialist real estate lawyer to make sure you are doing everything above-board.
With that in mind, here are some of the best ways to market wholesale deals to potential buyers without the need for a large advertizing budget:
One of the best tools a wholesaler can have is a great network of potential sellers and buyers. When you have an extensive network, you open up greater possibilities for word-of-mouth advertizing. Up to 50% of word-of-mouth referrals lead to a successful sale, which makes it the most powerful kind of marketing, and what’s more, it costs basically nothing.
Going to local networking events is a great way to meet people in your area who could one day become your customers, or help bring you potential leads. You can find networking events taking place in your city on Eventbrite.com or Meetup.com.
You could also consider joining industry-specific groups, like your local REIA, or a business club, such as Business Network International (BNI). Alternatively, there are also one-off real estate industry events which you could attend to find buyers and sellers in your area.
Linkedin has become an essential online marketing tool for sourcing leads and generating sales across a variety of industries. Its free version allows you to filter searches based on a person’s type of job, position, location, company size, and more, meaning you can target your marketing messages at potential buyers in your area.
Linkedin allows you to send a connection request with a message to those who fit your target customer profile. If you don’t have enough time to sift through hundreds of professional profiles and contact them individually, don’t worry – there are many tools, such as Scrab.in, which you can use to automate your marketing efforts through Linkedin.
You may think cold calling sounds fairly last century, but the truth is that cold calls are still an effective marketing technique – although less effective than referrals, cold calls still have a 2% successful closing rate.
If you’re nervous about the idea of calling up strangers, there are tools you can use to send potential customers a ringless voicemail instead, meaning you won’t have to speak to leads one-on-one until they call you back and express interest in the property. You can find contact details for your target market by using paid tools, like Skip Trace Lists.
Social media is one of the best options for marketing wholesale deals, because it provides a huge potential reach and requires less time and effort than other forms of advertizing. You can upload a description of the deal and pictures of the house to attract buyers, while also helping you build visibility for your company or personal brand. Having a dedicated Facebook, Instagram or other social media page to promote your wholesale deals will also make you easier to find for buyers searching for homes in your area.
In wholesale deals, communication is key when dealing with both the seller and the buyer, so always communicate clearly and honestly about the fact that you intend to market the property deal. When advertizing deals, you should disclose the current state of the property, and provide an estimate on any necessary renovation costs, as well as the estimated property value after repairs.
Being a successful property wholesaler is contingent upon not only locating a viable property, but more importantly, being able to find an end buyer – and quickly.
Whether you’re assigning contracts or double-closing, you want to move the property as quickly as you can. There’s no point in getting into a property if the potential for getting rid of it quickly is low. Your buyers list can be an invaluable part of your business. It provides the ability to contact serious, interested parties, as opposed to blindly cold marketing wanna-be investors. Since your buyer’s list is your lifeline to steady profits, you need to know the essential details regarding your properties, as well as the needs of your potential buyers.
What Is a Buyers List?
Your goal as a wholesaler is to contract properties below market value and then, as quickly as possible, pair that property with a buyer. Starting your search for an end buyer after you’ve got a property under contract will only eat into any profits by accumulating holding costs. Often, you may be forced into buying the property yourself. A buyers list is your inventory of real investors who you can contact to offer your wholesale properties. Building a useful buyers list can take some time, so networking is key. To help grow a list, start associating with real estate professionals, entrepreneurs, and investors. Many communities have an REI club, but you can make connections through other channels such as online real estate forums, Craiglist, Facebook, property auctions, networking events, or from the bandit signs you’ve placed.
Organize Your Buyers List
For your list to be useful, it should be kept organized and updated, prioritizing the most serious buyers or the ones most likely buy based on a set of parameters. Keep contact info current, take notes about the neighborhoods or property types buyers contacts on your list are looking for, so you don’t waste time and energy contracting houses you won’t be able to assign. Nor will you be trying to sell them a property that doesn’t interest them. Using a customer relationship management system (CRM) is an effective way to compile pertinent information across several channels, including social media. By analyzing the information in a CRM, you’re able to present properties to the investors most likely to buy, before resorting to emailing your entire list.
Educate Your Buyer
Understanding the wants and needs of the investors on your list will save you and your buyers time. Property investors are busy and don’t want to be bothered with every contract you’re trying to assign. When looking for properties to wholesale, you should have a buyer profile already in mind before closing the deal. If you think a property will suit a buyer from your list, present them with a concise package, don’t just bombard them with tons of information or data that they’ll have to crunch themselves. Provide vital information first, such as location, terms of the deal, property photos, a list of expected repairs, and estimated ARV. If, after a quick review, there is something that piques their interest, you can delve into more specific details.
To be a successful wholesaler, you should have a reliable buyers list at your disposal to effectively market any property under contract. Not all buyers on your list will be interested in hearing a sales pitch for all houses you’ve got under contract. Keeping your buyers list loaded with dependable contacts and updating it as needed will help you move those properties quickly to keep the
To be a successful property wholesaler, you need to find a property, get control of it, and move it as quickly as possible. One of the biggest challenges a wholesaler faces is handling a buyer or seller that wants to cancel a deal when they find out what the wholesaler is making. That’s why it’s wise to be familiar with the double-close, where the seller and buyer close separate transactions and never meet.
What is a Double-Close?
Often a wholesaler puts a property under contract, as a buyer, but then assigns the contract to another buyer at a higher price. With a double close, the wholesaler actually purchases and takes legal possession of the property, then has a separate closing to sell the property to their buyer. Though the double-close does add an extra step and expense, it doesn’t necessarily delay the whole process; many closings are still completed almost simultaneously. Also, if you’re tired answering the question, “Is what you do even legal?” The double close removes any whisper of impropriety or illegality.
Benefits of Doing a Double Close
Financial Confidentiality: When assigning the purchase contract for a deal, your original seller and end buyer will eventually know your contract price, the final contract price, and can do the math to figure out what you’re making on the deal. Either one of them can feel jilted and try to force you to renegotiate, taking money out of your pocket. Theoretically, you could sue either or both for nonperformance of their contract, but that may take a while, and a judge may not look favorably on the transaction.
Using a double-close avoids all this.
How To Perform a Double-Close
Since you, as the wholesaler, legally take ownership of the property, there are two closings, hence the name, to complete the deal. The first transaction is between you and the seller, where you are buying the property. In the second closing, you are the seller, so your buyer is purchasing the property from you. The two transactions can even occur in the same office on the same day.
Let’s be realistic, if it was easy, most wholesale transactions would use a double-close over a contract assignment. So, let’s look at why many wholesalers avoid using a double-close.
Purchase Funds: It’s much easier to get a property under a wholesale contract you plan to assign, then coming up with the funds to actually buy the property yourself. Lack of funds is why many investors are initially attracted to wholesaling to begin with.
Solution: Use your network to look for sources willing to do Transaction Funding. Transaction Funding is what it says – it’s a very short-term loan to facilitate a transaction. Most of these types of loans are for less than a week. Because the lender can’t make much profit on interest for only a week, expect fees and high-interest rates. If you do the math though, you’ll find the actual cost is reasonable.
Costs: Two closings result in two sets of closing costs – even if you’re closing on the same day. One for the transaction where you buy the property and one for when you sell it.
Solution: There’s no way to get rid of costs like title insurance and recording fees, but if you establish a relationship with a closing company/agent, they may be willing to waive or reduce some of their specific fees.
Finding Closing Company: Years ago, the double-close got a bad reputation because wholesalers were doing closings where they used the end-buyer’s money, to fund their purchase from the seller. This is pretty much no longer allowed, hence the need for Transaction Funding. Still, many closing companies/agents won’t do a double-close (with Transaction Funding) or require a minimum amount of days between the two closings.
Solution: Use your network to find a closing company/agent that understands the double-close and will work with you.
Many wholesalers were trained to simply assign contracts and view the double-close as illegal, and too complicated, and so not worth the hassle. As we’ve outline though, the double-close may be something to consider. The extra steps and costs may help you close more deals, while also protecting the spread in those deals.
You know those ugly signs you see when you’re sitting at stoplights that offer to BUY YOUR HOUSE FOR CA$H — those are called bandit signs. They are a disputed tactic in real estate circles, some people swear by them while others shun them.
Why They Work
Do you ever think to yourself, “Who keeps putting up these stupid signs?” Or better yet, “Who actually calls these numbers?” You might be surprised by the answers to both questions.
Answer #1 – Property wholesalers are responsible. Wholesalers look for motivated sellers to buy their (usually) distressed homes. Then they mark the price up and try to sell them off was quickly as possible without making any repairs.
Answer #2 – It should come as no surprise, but motivated property owners. They’re lured by the idea of getting quick cash and getting rid of a property they don’t really want.
So why are they so effective? The signs are purposefully designed to be simple and non-threatening. They target motivated sellers who want or need to get rid of their homes fast. The message is simple and clear. That’s why they look like some guy with a magic marker scribbled his number on some poster board and nailed it to a utility pole or stuck it on someone’s front lawn. And that’s not far from the truth, except for most of them are made from corrugated plastic. By being ugly and straightforward, homeowners are less intimidated to phone an “average Joe” than some real estate agent.
They are called bandit signs for a reason — they violate city ordinances in almost every community across the country. They are considered litter, so city crews just throw them away. That’s also why they usually pop up on Fridays after city offices close. Hefty fines can be levied per infraction and increase with the number of violations. Clearly, wholesalers remain unfazed by the threat of fines.
How To Profit From Them (Without Getting Caught)
1) Keeping your message simple and
2) Not using your company
3) Taking the proper steps to avoid
Only use prepaid cell phones
Never use your own name.
Place your signs on the weekends, most
city employeesonly work Monday thru Friday.
If possible, use private property to
place your signs. Ask the owner first.
4) Placing them in high traffic areas for maximum exposure.
Wholesaling is YOUR business, only you can determine what strategies to implement to meet your income goals. Bandit signs have been proven to be excellent lead magnets, but they aren’t the only tool at your disposal. If you decide to use them, it’s best to incorporate them into your overall marketing strategy.
Depending on your budget and goals, wholesaling deals can be found anywhere where you have motivated sellers, even in wealthier neighborhoods. Let’s be honest, though, most opportunities present themselves in more distraught communities where there are more distressed homes and foreclosures.
Tips For Locating Wholesaling Opportunities
Homes facing foreclosure or that already are in foreclosure, bank-owned properties, and property auctions present excellent opportunities for wholesalers. Foreclosures, however, are not limited to low-income areas, the crash of 2008 is a good example where millions of people faced losing their homes. People lost jobs, had medical events, or got divorced, even in affluent neighborhoods. These life-changing events affected anyone who wasn’t prepared with an emergency fund.
Characteristic signs of potential opportunities often include boarded up windows and entryways and unkempt landscaping.
If you’re having trouble finding properties to wholesale, look in areas where other, more experienced, wholesalers are buying.
Low-income areas and neighborhoods where many of the homes are rented present a good opportunity. They are prime breeding grounds for flippers or landlords who own houses in the area. These people are often looking for new opportunities. Many investors don’t know how to find deals, are too busy or just aren’t interested in hunting them out. That’s good for you. This gives you a chance to put a property under contract and to offer it to a local investor looking to add to their portfolio.
Neighborhoods with one or two homes per block are areas you want to avoid, there’s little upside and low probability that you’ll be able to move them. As they say in real estate — location, location, location. As a wholesaler, you want to get your property sold as quickly as possible. A flipper will only buy the property if they’re confident they can sell it after renovations. And a landlord won’t see the point of purchasing a property if there is no potential for renting it out.
Hot Tip of the Day: Look for areas with newly built government housing. Not only do these areas typically have fewer vacant properties, they generally have plenty of homes in need of rehab. Finding neighborhoods where people are investing is promising. New home construction is a sign of stability or even growth.
The internet age means it’s possible to find sellers without ever having to leave your couch. Digital “bandit signs” and pay-per-click ads on Google or Facebook are highly effective at honing in on a specific demographic. Using layered options and detailed targeting, you’re able to get your ads in front of an audience that will be more interested in hearing about your offer.
Running any business has its challenges, it’s your job to be creative and stay abreast of market trends. Finding properties to wholesale isn’t that difficult, but it does take some work. As you gain experience, build your buyer’s list, and hone your negotiating skills, it will get easier. Combining strategies will increase your odds of locating profitable deals.
When wholesaling properties, transactions don’t always run smoothly, sooner or later you’re bound to come across some deals that don’t go your way
The more experience you get as a wholesaler, the more will you be able to manage these imperfect situations. Other times, however, you’ll find that the deal just isn’t going to be worth your time, that’s when it’s time to walk away.
Sometimes you can’t agree on a price, other times circumstances change, that’s why you have to have an ironclad contract with contingencies that will allow you to get out if needed. Having something in writing will protect you when you’re faced with adversity or a worst-case scenario. To be a profitable wholesaler, you need to stick to your plan. Hold firm to your requirements and don’t allow yourself to be taken advantage of.
A good buy will ultimately depend on how well you negotiate the terms and conditions of the contract, it’s a give and take. Do not bend on your principles or agree to terms that don’t fit your strategy. On the flip side, this is a negotiation, so avoid being too hard-nosed, as well. If you can’t agree on critical criteria, it’s time to walk away.
When you locate a property, you’re eager to get the property under contract so you can find a buyer and collect your check. As with any other business transaction, when there are multiple people involved, timetables can get messy. Inspection dates and closings get bumped all the time, so you should allow for a reasonable amount of flexibility. One of the keys to successful wholesaling is seller motivation. When deadlines are not being kept or if you feel like the seller is stalling, it’s time to walk away.
This sounds like a no-brainer, but if you won’t make enough money, then don’t waste your time.
There are a couple of reasons for little or no profit. First, the After Repair Value (ARV) is too low. There’s no point in buying a property if won’t be able to sell it for a profit. Second, there isn’t enough equity. Sellers want to walk away with at least a little cash in their pockets, but if they’re upside down, you’d have to configure a short sale. A short sale brings an extra hassle, but it is possible. However, very often, sellers don’t have the money to bring to closing. So if either of these is true for you, it’s best to walk away.
The world of real estate is forever changing. New laws, new code requirements, new zoning ordinances are changing the face and landscape of real estate. Stay abreast of current changes to avoid getting stuck with a property under contract and not being able to find a buyer for it. If any newly introduced factor will prevent you from being able to turn a profit, it’s time to walk away.
As you grow your wholesaling business, you’ll learn to spot warnings signs that will trigger your instincts. You’ll have a sense when there isn’t enough upside to make the deal worthwhile. Not all of your transactions are going to be home runs, but do your due diligence and stick your plan. There will always be another property that will fit your parameters. When you see that things are headed south, it’s just best to walk away.
To be a successful wholesaler, you have to be prepared to work every deal you find, even when they aren’t ideal situations
A motivated seller is a motivated seller. If there is money to be made, don’t let a small glitch prevent you from considering a deal. Wholesaling houses with mortgages is part of that deal.One of the burdens of home ownership is the mortgage. Even homes in affluent neighborhoods go into foreclosure. Remember the crash of 2008? Millions of homeowners lost or were at risk for losing their home because they were underwater on their loans.
Equity Is King
Some wholesaling deals will involve houses with debt. What matters to you as a wholesaler is the amount of equity the seller has in their home. It’s much easier to close a deal if you can offer them more than what is owed. They’ll simply use the proceeds from the sale to pay off their loan.
Some homeowners are still hesitant because they aren’t motivated enough. When the seller needs some convincing, remind them of the cash they’ll have in their pocket when this is all over. Look, the seller wants two things from the sale of their home, 1) to get out from under their home debt, and 2) to walk from the deal with some cash in their pocket. If your offer price is higher than what they owe, then the latter is true, but that’s not always the case.
The Short Sale
A less desirable option is the short sale. This type of transaction occurs when a seller owes more on the house than it’s worth. Though this is not ideal, anything is possible. Many wholesalers would, instead, not get involved with short sales because of the extra hassle involved and find it not worth their time, so they move on. This presents you with an opportunity. The seller would already have to be in default on their loan, be willing to take a hit to their credit score AND be able to bring cash to the closing table.
It’s important to realize that there are many reasons why a seller might be eager to sell or why they are behind on their mortgage payments. They may have inherited the home or suffered a job loss. Just because they are underwater on their mortgage, doesn’t mean that they don’t have cash in the bank. They may be going through a divorce or being relocated for work. The takeaway here is, don’t presume anything, your goal is to make money. If the deal presents an opportunity to do so, don’t make assumptions about the seller’s motivation.
Wholesaling houses with mortgages is really no different than most real estate transactions. It is far more common to find a seller that still owes on their home than one who owns it outright. As a wholesaler, that is the leverage you want. Your only concern is, can you find a buyer? It doesn’t matter to you how much the seller owes if you can strike a deal that turns a profit.
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
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.