Categories
Wholesaling

Where to Find the Best Real Estate Wholesaling Deals

Like plenty of new investors, you may have decided to try out real estate wholesaling.

Using this investment method, the turnaround period is short, and you don’t need a lot of money (if any) to start—this is why a lot of first-time investors gravitate towards wholesaling.

However, to be successful at it, you do need to find the best properties for wholesaling. After all, not all deals have an equal potential for giving you the returns you desire. You’ll need to source houses significantly (ideally around 50%) under market value, and for that, you’ll also need to be dealing with motivated sellers. 

Finding these kinds of properties isn’t easy – that’s why not everyone and their mother is out there working as a successful wholesale. But to get you started, here’s a guide to help you source profitable wholesaling deals.

Offline Methods

There are two main kinds of wholesale deal sources: offline and online. Though many will consider online methods to be more efficient—especially in today’s digitally driven world—offline techniques also have their benefits.

Those who were successful at real estate wholesaling started their careers with these old-fashioned methods. Though these methods often require more time and resources to set up, you have a good chance of sealing your first deal with the help of these proven techniques:

Driving for Dollars

Before the internet, driving for dollars was one of the most popular ways to hunt for wholesale leads. If you’re tight on budget, this old-fashioned way can still work wonders.

You simply hop into your car and drive through target neighborhoods (i.e. places where buyers actually want to live or invest), looking for properties that show signs of neglect. Some signs to look for are the following:

  • Abandonment or vacancy
  • Overgrown lawn and plants
  • Boarded-up windows
  • Visible damages
  • Uncollected trash

Once you spot a potential property, use public records to find the name of the registered owner, and contact them to make an offer. Often, an unused property could be more of a burden to the owner than a boon – like the unwanted home of a deceased relative, for example – and they’ll be fairly motivated to consider letting someone take it off their hands.

Bandit Signs

Bandit signs are another low-cost and effective way to find deals in your local housing market. Often spotted on random street corners or busy traffic areas, these signs say things like “We Buy Houses” or “Sell Your House for Cash”. Place them in the neighborhoods you want to target for your real estate wholesaling deals.

However, before you start putting up your own, just make sure that these signs aren’t illegal in your area!

Direct Mail Campaigns

This involves sending out postcards or letters to potential sellers, expressing your interest in buying their property. Direct mail campaigns can be effective, though they’re a bit pricier and slower to generate leads than their equivalent online methods.

You’ll need to secure mailing lists and be persistent with getting a response. To increase your success rate, only target owners of pre-foreclosure properties, high equity or delinquent mortgages, probates, and other types of motivated sellers.

Networking

Joining local real estate investment clubs is a great way to find deals. There may be sellers that just haven’t listed their properties yet, which a network of agents, investors, and attorneys can inform you about. Making connections in the industry will also grow your buyers’ list, increasing your chances of closing deals on both ends.

Newspapers

Old-fashioned newspaper advertising can help you reach sellers who aren’t online. After all, 10% of all Americans aren’t online—equating to nearly 33 million Americans!

To avoid missing an opportunity for a real estate wholesaling deal, you can reach more people by posting “I Buy Houses!” ads in local newspapers.

Online methods

Online methods are often more convenient and faster at producing results, though they may not always be as effective as offline methods—and there’s plenty of competition online that you have to contend with, too! Nevertheless, you can still discover a lot of good deals online that you wouldn’t find otherwise.

Here’s how:

Wholesaling Website

Creating a website allows you to target a larger customer audience. With a single click, you can reach thousands more people—a lot more than you can reach with local signages.

Your website should sell yourself as a willing and capable real estate wholesaler, convincing people to trust you with their property. You should optimize your website with SEO, PPC advertising, and social media marketing (as well as retargeting ads) to generate leads and seal more deals.

Expired MLS listings

Expired MLS (Multiple Listing Service) listings are properties that weren’t sold by the date specified in the listing contract between the seller and the listing agent. There aren’t a lot of properties that get this far, but a real estate agent or broker should be able to help you find these deals.

To do this, focus on a particular city or neighborhood, check the properties within, and get in touch with the owners of the expired listings to show your interest in their property. Usually, they’re pretty motivated to sell, since the property has already sat on the market for a long time with no buyers coming forward.

Online Forum and Auction Sites

Craigslist, Hubzu, ForSaleByOwner, and Auction.com are places where people often post to sell quickly. This makes them potential gold mines for real estate investors, and wholesalers in particular. If you move faster than your competition, you can snag some great deals from these websites.

Final Thoughts

For you to be successful in real estate wholesaling, you have to make numerous offers to seal enough deals—both online and offline.

Once you find a motivated seller with a distressed property, make sure to move fast to get them under contract. Then, follow through with assigning the rights to your buyer and collecting your fee, before beginning your search anew!

Any other sources we’ve missed? Which one’s your go-to strategy to find deals?

Image Courtesy of Aleksejs Bergmanis

Categories
Landlords

Pros and Cons of Assignment of Contract

The most attractive thing about wholesaling as a real estate investment strategy is that you can do it with no money of your own and none of the headaches that generally come with owning a property.

There are two ways to wholesale real estate: double-closing and assignment of contract. We covered the down and dirty of double-closing a few months ago, but now let’s take a look at the pros and cons of wholesaling using the assignment of contract method.

What is Assignment?

An assignment of contract is when a wholesaler enters into a purchase agreement with a seller, giving them the right to sell the contract to a buyer for a fee. The good thing about this is there’s no capital gains tax involved (but you still need to pay about 30% ordinary income tax, depending on your tax bracket, if you’re holding it for less than one year).

Pros

  • Assignment is cheaper than double-closing: Because there’s only one set of closing costs to pay, this is the most cost-effective wholesaling method.
  • It’s a good selling point: You can negotiate a better price from sellers by assuring them that it will be a smooth and easy transaction, you will cover all their closing costs, pay off their lenders, and then deliver their remaining profits to them.
  • It’s simple: You find a buyer, sign an agreement, put the ‘earnest money’ into escrow, then step back and let the deal go through. It’s also easier to explain to titles companies than a double-closing, if the company you’re using isn’t experienced in wholesale deals.
  • Assignment can be done quickly: The process doesn’t require much time from your end – often just the amount of time it takes you to market and find a buyer. Because there’s only a single closing, that part of the process is usually faster than with double-closing, also.
  • It can create opportunities for repeat business: If done right, this can allow you to establish a relationship with the buyer and do repeat business with them over time. The most important thing here is to remain transparent, so that all parties are aware that you’re making money and are bringing value to the deal, whereas this is less clear with a double-close.

Cons

  • Your assignment fee is visible to all: One of the cons about this arrangement is that your fee will appear on the settlement statement. As we said, this kind of transparency can help you form lasting business relationships with your buyers, but it also can make some buyers and sellers wary. If you’re making a hefty sum, the seller might be taken aback or begin to rethink whether they’re getting a good deal or being ripped off by you. By the same token, buyers might think they could get a better price elsewhere, so it’s possible either party could try to back out of the deal once they realize you’re making money off of the transaction.
  • State legalities could be an issue: Realtors lobby hard to keep laws tight against wholesalers so they can avoid losing business in their respective states, so you need to remain vigilant and politically active to safeguard your rights and your business.
  • It can limit your options: You need to verify with your buyer if they intend to pay in cash or use bank financing. Keep in mind that some properties, like short sales and bank-owned homes, can have no-assignment clauses in place, which means you can’t use this method to wholesale these properties.

Assignment of contract is a good way to approach wholesaling if you’re looking for quick, relatively easy transactions and the opportunity to develop long-term relationships in the industry. However, this method might not be the best for those who want to make large profits off of each deal they do, as it can put off buyers and sellers alike. A good rule of thumb is to use assignment only if you’re making less than $10k off a deal, and to always be upfront with all parties about your fee and the benefits you bring to the table in exchange for this fee.

Ultimately, the efficiency of assigning a contract means that you can complete more transactions in a shorter period of time, which can make up for the fact that your fee will be smaller than in a double-close scenario. If you’re uncomfortable with the idea of being transparent about how much you’re making, or if you want to get bigger returns from each deal, then opting for a double-close is probably the better choice.

Image Courtesy of Cytonn Photography

Categories
DIY

How Much Should You Pay Yourself vs. Reinvest in Your Next Flip?

A common question flippers have is: “How much should I reinvest in my next flip out of what I make in profit?”

The usual answer? “However much it takes!”

Instead, let’s try reframing this question in a different way: “How much should you pay yourself from each flip?” Answering this might be a better way to gauge if you need to take out just enough to cover living expenses, or if you need to be giving yourself some kind of salary.

Here are some things to consider, if your goal is to maximize your profits and flip more houses:

For New Flippers:

Flippers usually aim to make about 20-30% ROI for every house flipped, although this figure is dependent on costs and how long it takes for each sale to go through. But here are some guidelines to follow when deciding how much profit you want to reinvest in your business vs. keep for personal use:

What are Your Revenue Streams?

Do you have a full-time job that can cover your daily living expenses? If so, then consider reinvesting all the profits back into your next flip – this is the way to achieve the fastest growth in your portfolio.

If you’re flipping full-time, you could choose to keep 10-30% of the profits for yourself, which is how some flippers choose to operate. Alternatively, you could work out what your living expenses are, just keep that amount back, and reinvest the rest, but keep in mind that this will slow down your growth rate.Imagine you paid yourself 30% of the $60k in profit from the example above – that would leave you with just $42,000 to reinvest. Is this enough to help you move up the property ladder with your next flip?

Consider a Live-In Flip

Alternatively, you could consider live-in house flips as another way to “pay yourself,” by negating your own housing costs and writing off expenses, such as tax deductions and double  mortgages.

Experienced Flippers:

If you have a partnership structure, there are more complex issues to think about, like how to divide profits and disperse them in a way that makes sense, tax-wise .

Work Out a Profit-Sharing Agreement

Some calculate profit sharing depending on the number of hours they put in, while others go for an even split (like 50-50, for two partners), regardless of the division of labor. There’s no “one size fits all” formula to this, so you should set clear targets ahead of time for  how much you’d be willing to pay someone else for the skills and/or resources they bring to the partnership.

Know the Tax Implications

Find a knowledgeable CPA to work with and discuss your partnership agreement with them, before you decide how to disburse profits. If you pay yourself a salary, any earned income could be subject to self-employment tax at a rate of 15.3%. That being the case, it might make more financial sense if the profits come to you as dividends, instead.

Know Your Value

The terms of your partnership agreement will determine how much you yourself get paid vs. your co-investors or flipping partners. So, when working out this arrangement (whether you go for a limited partnership or an LLC), make sure you’re being valued appropriately, relative to what you bring to the partnership. Again, it’s always best to seek out an attorney and a tax specialist for guidance here.

Ultimately, the decision is yours. But one good model is to flip 4 properties, then keep the 5th as a rental for steady income. This approach lets you diversify between long- and short-term revenue streams, giving you small amounts of income in steady increments (in the form of rents), as well as larger amounts of income in more irregular intervals (from the sale of flipped homes). Having a balance like this can help you to achieve financial stability in the long run – and this is the same way many traditional businesses structure their revenue streams, too.

Image Courtesy of Rodolfo Quiros