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Wholesaling

Can You Wholesale Real Estate 100% Online

Wholesaling real estate appeals to many investors, because it allows you to invest in properties without any upfront capital of your own, or the headaches that come along with owning and maintaining a physical property. 

Now, with work-from-home seemingly here to stay, more and more people are searching for ways to get into property investments (while they can still hopefully secure a good deal on a home from a motivated seller) – only they want to do it 100% remotely. 

But can you wholesale a property completely online, without ever seeing it, or meeting your buyer or seller, in person? Let’s consider why or why not. 

What is wholesaling real estate?

Wholesaling real estate is essentially matching sellers to buyers, and taking a fee for your troubles. There are a few different ways to carry out the process, but in general, it works like this:

  1. A wholesaler finds a motivated seller and negotiates to purchase their (often distressed) property at a below-market-value price.
  2. They sign a purchase agreement.
  3. The wholesaler finds a buyer and signs an assignment contract, assigning to the buyer the right to buy the house at a slightly higher price (the amount specified in the initial purchase agreement + the wholesaler’s “assignment fee”).
  4. The wholesaler hands over the paperwork to a local title company, the buyer and seller close on the deal, and the wholesaler receives their fee.

How can real estate wholesaling be done online?

Viewings

Wholesaling digitally is not impossible. In fact, according to the National Association of REALTORS®, more than half (52%) of homebuyers in 2019 found their home through the internet. And, because of the pandemic, shifting to online viewings  is only going to become more common.

Nowadays, you can use 3D tours, video calls, and Google Street View to get a feel for the property and its surroundings, no matter where you are in the world. 

However, there are some definite cons to wholesaling without ever viewing a property in person: 

  • You’re limited to what’s listed online. Many wholesalers find the best properties by driving around target neighborhoods and looking for distressed houses. If it’s already advertised online, chances are you won’t be able to negotiate as good a deal, since there will be agent commissions to pay (although you can still find some deals this way, and by focusing on FSBOs). The other option is to have an awesome inbound marketing strategy – more on that below!
  • You can’t catch hidden problems. 3D tours and video calls will never completely make up for seeing a property (and the area it’s located in) for yourself. You can work with a local inspector or field agent on the ground, who will give houses a once-over for you, but you’ll have to ensure you trust them to spot any potential problems with a discerning eye.
  • You won’t be able to negotiate contracts in person, which can make it a lot harder to read the seller and build a rapport with them. 

That being said, lots of experienced investors do buy houses sight-unseen. So, if you want to know how to wholesale online, here’s what you need to consider next:

Building a cash buyers list

The goal of a wholesaler (once they’ve negotiated a Purchase Agreements) is to find a buyer for the property. To do this efficiently, you need to build a list of contacts—either owner-occupiers, or individuals/companies that are looking to buy distressed houses and flip them at a profit.

Typically, you build this network by sending out mailing lists, taking out ad placements, or attending in-person events. The goal? Make distressed sellers come to YOU. Just keep in mind that, for every 100 ad impressions you get or emails you send out, you’re probably only going to get 1 response – maybe up to 3, if you’re really lucky. So it’s a numbers game. 

Fortunately, though, there are also lots of ways to develop your cash buyers list completely online, by:

  • Joining real estate groups in MeetUp.com or Facebook
  • Running ads on Facebook, Google Ads, or other social media platforms
  • Setting up a website and gathering emails through a signup form – then sending out regular newsletters to your mailing list with details of all your available properties

Ideally, you’ll want to get the contact information and purchasing criteria of these buyers, and keep a simple database of their requirements and preferences, like:

  • How can I contact you for real estate deals?
  • Which area do you want to invest in? 
  • What kind of properties do you prefer? What do you want to avoid? 
  • What type of investment are you looking for? Is it cash flow, house appreciation, flipping, or do you want to live in the home yourself?
  • How quickly and often can you close deals? 

Negotiating the Purchase Agreement

Once you’ve found some properties and have a cash buyers list, you need to evaluate each deal based on the following:

  • The market value of the property
  • The cost of repairing/renovating the property
  • The Assignment Fee you’ll be taking as part of the wholesale deal

Keeping these three things in mind will help you calculate your maximum allowable offer (MAO). 

Then, you have to negotiate with the seller to agree to a price that leaves room for you to make your profit as a wholesaler. This is where working online becomes potentially tricky: at some point, you’re going to at least have a phone conversation (or several) with the seller, and without meeting them face-to-face, you need to have some pretty great skills as a salesperson to seal deals consistently over the phone. 

Except, of course, if you’ve done a great job advertising your wholesaling business online, and motivated sellers are beating down your door trying to sell you their houses. In that case, the sales calls should be pretty straightforward!

For more wary sellers, you can try using video calls, but many won’t be used to Skype or Zoom, and many others won’t bother giving you the time of day. A lot of homeowners balk when they hear you’ll be putting in an offer without viewing the property in person – however, if you have a local agent going to view properties on your behalf, this isn’t usually a problem. 

Once you’ve signed the Purchase Agreement, the next step is to start advertising the deal to your buyers list – and for that, you’ll need marketing photos. Even without visiting the property, though, you can get these relatively easily, either by asking the owner to take some for you, or getting your local representative to do it. 

Closing the deal

Another common concern when wholesaling (even in person) is that, once the buyer and seller both see the amount you’re receiving from the deal as your Assignment Fee, they’ll want to back out, because they think it’s unfair that you’re making a profit from the sale. 

When wholesaling real estate online, this can be even more of a danger. All they have to do is stop replying to your emails, and work out an arrangement between themselves in person. For that reason, a double closing may seem like the better option for online wholesaling. 

In brief, the difference between assignment and double closing is:

  • Assignment of Contract is when you have the property under contract and you transfer those rights to another party (without ever owning the property yourself).
  • Double Closing is when you buy the property yourself, then immediately (often on the same day) sell it at a higher price to another buyer.

You’ll still need to have a representative attend the closings on your behalf, but it is possible to close on a house remotely, using e-signatures. 

Closing wholesale deals online can therefore have several benefits, like:

  • You don’t have to wait long for physical documents to be signed, making it faster and more convenient.
  • The back-and-forth requires less energy than driving to in-person meetings.
  • Distance is a non-issue, so you can work with buyers and sellers who are out-of-state, or even out-of-country.
  • Everything is documented properly, with a digital paper trail.
  • You can access all of your essential documents in one place using cloud storage.

Summary

So, can you wholesale real estate 100% online? Yes, you can. 

Should you wholesale real estate 100% online? That’s another question.

Most forms of real estate investing are not a way of generating passive income – unless you’re investing in a REIT (real estate investment trust). Typically, even with wholesaling, you want to view the property in person to make sure you’re getting what you paid for (and not taking on any nasty, expensive surprises which will prevent you from re-assigning the contract to a potential buyer). 

However, if you have trusted partners on the ground who can meet with buyers and sellers and attend viewings and property inspections on your behalf, then wholesaling online becomes a lot less risky. 

And, with our world becoming increasingly driven by technology, virtual wholesaling will probably only become more popular in the coming years. 

That’s because now, with just a working laptop and fast internet connection, you can:

  • View properties (sort of)
  • Build your cash buyers list
  • Negotiate Purchase Agreements
  • Close the deal and collect your fee

All from the comfort of your own living room! 

Image Courtesy of Pixabay

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Wholesaling

When To Walk Away From A Wholesale Deal

 When To Walk Away From A Wholesale Deal.

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. 

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Wholesaling

How to Wholesale Houses with Mortgages

A row of houses.

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. 

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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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Uncategorized

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.