Wholesaling real estate or paper flipping, is often marketed as the way to start making money in real estate if you have no money. However, there are two things you need to know if you want to go into wholesaling: 1. It’s not as easy as it sounds 2. To do it right, you’ll actually need some money. How does wholesaling real estate work?
The Basics of Wholesaling Real Estate
The concept is simple. When you wholesale a property, you act as the middleman (or woman) between two parties: a motivated seller and a cash buyer. A motivated seller is someone who is in a hurry to get rid of their home for whatever reason. A cash buyer is someone who has money to close a deal today, without getting a mortgage loan from a bank. The trick is in locating the these buyers and sellers and bringing them together.
Finding motivated sellers
Have you seen those signs on the side of the road that say “We buy ugly houses”, “Cash for houses”, and the like? This is one way that wholesalers find people who want to sell their homes. They take down details from the people who call and meet with them one on one to look at the house. All those signs won’t come cheap. You can spend hundreds to thousands printing enough to cover a local area.
Driving around looking for homes that have “For Sale by Owner” signs is another way to look for motivated sellers.
You can create a website to give yourself an edge and help your business seem more professional. To reach more people, add digital advertising to your strategy by placing ads on Facebook, Craigslist, and Google. If you’re not sure how to do these things, you can hire a freelancer to help on Upwork or another of these websites.
Finding cash buyers
You’ll need to create a strategy around getting cash buyers, too. You could go to home auctions and foreclosure sales to meet people who are buying houses. You can also join real estate investment clubs to network with fellow real estate investors. Make sure you get contact information whenever you meet real estate investors. Use their contact information to build your own list of potential buyers to shoot an email when you have a deal to offer.
Another tactic to try is meeting with real estate agents agents and brokers who may know cash buyers interested in your deals. Put agents and brokers on your buyers list as well so they can tell their clients about your deals.
Bringing sellers and buyers together
Now comes the tricky part: connecting the seller to the buyer. When you meet a motivated seller, you’ll make them an offer on their home. After any negotiations, you and the seller will sign a contract for the purchase of the home at a certain price. Now you’ll need to market the home to your list of cash buyers. When you get a buyer, they will take over the contract to buy the home, and pay you a fee for bringing them the deal. Wholesalers typically charge a percentage of the purchase price of the home, earning you few thousand dollars in one deal.
Make sure that you have a good contract that has escape clauses to relieve you of having to buy the house if you’re unable to find a buyer to take over the contract within the time the contract lays out. You’ll probably need a lawyer to help with this.
Wholesaling real estate takes work. You’ll need to invest time and money into building up your contacts and your business tools. As a recap, the things you may need to spend money on as a wholesaler could include:
- Digital marketing ads
- Lawyer to write/review your contracts
It’s not easy, but it is a possible way to make money in real estate.