Flipping houses is all the rage, fed by several popular television shows with high profile flipping personalities. It looks like fun, and it can be. You can use the fix-and-flip strategy, but this article is about wholesale flipping. The wholesaler has no intention of doing anything to the home. They buy and resell the homes with a profit for themselves in the middle.
The wholesaler’s value to their customer is in locating properties that their buyer wants and can buy at a price below current market value. Since their buyers are usually either fix-and-flip investors or rental home investors, everybody involved is market-savvy, and the wholesaler can only add value to the transaction if they can locate properties that their buyers cannot or are not willing to make an effort to locate.
The Fix-and-Flip Buyer
This is another real estate investor who wants to buy properties that need repairs and rehab, usually a significant amount of work. They profit through buying right and from the markup on their rehab work. As they often sell to a rental investor, this runs everyone’s numbers down, as that rental investor buyer wants to buy a value property as well.
The Rental Home Investor
This is the end user of the property, intending to profit from cash flow and appreciation in value over time. The rental investor buyer wants a tenant-ready property, not wanting to do any work on it other than minor cosmetic repairs. They also want to buy below market value to lock in a profit at the closing table.
Step 1: Find a Buyer
This is where the “back to front” in the title applies. You start with the deal-ending sale to work your way backward to the purchase of the home. The successful wholesaler holds a property for a very short period, intending to profit from their ability to locate deals and negotiate a price that will provide a profit in a quick sale.
You must know approximately what a buyer will be willing to pay for homes and in what neighborhoods before you begin your property searches. To gain this knowledge, you must know some buyers, and this is why successful wholesalers build buyer lists. They advertise in classifieds, on Craigslist, and some join real estate investment clubs to meet other investors. They meet and get information from rental property investors about their property location, cash flow, and appreciation requirements. Having ready buyers with cash and knowing what they want, then the wholesaler can move backward to their profit desires before they seek out properties.
Step 2: Set Your Profit Goal
Using an example, you have a rental property investor buyer always seeking properties. You know her favorite neighborhoods, home sizes, and price range. You also know that she wants to buy homes at a 10 percent or better discount from current market value, and they need to be rent-ready.
You want to set your profit goals, and this is individual, and it’s all up to you, though you do have to respond to market forces. You could just set a dollar amount per deal, as wholesaling is a fast turnover profit if you line up buyers first. Maybe you want to make $5,000, or maybe a percentage of the purchase or sale price. It’s your decision. Be careful and don’t be too optimistic, as you want to allow for error.
Step 3: Locate and Buy a Property
Now you start marketing and working your sources for distressed homeowners who for whatever reason need to sell their homes but haven’t been able to do so. Maybe they have a job opportunity and need to move in a hurry. Perhaps they have a need for money for an emergency. Whatever the reason, you must find someone with enough equity in a home to meet your goals and a need to sell quickly.
You start at the tail end with what a buyer wants and what they’ll pay. Then you decide on your profit goals, and you go out and find a property, negotiating a price that will meet your profit goals and the goals of your rental investor buyer. This is the recipe for successful real estate wholesaling from back to front.
Wholesaling properties can be a great way to make money with little to no investment. Learn 2 ways to fund a wholesale real estate deal with little to no cash.
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