Do you want to invest in real estate without financial risk and without money or credit? The sale of houses to the wholesale is a popular choice. Personally, I think wholesaling can be a challenging way to start, but the fact that you can start investing in real estate without any barriers to entry makes wholesaling an attractive option. If you can be good at this side of the business, you will be successful in whatever you want to do. The reason I say finding bargains is what makes a wholesaler successful. If you can get good results in your search for deals, you have unlimited potential.
Once you find a deal, you need to understand how to sell it to make your profit. Here are four ways you can structure your wholesale properties.
Contract assignment - This is the easiest, but carries some risks if not done correctly. It is also somewhat restrictive, as bank owned properties will prevent this. This works well when negotiating your deals directly with the seller. The way this works is that you will get a house under contract and then assign your rights in the contract to another buyer for a fee. That new buyer will assume the rights and responsibilities in the contract and will close in your place. The fee is best paid up front, but it is very common for you to pay it when the buyer buys the home. Here are some things to keep in mind when assigning contracts.
Make sure you always distribute to your seller what it is or you can assign the deal to another buyer for a fee. I suggest you put this in the contract. Sellers must agree to this if they are transparent that you are an investor buying houses for profit before you start trading.
You would get money from your money that is at least enough to cover all the money you put up with your seller. That way, if your buyer defaults on the agreement, you should at least cover your costs. Always try to get the full fee paid when you assign the contract.
In this way, I like the best because it is easy to do, it is easy for the buyer and the lender, and it is the cheapest way to do it.
Double closing: This just means that you actually buy the house and then resell it. There are several ways to do this, but the most common is to buy and sell.on the same day or in one day. You will typically need to provide financing to finalize the closing with the seller, so this is my least preferred method of wholesaling. Also, since you have two closings, you will have two sets of closing costs, so this is also the most expensive way. That said, some wholesalers prefer this method because they do not have to disclose their intention to resell to the seller, and both can keep their dealings with the seller and their dealings with the buyer private. Some believe this is a good way to protect your earnings. The information will become a public record at some point, but that's fine after closing.
This is the method you'll use by default if you don't do your front-end contract correctly, which is why we see double closing frequently.
Flip the Entity: This has become the most common form of wholesaling in my market. Most, if not all, successful wholesalers will use this strategy. Especially when wholesaling foreclosures where contract assignments are prohibited.
The way this works is that the wholesaler will establish a separate entity, such as an LLC or Trust, and place that entity as the buyer of the home for wholesaling. They will then sell the entity for a fee. The benefit of using this strategy is that the actual contract on the house does not change. Since the home buyer is the entity, there are no problems with any regulations or allocation restrictions. The downside is that it could be more work due to the extra step to set up the entity, and there could be additional fees to register the entity with the state. The risk to the buyer is that when you buy a business, you are buying everything. So if the entity was used in another transaction and you owe someone money, the new buyer could be on the hook. Knowing this,
Close relationship: I don't know if there is a real name for this method. In fact, it is rarely seen. What I mean by close relationship is that you have such a strong relationship with a buyer that you write offers on behalf of the buyer. For this to work, you must be a licensed agent and preview houses for your buyer. You will need to understand their criteria and only bid on the homes they will want to buy. I have a client that works this way. He has an agent who writes his offers and the agent / wholesaler receives a commission for each successful closing. They make 2 to 3 offers a month with this strategy. My client just signs contracts without looking at them at this point and trusts that the wholesaler is putting together solid offers. There is always an inspection clause that protects the buyer and the agent, but more than 9 out of 10 houses under contract are closed. This is because the agent / wholesaler knows the business and knows what this buyer will buy.
I would steer clear of this method, especially if you are just starting out. Much can go wrong. I wanted to mention it because it is one of the 4 ways I see people wholesale. If you are just starting out, I would focus on contract assignments and then change the entity.
