Wholesale vs Flipping Part 2!!
If you are a new investor, or are considering becoming a real estate investor, wholesaling and flipping are two great ways to get started.
As I reported in my last blog: http://coloradorealestateblogger.com/real-estate-investing-101/– Wholesaling properties is a great way to put some quick cash in your pocket. The trick is to find houses at 65% of market value or lower. Marketing is the biggest challenge to all investors. New or experienced. You will have to figure out what type of marketing works for your budget and for your area. (there are many blogs, books, and gurus that teach the art of marketing).
Step 1. When you are contacted by someone interested in selling their house, get an appointment to look at the house. Do not try to negotiate a deal over the phone! Evaluate the property. This may require the assistance of another investor or a contractor to help you estimate the repair costs. Carefully run your numbers and then add a reasonable profit margin. $5000 dollars plus or minus is standard. Come up with a price you are willing to offer. Always emphasize to the Seller that this is a cash deal and you will be paying the closing costs.
Step 2. Negotiate a deal for the house you find and put it under contract. New investors should find a local experienced investor and purchase the contracts. Then have them reviewed by a real estate or contract attorney. Note: Make sure to factor closing costs into the final price you negotiate. You want these costs to be paid by your buyer not by you!
Step 3. Find a cash buyer (usually a fix and flip investor) to sell your deal to. Buyers are also found by marketing. Signs and Craigslist are the best. Build a buyers list for everyone that contacts you. Warning! Do not inflate your wholesale profit. Leave enough money on the table for the cash buyer. Remember, they are the ones taking the risk. If you add too much profit into your wholesale deals, you will get a reputation for gouging and lose customers. (Believe me, word travels fast)!
Step 4. Assign the contract, or set an official closing, get your check and move on to the next deal. Wholesaling is a volume business, and not about hitting home runs on every deal!
Step 5. Send your buyer a thank you note. Also contact your buyer to see how things are going. This would be a great opportunity to ask them if they would be interested in buying more of your deals. You can also question them on the specific types of deals they are looking for.
Occasionally a large profit on wholesaling can be realized. However as I stated early this is not the norm. I am associated with a group of wholesalers who in some cases have put a house under contract at less than 40% of market value. In those cases a 5 figure profit can be realized. On rare occasions 6 figures!
In this blog I have given you some of the general principles in wholesaling. There are many techniques and nuances to making the deal happen. The more information you can find and learn, the better you will become. Of course there is no substitute for experience!
Next week Wholesaling vs Flipping part 3!!!