Wholesaling Real Estate in its Simplest Form is Just Getting Houses Under Contract

LOCAL RECORDS OFFICE – A decade ago I got home from a night out with friends, It was after 2am and I was not tired so I turned on the tube. Crazy I know, but I was young and full of energy. Back then we did not have “on demand” so I was at the mercy of plain old cable TV. I was flicking through channels when I saw Robert Kiyosaki. He, of course, is the author of Rich Dad Poor Dad, and one of the people I was studying at the time. He was selling his Choose To Be Rich home study course. That was the first and only time I purchased something on late night TV, and I don’t regret it.

 

When the product arrived I was excited to start listening to the CD’s. I can’t say that it was a huge benefit to me, but there was one thing he said in that course that really got me thinking. He said that rich people find ways to create money. It is like pulling money out of thin air just by being creative. One example of that is to negotiate deals, on real estate, that are marketable. In the markets we do business in, we hear people complain that they can’t find good deals.

 

“One of the easiest ways to do this is to make your contract assignable and assign your rights in the contract for a fee”

 

They complain that they want to wholesale deals to generate some income, but no one is accepting their offers. Wholesaling real estate in its simplest form is just getting houses under contract that you can sell for a quick profit. With this strategy you don’t need any money or credit, and you take virtually no risk.

 

This is a very attractive strategy for people starting out, so most of the gurus will tell you they can show you how to do this in hopes of you buying their course or going to their seminar. One of the easiest ways to do this is to make your contract assignable and assign your rights in the contract for a fee. The last time I wholesaled a house I made $15,000. Right now I am working with a client that will make over $125,000 on a wholesale deal. He and I have been part of a deal where the wholesaler made $250,000. Now most of that is not the norm. What is more common is $3,000 to $5,000 per deal.

 

Understand What Wholesale Really Is

 

When you think of a wholesale deal, you are thinking of a steep discount property that you can buy to fix and resell for a profit. Most often, that is the case; but not all wholesale deals need to be big discount properties. I and some people I know would be very interested in buying some deals with great terms. In fact, I could pay full retail price if the terms made me money.

 

Equity is Nice but, Not Necessary

 

A buyer looking for a long-term deal wants to know what it will cost him or her and what the monthly return will be. A simple example could be a house worth $100,000. If you are able to negotiate with the seller a lease option, subject to, or some other type of installment sale, you can create cash flow that is marketable.   Let’s say you are able to take title with no money down and a payment of $800 interest only a month.

 

“Tax benefits and possible loan pay down, depending on how the deal is structured”

 

The term might be 10 years, in which the full $100,000 becomes due. If this house rents well, you might get as much as $1,200 a month.   If you account for vacancy and maintenance, your net income might be 80% of gross without a management company (this is on a single family home). Your income would be $960 a month minus your payment of $800 for a total net cash flow of $160 or $1,920 a year. That agreement is valuable. In fact, if you sell that to another investor for $6,000 that would be a 32% cash on cash return for them. That does not include appreciation; tax benefits and possible loan pay down, depending on how the deal is structured.   For the wholesaler, they have no risk or money into the deal and just made $6,000. (You should actually make more than $6,000 on a deal like this one).

 

Focus on Your Marketing

 

The key is to focus your marketing on sellers that might be motivated and in a position to work with you. From my experience, people with little or no equity that need to sell are pretty easy to negotiate with. They, of course, need to have a good loan in place to make the cash flow attractive.

 

I also want to point out that when you work in the MLS and make offers on REO properties, you most likely will not be able to assign the contract. That is not true when dealing with homeowners. In fact, I have never had a seller not sign an agreement because it was assignable. My guess is you would be one of very few attacking this market, which could really separate you in this business. While everyone else is looking for big equity deals in the MLS, you will be quietly making a fortune.

 

To learn more about real estate and Local Records Office go to http://www.Local-Records-Offices.org

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