How to Wholesale a House
You will hear a great deal about flipping in real estate – particularly in the area of rehabbing. A real estate investor finds a distressed property, invests the time and energy to remodel, repair and fix up (or hires someone to do that work), then sells it for a profit. Still others will hold the property and become a landlord or sell the property on a Contract for Deed and make 7 to 10% on their money.
But there is another category of real estate investing called “wholesaling” which doesn’t seem to get as much press. However, it is one of the easier ways to make a lot of money in real estate.
Let’s take a closer look.
We have two investors: the first investor is Mike and the second investor is Jeff.
Mike is the one who is out there in the neighborhoods searching out the good deals. He’s looking for a distressed homeowner who is willing to give up equity to get out from under their problem. (That could be late payments, a move to another state, pre-foreclosure, or a number of other reasons.)
When Mike finds that just-right deal, he secures the property, but he has no intention of fixing it, reselling it, or renting it. (He has probably secured the property with a Letter of Intent which means he’s put no money into the deal.)
Let’s say Mike has a Property Locator bring him a property worth $200,000 and has put the purchase price at $115,000. He calculated the repairs to be around $15,000. That means the equity is now worth $70,000.
Mike is now looking for someone like Jeff. Jeff has the wherewithal (line of credit at his bank or investment capital, etc.) to make purchases and he’s in the market for just such a deal. Mike lets Jeff know that this deal is available for $12,000 cash. Jeff says yes! Because he will now own $70,000 in equity.
Jeff may have those repairs done and sell that house for a hefty profit. Or perhaps he is building his own portfolio of properties. He will fix it up and rent it. Or perhaps set it up on a lease/purchase option.
The transaction between Mike and Jeff was accomplished very quickly and simply by using what is called an “Assignment of Contract,” which is written into the contract that Mike created with the original homeowner. This means there is only one closing, and the title company cuts a check to Mike for $12,000 (which is known as an assignment fee.) Wholesaling a house can be done with a contract assignment or double-closing.
Mike is happy and is on his way to find even more such deals.
Jeff is happy because he didn’t have to do all the footwork. Mike brought the deal to his doorstep.
This kind of real estate investing is going on constantly in every state in the country. (And in other countries as well.)
It’s pretty simple. If this is the side of real estate investing that interests you, dig in and find out more and then get to work!
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