Wholesale Real Estate 101
What is wholesale real estate?
Wholesale real estate is real estate that is purchased through a real estate wholesaler, typically via an assignable contract of sale the wholesaler has with the seller. You're probably wondering what in the world does that mean? Let's take a step back and explain how wholesaling works.
You have three parties:
- Wholesaler ("Initial Buyer")
- Buyer ("Assigned Buyer", "Assignee")
Wholesale real estate transaction flow:
- The Wholesaler finds a property that is likely to be available for purchase.
- Wholesaler reaches out to the owner(s) (Seller) of the property and inquires about buying it in an off-market transaction, typically for cash, as-is condition, fast close.
- Seller, typically under the impression the Wholesaler is the actual Buyer, agrees to sell their property to the Wholesaler -- typically at a significant discount to the property's fair market value in exchange for the convenience of the terms of the transaction.
- Wholesaler provides Seller with a formal offer via Purchase And Sale Agreement ("Contract of Sale"), Seller signs and is now legally under contract with the Wholesaler.
- Wholesaler then markets the contract to their "Buyer's List", a group of real estate investors and agents that are interested in purchasing off-market real estate.
- Wholesaler then assigns their role as Buyer in the Contract of Sale to another person or legal entity ("Assignee") who assumes the role of Buyer and closes the transaction.
Catalysts for wholesale real estate deals:
- distressed properties
- distressed owners (financial hardship, health issues, divorce)
- out of state owners
- death and inheritance
Wholesale real estate transaction terms:
- Financing: cash or conventional mortgage loan
- Inspection: as-is no inspection contingency, or as-is with right to terminate
- Close by: 30 days or less
How do Wholesalers market to Sellers?
- Research numbers efficiently
- Don't be afraid to experiment with paid lists from several different vendors
- Always leave a voicemail
- For non-landline numbers: always send a text message right after
Since many people screen unfamiliar numbers, texting is an effective way to get your message through.
Have you ever received a voicemail notification but the phone never rang? Many real estate marketers swear by voicemail "drops" which are enabled by phone call programs that place 2 calls a fraction of a second apart. The second call goes straight to voicemail by default given how carriers handle this scenario and a recorded message is delivered, while the first call is ended before your phone rings.
The message goes a little something like this:
"Hi this is John, I'm a real estate investor and I'm buying 2 or 3 properties in your neighborhood. I would be interested in buying your property for cash. If you or someone you know would be interested in selling, give me a call back at 555-555-5555."
Postcard postage rates are $0.35. One deal for ever 1,000 postcards sent - a $350 cost -would more than justify the marketing expense.
These are typically more official and personalized to include your address in the letter, a signature and possibly a personal handwritten note and address on the envelope.
If you'd like feedback on your own mailers, or you just want an optimized template, contact us and we will be happy to help.
Driving for dollars.
This is the age-old method of driving around a neighborhood looking for houses that show clear signs of distress. Nowadays, you don't necessarily need to have or use a car. Instead, you can can simply use Google Maps Street View. Street View will show you when the picture was taken, the risk is that that was a while ago and a lot could have changed. Once you find a property, check your local property assessments and taxation website for the mailing address for the owner of the property and to make sure it has not already sold.
Things to be on the lookout for:
- Overgrown yard
- Boarded-up windows
You've seen these staked in the ground at intersections and stapled to telephone poles. They are technically illegal in many jurisdictions so be careful and respectful. Experts say yellow and black is most effective, though we aren't too sure there's actual science behind that.
Common mistakes real estate wholesalers make:
1. Purchase price is too high.
If the purchase price is too high, and the numbers don't work for your buyers, then you may get stuck unable to assign the contract.
2. Seller is difficult to work with.
Real estate wholesaling is all about efficiency. You need to protect your time from sellers that need too much babysitting in order to get a contract in place and the deal to settle.
3. Time management.
You need to always be adding properties to the top of your funnel and nurturing your opportunities. A CRM or a spreadsheet system you can stick to will serve you well.
4. Expectation setting.
If you are not honest in your communication with the seller, you are risking your reputation. The truth is you are not going to be buying the house, you are not a cash buyer, and you can't guarantee that you can close in n days.
Wholesale Real Estate Marketplace
OfferMarket is a marketplace for off-market real estate. Wholesalers post their deals on OfferMarket (for free) and OfferMarket distributes these deals to our network of qualified buyers. OfferMarket dramatically increases the speed at which your deals are assigned and the probability with which your deals will close.