Three times may be the charm, but twice can be very nice. I mean, isn’t something so awesome and profound worth sharing a second time? I say, absolutely yes.
It’s Cody Sperber here, and I’m back to share with you (once again) the fundamentals of wholesaling for quick cash…
I’ve been advising and offering some REI goodies through training calls and lessons for quite some time, but I’ve realized that many of you out there in wholesaling land could use a refresher crash course (who couldn’t?!) on wholesaling for quick cash.
And today, I’m here to deliver just that – a crash course in the fundamentals of wholesaling.
I’m talking about the basics of wholesaling for quick cash – quick cash 101, if you will (and we will).
It’s Back to School Time: Wholesaling 101
If you think you need a fat wallet to get started in the wholesaling biz, you’re wrong!
Happy day, right? It’s good to be wrong sometimes!
If you’re talking about owning real estate, that’s a horse of a different color. But if you’re talking about controlling real estate – which we are when wholesaling – then I stand by my statement; you don’t have to have a ton of cash to get your foot in the wholesaling door.
So when we say the word “wholesaler” what the heck do we mean, anyway?
A wholesaler is someone who finds discounted properties then pairs those properties with cash investors who want great deals. When all is said and done, the end result can be big, I mean majorly big, for the wholesaler, who, as I said, never needed major dollars up front to buy or sell a darn thing anyway.
Well, let’s dig in as I break down the wholesaling process step by step.
Step #1: Marketing to Distressed Sellers
You’re the wholesaler, right? So first you’ve got to initiate marketing that searches for distressed sellers.
I’m talking about targeting homeowners facing job loss, foreclosure, out-of-state moves, unwanted inherited properties and distressed properties. Pay attention to homeowners who are also landlords looking to get out of the tenant business.
Step #2: Negotiating with Distressed Sellers
From marketer to negotiator, you’re a wholesaler, which means you’re going to wear lots of hats.
Once you find distressed sellers, you’ve got to negotiate to buy your properties for cash at a significant discount from the “retail value.” The property’s “retail value” is the higher price for which a distressed seller would normally be able to sell his property – if he wasn’t anxious to purge the property.
Step #3: Signing the Contract
Once you and your seller agree to a low sales price, you can place the property under contract for eventual purchase (typically within 30 days of signing for distressed sellers).
Be sure to include a section immediately after the buyer’s information that says “and/or assignee.”
Why?
When you sign a contract to purchase the property, you gain what is called “Equitable Rights” to that property. These equitable rights, combined with your contract’s terminology for “and/or assignee,” give you the right to immediately remarket the property to other buyers.
At this point in the wholesaling process, your search for another buyer becomes your top priority.
Step #4: Marketing to Cash Buyers
Once the property is under contract, you can and should immediately begin marketing that property to your list of potential cash buyers.
Your mission will be to find a cash buyer willing and able to purchase the property at a price that is (i) substantially higher than what you contracted to pay and (ii) still lower than the property’s normal retail value.
Sound like mission impossible? Nah. You’ll find that cash buyer, and when you do, you’ll discover that the difference between your distressed seller’s contracted value and your cash buyer’s ultimate purchase price is your cash to keep…
That’s your profit as the wholesaler.
2 Ways to Close Like an MLB All-Star
If you’re gonna close a transaction and get paid, you’ve got to get familiar and comfortable with the two types of closing methods.
The Assignment Method
In short, simply “assign” your cash buyer to the role of stepping into your shoes with the distressed seller’s contract. Charge an “assignment fee” for the process, much like the commission that a real estate agent would earn. But because you are a principal in the transaction you do not need a Realtor’s license to wholesale properties this way. Saweeeet!
Advantages:
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It’s the easiest way to wholesale a deal
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Includes only a one-page form that “assigns” your rights in the original contract over to your cash buyer
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Less expensive than the Double Close method (incoming)
Disadvantage:
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Discretion? Hardly. Everyone involved in the transaction will learn how much profit you are making
The Double Close Method
With this method, you can just use your cash buyer’s money to fund your purchase from the distressed seller.
Think of moving from point “A” to “B” then from “B” to “C.” You’re “B,” the middle man. In the first transaction, you buy the property from the distressed seller (A), and in the second, you sell the property to your cash buyer (C).
If all goes to plan, there’s a smooth, seamless transition throughout.
Advantage:
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Here, there is confidentiality. Only you will know what your profit is.
Disadvantage:
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You’ll have to contend with two different sets of closing costs.
The Proof Is in the Property
The bottom line is you can become a real estate wholesaler who makes quick cash, well… quickly.
If you feel the urge to pinch yourself, you’re not alone. Until you’ve closed that first deal – and you will – you may need a little proof to give you that little push, and in the case below, a little proof will go a long way.
So, if proof is what you need, proof you shall have!
A 60-year-old gentleman named “HA” (not kidding, real name) reached out to me after receiving one of my (awesome) absentee owner postcards. He wanted to sell his house (built in 1925), which was located next to Arizona State University.
The property was (obviously) old and deteriorating, and HA simply didn’t want to bother with the repairs and maintenance. How did I learn this? By establishing solid rapport with HA, by asking engaging questions and by reassuring him that I could offer a solution to his problem.
Marketing and rapport building are essential components of Step #1. Am I ringing a bell here?
I did my recon and learned that the property was worth about $110,000 in its current condition, and should HA decide to renovate, he’d be looking at a property worth $200,000. With that in mind, I offered $45,000.
Here’s where the negotiation began (Step #2). As I predicted, HA felt the offer was too low, so I countered with $55,000. Same response. He was playing hardball, and I was playing right along. In round 3, I was determined to stand my ground, so I “final” offered $65,000. HA responded with “nothing less than $70,000.”
Ouch.
This was way more than I wanted to pay, but I was confident the property would sell to a rehabber or landlord since it was next to a major university.
So on went my big boy pants, and I agreed to $70,000. We met that day (at a local Starbucks) where I agreed to pay all closing costs, and HA agreed to a 30-day closing schedule – including a 15-day inspection period.
And just like that, over a Grande Non-Fat Double Shot Caramel Macchiato, the deal was done.
I left Starbucks with equitable rights for the property (Step #3), and even though I technically didn’t own the house, I controlled it. I had the power!
Sorry, I still get carried away with the “super hero” attitude, but come on! Controlling a property is powerful stuff, and when you get to this point (and you will), pat yourself on the back.
But wait, we can’t forget Step #4. I hustled to find a cash buyer using my marketing muscle – my mobile marketing machine software. I mass emailed and texted the property details to 250 local cash investors, and I listed it for $92,500. Within minutes (literally), I had a buyer at the property for curbside inspection. Bam!
He offered me $80,000 cash and promised to close in 10 days. I waited patiently a few more hours to see if anyone could make me a better offer, but he was my guy. I accepted his offer, sent over my one-page assignment form, and he immediately signed and sent it to escrow (along with a $2,500 non-refundable earnest deposit).
In less than 2 weeks, I received a check for $10,320 (my $10,000 profit and my $320 earnest money refund).
So let me quickly recap. I helped my buyer unload his unwanted property. I sold the property to an investor who would reno the property and rent to college students (win/win), and I made some fast, fat cash as a result. Not bad for just a few hours of work, eh?
Well, I hope this wholesaling refresher was helpful and perhaps reminded you of a few tactics to help you get and close deals for quick cash.
Whatcha Think?
Got any basic wholesaling questions or thoughts? Hit me up down below
Get to know your local market – What are reasonable prices, who are the active participants? If you know your market, you can make money wholesaling deals with ease.
Stay calm during negotiations – Sellers can smell fear. Remember to stick to your plan – and your guns – and take your time. You’ll know when the offer is right.
Always provide property solutions – Remember, you are offering a service, a solutions service for distressed sellers. You are the answer they’ve been looking for, so proceed through negotiations with confidence, and know you are helping someone who needs it.
Be patient – If you don’t close one deal, you’ll close the next. Keep learning from mistakes, know that there is no such thing as failure, and you will be successful.