Very few property investment strategies are an as low-risk and high reward as wholesaling real estate. Many wholesalers have turned their businesses into multi-million dollar enterprises despite starting with virtually no capital. That level of success is attractive. However, for beginners, it’s a long away, especially as established wholesalers aren’t as forthcoming about how to wholesale real estate.
How to Wholesale Real Estate in 3 Phases
When you’re learning how to wholesale real estate, there are three phases you need to complete to achieve lucrative results. Completing the process in stages also ensures you remain on track.
Phase One: Develop Your Wholesaling Strategy
For beginners, your success as a wholesaler will depend on your strategy. Ideally, you should develop this strategy before taking your business to market to avoid costly mistakes.
Understand Your Local Real Estate Market
If you want to guarantee you’re making a profit whenever you purchase a home, you need to understand your local real estate market.
You should have data on:
- The difference between listing price and sold price
- How many homes sell each month
- The average days on the market
- The average number of foreclosures
When researching these figures, always focus your attention on properties in the neighborhoods you plan on targeting and on homes that sell in an as-is state.
This may require you to dig deeper than a cursory Zillow search, as many buyers purchasing homes as-is aren’t using sites like Zillow to find a home.
Also, considering how quickly the property market is changing, refresh your data every quarter to ensure you have the most up-to-date information about the housing markets you’re targeting.
Determine Where to Find Distressed Sellers
Will you be approaching homeowners in pre-foreclosures, distressed homeowners, or homeowners within a specific neighborhood? Will you be relying on ads to get sellers to contact you or make the initial contact with those desperate for a sale?
These questions will help you define your marketing strategy and budget.
Before deciding on a particular approach, remember each has its pros, cons, and costs. Therefore, you should ascertain which will work best for your business long-term.
Create a Criteria for Your Homes
Another fundamental aspect of knowing how to wholesale real estate is assessing and creating criteria for the homes you’ll be targeting.
This strategy should rely on the data you’ve acquired when researching the kind of homes that sell in an as-is state and define:
The age, style, price, location, square footage, and condition of the homes you’re acquiring.
Phase Two: Approach Sellers
Once you’ve developed your strategy, you’ll have a greater understanding of how to wholesale real estate and can now start approaching sellers.
Create Your Wholesaling Contract
Before you begin approaching sellers, get a real estate lawyer to draft a contract. Your contract should clearly state the terms of the agreement, what will happen when the home sells, and what – if any – circumstances allow you or the seller to renege on the agreement.
Introduce Your Business to Your Demographic
Whether you’re cold calling, sending mail to each address, or advertising on Facebook, through local radio ads, now that you have a contract, you should start marketing your business.
As you get interest from homeowners, set up appointments to inspect the property. But before visiting the property, analyze the property’s history to get an idea of what the home would be worth.
Put in Offers and Be Willing to Negotiate
Try to streamline the process. From the time a homeowner contacts you, give yourself no more than three days to visit the property and put in an offer.
Your offers should be between 40 to 60 percent of the property’s fair market value. This allows you to resell the home for less than 80 percent of its fair market value and still make a profit.
When you’re putting in your offer, always leave leeway for a seller to counteroffer. This means that your initial offer should never be the maximum value you’re willing to offer for the property. Ideally, it should be 10 percent lower. Doing this allows the seller to counteroffer, and then you to put in a final offer. This method gives sellers the idea that they’re getting more for their homes while you’re simply following common practice.
Finalize the Offer
Give each homeowner a deadline to accept the offer. Most wholesalers stick to 24 hours. This limits the seller’s ability to find other offers and forces them to seriously consider your offer. 24 Hours also ensures you’re not waiting around indefinitely.
Phase Three: Find Buyers
Possibly the most challenging aspect of learning how to wholesale real estate as a beginner is knowing where to find buyers.
You’re not selling move-in-ready homes. Instead, you’re selling fixer-uppers ripe for flippers or landlords who’ll do some minor work to the property before renting it out. Your buyers may also consist of investors who want some more properties on their books.
Considering this, a traditional sale with a real estate agent commission isn’t practical. You should find out top real estate agents for more ease in selling your house.
List on a Flat Fee MLS
Most wholesalers have a network of buyers who trust their expertise and are eager to bid on their properties, but as a beginner, it could take you years to build such a network. A great alternative is to list the homes you’re buying using a flat fee MLS.
Flat Fee MLS allows you to list the property for a low cost, usually between $99 and $399, and then syndicate the property on your local MLS as well as sites like Zillow.
But, as a wholesaler, your focus should be on finding a flat fee MLS that prioritizes selling direct to buyers. A site like Houzeo is excellent. According to Houzeo reviews, the company has helped many wholesalers sell properties, and many investors buy properties.
If you want to achieve a similar level of success as is discussed in Houzeo reviews, you should list your properties for less than 80 percent of their value.
Even if you have a network of buyers, a site like Houzeo can still be your best bet, as it allows you to sell directly to a buyer without having to pay any commission to a real estate broker.