If you’re new to wholesale real estate, you probably have a lot of questions. Despite the fact that many influencers say the best way to start is to jump right in, you probably have no idea where to start jumping.
We understand how you feel, because we’ve been there too. Wholesale real estate is great business model, but it can be confusing in the beginning. So to help you get started, we’re giving you a wholesaling real estate for beginners guide and answering the six most common questions we hear from new wholesalers.
Is wholesaling illegal?
Many potential wholesalers are worried that they are entering an illegitimate industry because it seems too good to be true. But in this rare case, something that looks too good to be true really is true and legal! Even if you don’t have a real estate license or capital to invest, you can make wholesale real estate deals.
However, you should be careful with how you pursue deals. Real estate laws vary by state, and you’ll have to include specific language in your contracts. To be safe, we highly recommend you consult with a real estate attorney in your city before you sign your first deal to ensure you’re operating within the law.
How do I find a mentor?
Wholesaling is a skill-dependent business, meaning that you’ll have to develop certain analytical and sales skills to find great deals and land contracts on them. Thankfully, you don’t have to figure out how to develop these skills on your own. A mentor can show you the ropes and help you avoid the common mistakes that often cost new wholesalers money.
If you’re ready to find a mentor, go to local real estate meetups, join online groups, or consider signing up for a course from your favorite influencer. Just know that mentors usually expect to see some effort on your part; no one is going to hand you your first deal.
Successful wholesalers respect hard workers with potential, not people who want something given to them for free. However, if you spend time learning the wholesaling process, you’ll inevitably run into a mentor who will show you what they know.
How do I find motivated sellers?
Real estate lead generation is one of the most important parts of wholesaling. It’s also one of the most in-depth, because there are a lot of strategies you can use. In the past, real estate wholesalers cast very broad nets by placing bandit signs around town, sending direct mail campaigns to every address they could find, and calling purchased lead lists.
Now, real estate lead generation software allows wholesalers to quickly generate targeted lists based on specific search criteria. Some of these platforms even have driving for dollars and virtual driving for dollars tools that make it easy to canvass neighborhoods for distressed properties.
The most important part of finding motivated sellers is spending time learning about the financial distress factors that make a great wholesale deal. Once you understand these, you’ll be able to quickly prioritize your leads just by looking at the property data.
What should I tell a motivated seller since I have no money to buy their property?
The good news is that you won’t be buying any properties as a real estate wholesaler. Instead, you’ll simply get a property under contract and then assign that contract to a cash buyer, so your lack of money won’t keep you from closing deals.
However, there are two key pieces of information you will need before you meet with a motivated seller:
- The remaining mortgage balance – this will give you an idea of the minimum amount the owner will sell for
- The property’s after repair value – this will tell you what the property is worth after you repair it
These two pieces of information will be vital when it comes to making an offer on the property.
When you meet with a motivated seller, you also should focus on asking the right questions and listening to their answers. The information you get from their answers will tell you about the problems they’re facing and how you can work together to come up with a solution.
Some of the questions you should ask include:
- Why are you selling this property?
- In a perfect world, what amount of money would you want to get for your property?
- As a buyer, is there anything about the property that should concern me?
- What repairs do you know need to be made around the property?
How much do I offer for the property?
You’ll use the after repair value to start calculating your offer. Remember, the ARV is the amount a property is worth after it’s been fixed up, so your maximum offer should fall below it.
Investors have a rule called the 70 percent rule to calculate their maximum offer amount. The rule states that your maximum offer should almost never exceed 70 percent of a property’s ARV.
The extra 30 percent gives you room for expected repairs and protects you against unexpected expenses that could put you in the red. While this rule usually applies to fix and flippers, it’s still relevant to you as a wholesaler because you’re assigning contracts to cash buyers who are also abiding by the rule. In order to assign your contracts and secure large assignment fees, you’ll want to buy at or below 70 percent as often as possible.
To calculate your maximum purchase price, use the following formula:
Average Price Per Square Foot of Comps x Square Footage of Deal
How do I find cash buyers?
Cash buyers are the final step of a wholesale real estate deal, but they’re also the most important. Without a cash buyer, you won’t be making any money on your deals.
There are many ways to find cash buyers. First, you should network with local real estate professionals. Real estate agents work with cash buyers regularly, so they can be a great resource for finding investors to buy your deals. You can also contact real estate attorneys to ask about investors who buy regularly.
Another great option is attending property auctions. The main attendees are cash buyers, and these auctions can be a great place to network and build your buyers list.
However, the best way to build a cash buyers list is to use real estate lead generation software. This is one of the most efficient options, because it allows you to pull large lists of cash buyers with the click of a button. Then you can use a skip tracing service to unlock their contact information and reach out.
Wholesaling is a great real estate investing strategy, but there’s a lot to learn about it, especially when you’re new to the real estate market. Wholesaling is also a great way to start investing in real estate, and it will open up many other investing options for you.
We’ve put together this wholesaling real estate for beginners guide to answer the most common questions we hear from investors and introduce you to each step in the process. Now your job is to do your due diligence, work hard, and learn everything you can. If you follow those steps, you’ll build a thriving real estate business and make a lot of money in the process.