WHOLESALING 101 = What is Wholesaling

Wholesaling is a Buy Low - Sell Low opportunity where the sell price is higher than buy price. For the investor who ends up buying from the wholesaler, it's a Buy low - Fix- Sell High opportunity or Buy Low-Fix-Refinance/Rent opportunity. Both the wholesaler and the end investor profit in this win-win situation. Sometimes this end investor may wholesale this property further to a fellow investor.

An example:

Your phone keeps ringing from one of your newspaper ads that reads "We sell ugly houses to investors at deep discount". You talk to all these investors and ask them the type of property they are looking for and their area of interest. Don't forget to ask them if can they pay cash and close quickly. Note down all relevant information about this person and add it to your buyers list.
Once you have built a big enough buyers list you put an ad in the newspaper similar to before but this time it reads "We buy houses for cash and close quick". Your phone rings from the ad. It's somebody who wants to sell you their ugly house.

You ask them the details of their situation and decide that it’s worth your time to look at the property. You get to the house and negotiate to buy the house for cash at a deep discount. You take out two empty real estate contracts from your file and agree to buy the property for $55,000 in cash and with a closing period of 10 days. Also during the process make notes and figure out what would be the estimated repair cost to bring this property up to date.

Now you get back in your car and call your real estate agent to email you a Comparative Market Analysis Report for a property in resale condition. When you get home you check out an email from your agent saying that the property is worth around $135,000. Now you go in your buyers list and identify the investors who are looking for this kind of property in this particular area. You pick up the phone and start calling them one by one Hi Investor, I’ve found something which might be of your interest .....but you have to move quick. Its a 3 bedroom 1 bath single family house in Englewood at 5757 S Sangamon St. It’s got a brick exterior and needs work of around 30k. After repaired value is around 135k and I am asking 60k. When can I show it to you? The sooner the better? Great! I'll see you at the property in 2 hours.

Investor likes the house. The investor signs an assignment contract to buy the property for $60,000 cash with closing in 7 days. Your contract price is $55,000 cash. Your profit is $5,000 cash, which you get at the closing table. You just wholesaled a property!

How can wholesalers protect themselves?

After a wholesaler has tied up the property with a contract to purchase, the next step is to protect his position in the deal in case the seller tries to sell it to someone else for a different price or terms. This could be done by recording the contract to purchase at the Recorder of Deeds office for the particular county. The same protection can be achieved by filing an affidavit or memorandum stating that the wholesaler has the contract to purchase the property along with a legal description. This is a better method since it hides the price and terms under which you purchased the property.

What are the reasons why I, as a real estate investor, should wholesale?
You want to get started in real estate investing with no money and very minimal risk.
You can find more deals than you can financially handle.
You are buying more deals than you can financially handle.
About the author:

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Hari Kusumakar is a real estate investor based in the Chicago area. He also runs the most visited real estate investment website. This website can be accessed at www.LocateRE.com. He can be personally reached at hari@LocateRE.com