How to Do Your First Wholesale Deal
Making a wholesale deal in real estate is a risky proposition -- especially if you're just starting out in the business. Your goal is to purchase properties at what is considered a very favorable wholesale rate then flip them quickly by selling or transferring them at a profit (closer to their market rate). It often involves some type of repair or updating of the property as well. Research, communication and due diligence is important if you want to have a successful first-time wholesale deal.
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Instructions
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Review the area for possible wholesale deal candidates. Some investors use “we buy houses” advertisements to find homeowners looking for a quick sale. Look for clusters of properties for sale in an area with high sales potential. Use real estate research services like Local Market Monitor to identify these areas.
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Evaluate the home and hire a professional (whether an agent or appraiser) to estimate its market value. Ask the appraiser for an estimate of the property’s worth with certain repairs and updates.
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Attempt to communicate with the seller to identify his specific needs and concerns. For instance, if you know the mortgage balance, you know that is the minimum you must bid in most cases and you can use it as a starting point for your offer. A real estate agent can help you with this process.
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Sign a sales agreement that allows you to assign the agreement to another party. For instance, say that during the sales process you find a buyer who wants to buy the wholesale property from you at a price that gives you an instant profit. The agreement must allow you to transfer the property sale to that person.
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Perform any repairs or updates required for the home to make it more attractive to buyers. However, in some wholesale deals, the person who buys the flipped property handles the repairs.
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Advertise the property for sale in newspapers and listing services to other real estate investors and potential retail buyers (end users). Use signs to advertise the property for sale as well. In addition to the initial list of potential buyers, prepare a waiting list of interested buyers who are ready to purchase properties in wholesale deals.
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Negotiate a price with the final buyer that provides you with your desired profit. For real estate investors, use your reputable research regarding the profit potential of the property as a selling point if necessary. Contract with the new buyer at that selling price, then transfer ownership of the property to the new buyer with the help of a title agent service.
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Tips & Warnings
Use a lawyer on your first wholesale deal to draw up your sales agreements and also advise you of other legal requirements regarding real estate transactions.
Check with your local town administration building or state business licensing bureau for the proper licensing (if necessary) before conducting these real estate transactions.
As with any investment, real estate is a risky business. There is no guarantee you'll find an interested buyer, for instance, after contracting with the original home seller. Sometimes, estimated property values don't match or exceed the actual market value. Read books on real estate investing and attend workshops to learn how to make smart investments.
