Learn how to create a real estate wholesaling agent niche.
Wholesaling refers to the process of finding profitable real estate deals and earning a commission by bringing them to investors. Like a “finder’s fee” but structured as a real estate commission.
Very popular with new investors to do with limited funds and little experience. This niche also includes real estate agents.
What Is Wholesaling Real Estate?
If the above description seems confusing, let’s try an example.
Bob’s niche is wholesaling. He looks for fantastic real estate deals but doesn’t buy them.
Bob gets a call from Wendy desperate to sell her home because it’s wrecked and her bank wants to foreclose. A typical “distressed” seller. Bob previews the house and offers her $60,000 for it. They sign a purchase contract stating that Bob (or someone else he sells the contract to) will purchase the house for $60,000 within the next 30 days.
Bob finds Joe who agrees to pay $70,000 for the house knowing we can sell it for more. Bob and Joe sign an “Assignment Contract” allowing Joe to buy Wendy’s house. Bob takes both contracts to an escrow company to process them for closing.
At closing, Wendy gets her $60,000 and Joe pays $70,000 while Bob gets the $10,000 difference as his wholesaler fee.
Joe intends to rehab for $20,000 and flip the house for $150,000 making a nice $60,000 profit (depending on closing costs).
Bob never owned the house. He made $10,000 for simply bringing Wendy and Joe together.
Consider this example only shows one way to wholesale. Other ways to structure the deal exist.
Is Wholesaling Legal?
The example used above shows how Bob got paid a fee for bringing a seller and a buyer together.
In many states, this involves real estate “brokering”. Only licensed real estate brokers (and their agents) legally receive compensation for bringing buyers and sellers together.
Read how the states of Florida and Washington define a “broker” and fined unlicensed individuals for wholesaling for a fee. Here
Read how the state of Ohio levied heavy fines against 11 individuals for wholesaling without an Ohio broker’s license. Here
California Laws about Wholesaling Legality
California, on the other hand, appears unclear whether wholesaling is legal.
Another legal website asked whether “Assignments of Contracts for buying real property legal in California without a real estate license?” Five California real estate attorneys replied “Yes”. Here
How to Legally Wholesale
What’s the safest way to legally wholesale?
Get your state real estate license. It’s as simple as that.
Most of you reading this post probably possess a real estate agent license.
How to Become a Real Estate Wholesaler Agent
Wholesaling requires lots of marketing. Also, time to develop your reputation as a wholesaler or a “Real Estate Wholesaler Agent”.
A good wholesaler needs to know these:
- Know the math to accomplish a good flip;
- Know the math to get a good rental;
- Speak with motivated property owners in distressed situations;
- Negotiate without taking advantage of distressed sellers;
- Look for leads by marketing yourself;
- Know sales techniques;
- Know how to answer phone inquiries;
- Find good deals;
- Estimate rehab costs;
- Estimate after rehab value; and
- Estimating potential rents.
Real estate licensing schools teach you many of these requirements.
Also, know that other wholesaler competitors may make better offers to your distressed sellers. Like different real estate agents bring buyers to make offers on a listing.
Finding Profitable Deals for Wholesalers
Your local MLS may contain good deals. But, don’t depend on another agent listing a distressed house at a really low price.
You need to find distressed sellers who haven’t contacted other real estate agents.
Just like prospecting for listings only focusing on distressed properties.
“Drive for dollars” means driving around in your car to look for potential deals. Distressed properties look that way from the curb. Peeling paint, rotted gutters, tarps on the roof, lawn not mowed, broken fences, boarded up windows, trash everywhere, etc.
Read this article explaining how to drive for dollars. Here
Direct mail still works according to some wholesalers. Targeted mail and emails (avoiding Spamming) still gets a small percentage willing to sell their distressed homes.
Learn more from this guide on direct mail advertising for real estate investors. Here
How to Create a Pipeline for Your Real Estate Wholesaler Agent Niche
You need to create a “pipeline” process which goes like this:
- Find the leads;
- Take many phone calls;
- Build trust with sellers;
- Do the due diligence on the seller and the house;
- Do the math mentioned above;
- Prepare inspections of the house to know the required rehab; and
- Get the deal signed at closing.
Tip: Know that you might get 10 separate deals in your pipeline at different stages. It’s up to you to get them moving forward towards closing.
Most people despise performing math. Luckily, online calculators exist to help you. Here
Bigger Pockets also offers a Wholesaling Calculator just for wholesalers. Here
Their calculator determines the MOA and provides two versions:
- Selling to a cash buyer flipper; or
- Selling to a rental property cash buyer.
How to Figure Out Your Wholesaler Offer
Finding deals for house flipper clients requires knowing how much they can afford to offer.
The Maximum Allowable Offer (MAO) you offer a seller depends on how much you want to make when offering the house to a flipper client.
First, begin with the After Repair Value (ARV) or what a house sells for after the rehab.
Then, with the ARV you must subtract all the costs of the deal such as:
- Repair costs to rehab the house;
- Flipper’s Profit or how much the flipper wants to earn on the flip;
- Fixed costs for the flipper, like transaction costs and holding costs on both side of the deal; and
- Wholesale profit or how much you want to make on the deal.
Using the example above:
The ARV for Wendy’s house of $150,000 leaves Joe (the flipper) with a $60,000 profit (depending on closing costs). The repair costs of $20,000 along with fixed costs of $2,000 and your wholesale fee of $10,000 allows for an MAO of $70,000.
Getting Paid as a Real Estate Wholesaler Agent
You need the original purchase agreement with the seller along with the assignment contract to your flipper to give to the escrow company.
You get paid at the end of closing just like a commission.
How to create a real estate wholesaling agent niche as explained here provides a win for everyone:
- The seller gets the money as promised;
- The flipper gets the house at a great price; and
- You become a little wealthier.
Earning More from Your Real Estate Wholesaler Agent Niche
Now that you will make more money using your wholesaler niche it’s time to consider keeping more of your commissions.
Join Us as over 900 other agents did because:
- We offer transparent 100% Commission Plans with No Hidden Fees;
- We give you Free Training;
- You get Free Attorney and Broker Support; and
- Even Free Concierge Services.
Steven Rich, MBA – Guest Blogger
(Disclaimer: This blog post depended on articles written by real estate experts. It’s not intended as legal advice. To legally practice wholesaling, consult with a lawyer who knows the federal and state laws about wholesaling before making any deals)
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