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Getting Started with Wholesaling

       Written by REI Co-Founders
         Colin Andrews Egbert
           and Matthew Leitz
Getting Started with Wholesaling ~ RealEstateInvestor.com




                           Table of Contents



What is Real Estate Wholesaling?........................................5

Benefits of Wholesaling Real Estate.....................................7

Is Real Estate Wholesaling Illegal?…………………………………………….…..9

Costs of Starting a Wholesaling Business…………….………………………..11

How Much Can You Make Wholesaling? …………….………………………….14

How Does the Homeowner Benefit?………….…….…………………..….…..16

Find Wholesaling Leads………………………………….……………………………..18

Starting a Wholesaling Business by Bird Dogging…………………….…..20

The Different Property Closing Methods……..………………………………..22

How to Find a Buyer……………………………………...………………………………25

The Wholesaling Deal: Step-by-Step………….………….……………………..28

Assigning a Contract for Wholesale………….……………………………………30

Salesman’s Tricks to Make a Sale…………..……………………………..…….32

Potential Mistakes Every Wholesaler Makes………………………....…..34

Don't Fall into Wholesaling Scams…………………………………………….….36

Securing Your Leads Against Bad Buyers………………………..…….…….38


Special Section on House Flipping!
Flipping Houses with Hard Money Loans………………………….….…….…40

Picking the Right Contractor for Your House Flip………………..……..42

Cutting Costs and Increasing Profits on a House Flip…………..……..44

House Flipping and the New FHA Seasoning Regulations..........…46



Copyright © 2008 RealEstateInvestor.com                                     2
Getting Started with Wholesaling ~ RealEstateInvestor.com


                            Legal Matters:

ALL RIGHTS RESERVED. DISCLAIMER AND/OR LEGAL NOTICES

The information presented herein represents the views of the publisher and
his contributors as of the date of publication. Because of the rate with
which conditions change, the publisher and his contributors reserve the
rights to alter and update their opinions based on the new conditions.

This ebook is for informational purposes only and the publisher and his
contributors do not accept any responsibilities for any liabilities resulting
from the use of this information. While every attempt has been made to
verify the information provided here, neither the publisher nor his
contributors and partners assume any responsibility for errors, inaccuracies
or omissions. Any slights of people or organizations are unintentional.




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Getting Started with Wholesaling ~ RealEstateInvestor.com


                                Introduction

They say the real estate market moves in cycles from a buyer’s market to a
seller’s market and back again. You know there is only one kind of person
that can make a profit no matter what the market and that is the real
estate investor. When you work as a wholesale investor you’ll be able to fill
both roles, buyer and seller, and make money in any market.

Not a lot of people consider the benefits of real estate wholesaling so if
you’ve stumbled upon this ebook then you are on of the lucky few.
Wholesaling is a chosen money-making path that operates on a very simple
and basic business principle, buy low and sell high.

In this ebook you’ll find out how to find those cheap real estate properties
and get them under contract. Plus, since you can’t make money just buying
property, you’ll also learn where to find the perfect buyer for your
wholesale.

Whether you want to work birddogging to seek out those perfect deals for
other investors, work as a wholesaler finding cheap properties to buy and
sell for a slightly higher price or to work as a house flipper buying cheap
houses and rehabbing them to sell at top dollar there is a place in the real
estate market for your plans.

Should you find the chapters in this wholesaling ebook informative feel free
to drop in at Real Estate Investor.com and sign up for a free membership to
life long learning and knowledge in real estate.

Sincerely,


Colin Egbert
CEO Real Estate Investor.com




Copyright © 2008 RealEstateInvestor.com                                        4
Getting Started with Wholesaling ~ RealEstateInvestor.com


              What is Real Estate Wholesaling?

Real estate investing is an excellent way to earn profits or earn a living, but
before you start wholesaling houses for a living you should take a little time
to learn what it’s all about.

Wholesaling is in essence a business-to-business trade. You, as the
wholesaler seek out a product for a certain ‘low cost’ price and then place
that product in the hands of your buyer who is often a hard money lender or
another investor.

You seek out affordable properties and put them in the hands of other
investors or buyers. For your trouble you get paid a nice profit that is almost
like a finder’s fee. The process of wholesaling houses is one of the most
simple and straightforward investing practices out there. The time from find
to closing is also one of the shortest periods out of all the other niches in
real estate investing.

Don’t Buyers Search Out Property Themselves?
On the surface it may appear as if real estate wholesaling is a little
redundant. It seems like the buyer could easily search out cheap properties
on his or her own with no need for a middleman. These buyers do seek out
properties on their own, but they can’t find all of the great deals. The kind
of buyer that seeks out wholesale deals is usually always on the lookout for
more properties. These buyers are also very busy. Wholesaling buyers are
constantly working on properties, rehabbing them and selling them on the
traditional home market.

Plus, who wouldn’t jump at a property that’s still offered to them at way
below the market value?

Wholesaling Versus House Flipping
Real estate wholesaling and house flipping often confused in real estate, but
they are both slightly different practices.

When you wholesale property you act as the middleman seeking out cheap
properties and connecting them with buyers for a slightly higher price or a
kind of finder’s fee, either way it depends on how you arrange the closing.
Very little time is spent fixing up the houses or even placing them on the
traditional housing market.

House flipping usually involves rehabbing a house with the homeowner or
fixing it up enough to make it very ‘market ready’. There are also a lot of
open houses and attempts to bring in a more traditional buyer who is
looking to live in the home after purchase. House flipping can provide larger
pay offs than wholesaling houses for a living as these cheap houses now sell
for full market value. It also involves a lot of extra work and it’s harder to
sell a house at full value.


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Getting Started with Wholesaling ~ RealEstateInvestor.com



Real estate wholesaling is really a very simple business. You develop a
process for bringing in wholesale leads, develop a buyer list and start
assigning contracts to your buyers. It really is easy once you get the process
started.




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Getting Started with Wholesaling ~ RealEstateInvestor.com


             Benefits of Real Estate Wholesaling

These days it’s incredibly tempting to start wholesaling when you are
looking for a long term investment or quick cash profit. Yet, it’s also a little
bit intimidating. Legal issues tend to muddy the waters for new investors
and there is even a sense of fear. No one wants to take a risk and lose their
money.

Yet, that’s what people do with their money every single day. Invest in the
stock market and you are taking a risk. Buy gold and you are taking a risk.
Sometimes, especially with the stock market, that risk is even higher than
the potential risks of starting a wholesaling business.

Wholesaling Benefits
As a wholesaling investor there are lots of benefits too. Wholesaling does
not require a lot of money to get started; sometimes it requires very little
cash indeed for investors who are selling those properties almost
immediately to buyers. Plus, when you take advantage of real estate
wholesaling you can learn as you go. No need for certificates or special
degrees. Heck, even a real estate agent needs a license to sell houses, but
you won’t! There are even more great benefits and plusses to being a real
estate investor.

Basically, the benefits to starting a wholesaling business are:

    •   Little to no start up money required (if done right).
    •   No educational requirements, degrees or licenses needed.
    •   Work when you want on houses that you want!
    •   Pick the people that you want to work with and when.
    •   Not time consuming.
    •   Don’t need good credit.
    •   Start earning now!
    •   Small to large cash profits as soon as you sell. That’s cash in hand!

What’s Your Place in Wholesaling?
As a real estate wholesaling investor you are essentially the middleman. You
are the guy that finds the houses for sale and connects the buyers with
them. Once you start learning more about starting a wholesaling business
you’ll find that there are plenty of buyers for wholesales as long as you look
in the right places. Plus, there are plenty of motivated sellers and it will be
easy to get them to come to you with the right marketing.

When you find a property that the owners are motivated to sell you’ll lock
the owners into a purchase agreement and start looking for a buyer during
the 30-60 day period before closure. If you’ve already gotten your buyer list
built up it may not take you very long at all to find a buyer. Then you just
mark up the price a little on the sale. A wholesale deal done properly can
earn you at least a few thousand dollars without putting down more than a


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Getting Started with Wholesaling ~ RealEstateInvestor.com


few hundred in cash. This is because your buyer will pay the marked up
price of the property to your title company and the title company will just
cut you a check for the difference. Barring that, you simply ask for a
finder’s fee when you turn over the property to the buyer that you’ve
found.

Starting a wholesaling business has never been easier. If you are looking for
a great career or a way to make some extra cash then real estate
wholesaling is for you.




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Getting Started with Wholesaling ~ RealEstateInvestor.com


             Is Real Estate Wholesaling Illegal?

Real estate wholesaling is not illegal and it is not a scam. Know that now
and relax! You may be concerned that your potential new real estate
opportunity is some sort of morally bankrupt scam. It is not.

It is true that some real estate investors have taken advantage of the
wholesaling process to scam the homeowners and their buyers. In addition
the new phenomenon called, house flipping, has given rise to many
inexperienced investors making lots of blunders and losing cash.

The Bad Reputation
Most of the bad reputation for real estate wholesaling has arisen from
buyers paying very over inflated prices for properties. In the past years of
the inflated housing market it was incredibly easy for a buyer to get duped
or just get overly optimistic about purchasing real estate for way more than
it was worth. The buyer is then stuck with a property they can’t make a
profit on or a mortgage that they will have a hard time paying for.

This happens when the real estate investor works with a crooked home
appraiser to value the property at more than it’s worth. Then the investor
gets larger profits on a property and the buyer gets stuck with a loss of
profits and even bad credit.

Real Estate Wholesaling is Good!
You and I both know that you’re not going to take advantage of the buyers
or the sellers. In fact, wholesaling offers a win-win situation for everyone
involved in the deal.

The homeowner gets to unload a property that’s costing them money, time
and energy in the wholesale deal. Plus, you can pay a little extra cash to
any person referring the homeowner or the deal to you, creating an extra
benefit for the homeowner’s friend or family.

The buyer gets a cheap property that they can still sell for a profit of their
own, live in or even fix up and rent out. This is because you’ll only be
marking up the price on that wholesale property a little bit.

You, as the real estate wholesaler, will get to take home cash profits, for
little work and without putting any money down on the property.

Weasel Clauses
A parting bit of house flipping advice is to be careful of weasel clauses.
These are clauses that you can add to any ‘agreement to purchase’
contract, but are written in such a manner that you can easily pull out of
the property sale without worrying about the homeowner suing you for not
closing the deal.



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Getting Started with Wholesaling ~ RealEstateInvestor.com


There are good reasons for inserting clauses in your purchase agreement.
You may learn that the house needs major repairs that would screw up your
profit margins. You may be looking for a specific kind of house for a buyer
and learn that the property doesn’t fit.

However, some clauses are more like ‘weasel clauses’ that allow the
investor to pull out of a property sale for any reason on very little notice.

Let the homeowner know when you set up the contract, that the purchase is
contingent on your being able to find a buyer. You’ll be surprised how many
homeowners still want to sign that contract with you. The prospect of
selling their property is often enough for them to take the risk of the
investor being unable to find a buyer.

So, if you practice your real estate wholesaling business in an upright and
honest manner you have nothing to fear. Real estate wholesaling is only as
good or as bad as the investor making the deal.




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Getting Started with Wholesaling ~ RealEstateInvestor.com


         Costs of Starting a Wholesaling Business

There are a lot of things to be responsible for when starting a wholesaling
business. You’ll be in charge of finding the leads, finding the buyers,
bringing them together, finding a good title company and even drawing up
appropriate contracts. Once you get the know-how of house flipping basics,
these responsibilities become quick and easy. Yet, when you are starting
off, it’s a lot to take in.

No one wants to further muck-up the process with worry about unpaid bills
and trying to finance these wholesaling efforts. Yet, there are a few costs
to be aware of when starting a wholesaling business.

House Flipping Basics and Wholesaling Basics
When involved in wholesaling there are two levels of cost. The first is the
cost associated with house flipping. The second is the cost associated with
wholesaling. These are two separate, but closely related enterprises.

You’ll have to decide as a real estate investor whether you’ll be flipping a
house or just wholesaling it. This will determine your costs.

Wholesaling Costs
The costs of starting a wholesaling business are really minimal. You’ll be
focused on selling that house before the agreement to sell the house
reaches its closing date.

As soon as you get a client to sign the agreement to sell their house you
should be out the door or on the phone looking for potential buyers. These
buyers are usually other investors who like to buy houses cheaply and fix
them up for rental or the traditional real estate market. They may even be
hard money lenders who are looking to expand their business into new
areas.

You won’t be spending money to fix up the house, on insurance or even
placing the property with a realtor if you can help it. Yet, you’ll also
usually be responsible for closing costs and even a referral bonus if someone
referred the property lead to you.

Basic Wholesaling Property Costs:

   •   Loan costs or closing fees

You may be responsible for one set of closing fees when you buy the house
and sell it to your buyer. This depends on how you set up the sale. Most
likely the title company will just deduct the closing costs from your profits
before cutting you a check.

   •   Referrals


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Getting Started with Wholesaling ~ RealEstateInvestor.com



Property wholesalers sometimes offer referral bonuses to people who
provide them with property leads. This is usually about $500 to $1000.

   •   Advertising

You’ve got to get your name out there. Advertising doesn’t need to cost
much, just as much as a ream of paper and some printing ink or as much as
a radio spot and classified ads in the local paper. This is up to you.

   •   Appraisal Costs

Depending on where you are and how you close the deal you may need to
hire an appraiser to look over the house and give you an estimate of its
market value.

   •   Home inspection

Wholesaling property buyers aren’t usually nervous about buying a home
that needs some work, but they may want to know what kind of work needs
to be done before purchase. So, you’ll have to get a property inspector out
there to evaluate the damage so you can present the information to your
buyer.

House Flipping Costs
When you decide to start house flipping as an investor your costs will
include all of the above and more. House flippers often fix up the property
they are trying to flip first and will even place it with a real estate agent to
try and sell the property for top dollar.

Basic House Flipping Costs:

   •   Loan or Mortgage

House flippers can also buy the house they intend to flip. This can mean a
mortgage in your name or at least cash out of pocket that you’ll have to
make back on the sale of the property.

   •   Insurance

Since the property will be in your name house flipping basics says you’ve got
to cover it! It can be difficult to get homeowner’s insurance for a wholesale
property. Your best bet may be to pick up Builder’s Risk Insurance. This is
insurance that’s intended for properties being built or in the process of
being remodeled.

   •   Carrying Costs




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Getting Started with Wholesaling ~ RealEstateInvestor.com


These are the basic costs of owning a home. You won’t have to worry about
them when starting a wholesaling business, but if you intend to be a house
flipper this is what you’ll be responsible for:

          o   Utilities
          o   Monthly Mortgage Payment
          o   Property Taxes
          o   Regular Maintenance

House flipping basics says; the longer you hold that property in your name,
the more carrying costs you’ll have. The more cost you have, the more you
have to sell the property for just to break even.

   •   Remodeling and Repair

House Flippers will want to repair any damage to the cheap property
they’ve just purchased. So you’ll be responsible for remodeling costs and
repair costs to the contractors you hire.

   •   Realtor Commission

When the house actually sells on the market, you’ll probably have a
realtor’s commission to pay. However, this usually comes out of the profits
from the sale of the real estate property. This is usually about 6% of the
selling price.

As you can see, house flipping costs are much higher than the basic costs for
wholesaling a property. Yet, there are benefits to both options. Starting a
wholesaling business costs very little for the investor, and involves
wholesaling a lot of houses for an average of $3,000 to $5,000. House
flipping costs a lot of money initially, but promises a bigger payoff on one
house. Some flippers claim to make anywhere from $50,000 profit per sale
all the way up to a whopping half a million dollars (in rare cases when the
housing market was explosive!)




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Getting Started with Wholesaling ~ RealEstateInvestor.com


How Much Can You Make Wholesaling Houses for a
                   Living?

Many real estate investors use wholesaling to supplement their income on a
regular basis. However, if done right you can use wholesaling for your
entire income.

You too can take advantage of wholesaling to supplement or complete your
income, but just how much money can you bring in through wholesaling
houses for a living?

Real estate wholesaling is different from flipping houses, so those who make
money flipping houses should know that real estate wholesaling will bring in
considerably less money. However, you’ll be able to make more deals as a
wholesaler so you’ll be bringing in that money more often.

Real estate wholesalers can count on a glut of cheap homes being available
on the market. Even though you’ll only be bringing in a certain amount of
money per sale you’ll always have another sale around the corner. This can
certainly be called job security.

Average Profit Per Wholesaling Deal
How much money can you make wholesaling houses for a living as opposed
to those who make money flipping houses?

The average real estate wholesaling deal brings in between $3,000 and
$10,000 in profits for the investor. This is a very small amount compared to
the profits of those who make money flipping houses. A house flipping deal
can bring in about $30,000 once the house sells to a buyer. Remember, that
house flipping can take several months, up to a year to complete. Plus,
you’ll be investing a lot of money and time in that one house flip.

A wholesaling deal can close in just a few days, and I’ve heard of deals that
closed on the same day as the investor found out about the property.
That’s $3,000 in one day.

Imagine closing 3 or 4 wholesale deals a month for just $3,000. 4 deals
times $3,000 equals $12,000 a month wholesaling houses for a living. Now,
take that $12,000 times 12 months in year and you get $144,000 a year
wholesaling house for a living!

That’s an incredible profit compared to the measly $30,000 you’d make
flipping a house over the course of a year.

The idea in wholesaling houses for a living is for your buyer to get the
majority of the profit. You’ll be getting a kind of ‘finder’s fee’ for the
property and the buyer gets to spend time fixing up the property and
marketing it for a larger profit of his or her own.


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Getting Started with Wholesaling ~ RealEstateInvestor.com



This doesn’t mean that you have to let the properties go for a pittance.
Don’t ever let that buyer talk you out of the fee you ask for assigning the
contract on a wholesale property or even talk you down to a drastically
reduced fee. The lowest you should make on a real estate wholesale deal is
about $3,000. This is often on properties that you may only hold for a few
days and don’t even spend a lot of time on looking for a buyer. Of course,
all sales also depend on the house and its real market value.

When Do I Get the Money?
Any investor who wants to make money flipping houses will find that they
don’t actually get their profits until after the house is sold. After you find a
buyer for a home it can take about 30-45 days for the mortgage company to
get to the actual closing. You’ll have to wait until the title has cleared
with the title company. That means an investor can spend months investing
time and money into the house and not get paid until that property is sold.

When you close a wholesale deal, it’s possible to get your profits within as
little as a week. You’ll be lining up another real estate investor to buy this
property, so it’s likely that they’ll be able to pay cash for the house.

A cash buyer is a great lead to have when wholesaling houses for a living.
You can have the buyer transfer the funds to pay for the property right into
an escrow account with the title company. The title company processes the
paperwork and you can pick up a check with your profits in just a few days.

When you are assigning a contract on a wholesale deal, there is potential for
an even quicker payment. Just instruct the buyer to bring a cashier’s check
for the amount of your fee to the closing deal. Once you assign the
contract, the buyer hands you the cashier’s check and you only have to wait
as long as it takes for the check to clear with your bank.

Compared to those who make money flipping houses, the concept of
wholesaling houses for a living is a great idea. You’ll close deals more often
and get cash buyers for the wholesales, meaning that you’ll get more profits
faster.




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            How Does the Homeowner Benefit?

Real estate wholesaling has numerous benefits for the real estate investor.
House flipping is a good way of earning large sums of money.

However, there are also benefits for the seller in real estate wholesaling.
The seller, being the homeowner who agrees to let you find a buyer for
their property. In the case of house flipping, you may also purchase the
property from the homeowner, but they still receive the same benefits.

Sure, the seller is letting go of the property cheaply. Plus, you are also
going to make a profit just for matching the seller with the buyer. These
points are actually benefits!

Your Benefits are their Benefits!
As a real estate wholesaling investor you’ll have to realize that the services
you provide the homeowner and the buyer are really benefits for both sides.

   •   You are the one that does all the legwork, (of course, you don’t even
       have to do that if you market properly!) and you are the one with all
       the house flipping tips and secrets. This saves the homeowner lots of
       time!

   •   Wholesalers usually end up buying unwanted or run down properties.
       Even though the homeowners are letting the property go for a low
       price, they have a good reason too. Most likely they were unable to
       sell the home on the traditional market and it’s become a money pit!
       You are helping them out by finding a willing buyer and making an
       offer they can live with.

   •   You have access to the real estate wholesaling market and can serve
       as the all important link between that market and the homeowners.
       In other words, you bring the homeowners and the buyers together.
       Most of the time these homeowners wouldn’t know where to begin in
       order to sell their property for even a cheaper price, but you do!

   •   No need to hire a realtor when you make a wholesale deal. So, you’ll
       even be saving the homeowners a real estate agent’s commission on
       the sale of the house. NOTE: Unless you’ve already hired a realtor
       such as when you are trying to flip a house on the traditional housing
       market.

Providing Access to the Wholesaling Real Estate Market
Perhaps the most important benefit, your seller receives from this deal is
the chance to sell their property without a lot of effort. They provide you
with the necessary information. You decide how much everyone will need
to make in order to be happy and work out the details with a buyer.



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Getting Started with Wholesaling ~ RealEstateInvestor.com


Homeowners willing to wholesale their property are folks that have old
rundown homes they can’t sell on the home market without first fixing up
the place. They are also landlords and bank attorneys with a lot of property
and very little time. They are people who’ve just inherited a house and
literally have no desire for it or the carrying costs needed to keep the place.

All of these people are homeowners looking for someone with a few house
flipping tips, contacts and some knowledge on wholesaling real estate to
buy their home cheap! They come away with a nice cash sum, you get a
profit, and your buyer still gets a cheap investment property.




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Getting Started with Wholesaling ~ RealEstateInvestor.com


                      Find Wholesaling Leads

Marketing is an important element for success in any real estate investment.
In wholesaling property it’s essential for bringing in leads and selling
property. It’s very difficult to find enough homeowners looking to sell
property without marketing. You can’t exactly go door-to-door asking
people if they are selling. Plus, looking up properties in the county
courthouse will only let you know which homeowners are in debt and in
foreclosure. Not which ones are looking to sell their homes.

House Flipping Basics: Marketing
So, you need to draw the homeowners to you with marketing and
advertising. This isn’t as difficult as it sounds. Marketing your wholesale
business can be as simple as putting up a few handwritten signs in the area
where you’re looking for wholesaling property. Or it can be as quick as
placing an ad in the local newspaper.

Bandit Signs
A lot of real estate investors use bandit signs to advertise houses for sale,
but you can also use them to advertise your wholesaling business. You
should ideally place these signs everywhere you can in your area.

Signs are the easiest and most visible marketing tool you can use. Make
sure that your signs are simple, with bold print or bold dark handwriting on
them.

You can simply state, ‘I buy cheap real estate’ on your bandit signs, along
with your phone number or even website. Or you can also write, ‘Will Pay
Cash for Any House’ on your signs. These are great and simple ways of
drawing in house flipping leads.

Flyers
In addition, you can use your word processing program to create a simple
flyer with tear off strips at the bottom containing your contact information.

Blanket your area with these flyers. Place them in laundry mats, on
telephone poles and even ask local businesses if you can place a pile of
them on their check out counter. A great place to see if you can leave a
bunch of flyers is the local library. They’ll often have a bulletin board for
these kinds of items.

Classified Ads
Another option is to place a simple classified ad in the local newspapers.
Place your ad in the papers, the local shoppers and even in local real estate
magazines.

The wording for these ads is the same as above. Tell them ‘I buy houses!’
and provide your contact information.


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Networking
You can also bring in wholesaling property leads by getting people to work
for you! A network is very easy to build up and usually starts by talking shop
with other local real estate types. You can contact all kinds of investors
and people involved with real estate to let them know you are buying
homes.

There is a long list of people you can contact to bring into your network:

   •   Local Real Estate Clubs

Contact and join these local clubs. It’s a great way to meet like-minded
people, educate yourself and find both buyers and sellers.

   •   Realtors

There are plenty of realtors and they usually specialize in different kinds of
property, including foreclosures. Make contact with a few realtors and let
them know that you are looking to buy some cheaper houses that they
wouldn’t normally be able to place on the market. You might be surprised
what they have on hand.

   •   Landlords

Landlords are a great resource for both selling property and buying
property. Give them your card, tell them you’ve got properties on hand for
cheap and that you are always looking to buy properties too.

   •   Local Attorneys

Attorneys are involved in all kinds of real estate from foreclosures to
inherited properties. Let them know that you are looking to buy unwanted
homes. The attorneys may have clients who are looking to sell off some
property on the cheap.

Finding wholesaling leads is a cinch once you get started. All you need is
the proper advertising and a good network to bring the leads to you. It may
take you a little while to get the leads started coming in, but remain
optimistic and persistent and you’ll find more work than you can handle.




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Getting Started with Wholesaling ~ RealEstateInvestor.com


       Birddogging: The New Wholesaling Career

For those involved in real estate or who just want to make money flipping
houses there is a new real estate term in town. It’s called ‘bird dogging’
and no, it’s not about breeding hounds.

Birddogging is the practice of hunting down potential wholesaling leads for
other real estate investors and getting paid a ‘finder’s fee’ for the
assignment of contract or just the lead itself. This is a great way for those
just starting a wholesaling business to learn the ropes.

Many seasoned investors bring in a lot of their properties and wholesaling
leads through the assistance of their ‘bird dogs’ who are new investors just
learning how to make money flipping houses.

This practice of bringing in wholesaling leads benefits both the experienced
wholesaler by saving them a lot of time searching for leads and the new
investor by giving them an easy way to learn wholesaling while at the same
time picking up some cash. Birddogging can even be considered something
of a student/mentor relationship as the new investor picks up experience
and skills while starting their own wholesaling business.

Finding a Seasoned Real Estate Mentor
Anyone who wants to make money flipping houses can start in birddogging
real estate. When starting a wholesaling business like this though, you’ll
need to find yourself a mentor or a real estate investor who is willing to
take new investors under their wing in exchange for time and effort. These
aren’t investors who charge a fee for mentoring. These are real estate
investors who get you involved in the nitty gritty work of searching out
wholesaling leads.

You’ll be able to find such investors through the classifieds. Look out for
ads offering to ‘buy unwanted or foreclosed homes’. These are usually
posted by the kind of investor who could use a birddog. Let the investor
know you are looking to get started in wholesaling by referring leads to
them. If they’re interested make sure you find out all of their particulars
such as;

   •   What kinds of properties they prefer?
   •   Where they are looking for property?
   •   What they are willing to pay for the house?
   •   What they’ll offer in finder’s fees?

In exchange for working with a seasoned real estate investor to make money
flipping houses you’ll have to be willing to do the legwork. That means
networking to find properties that homeowners are selling on the cheap,
going out to look at the property and negotiating a potential price with the
homeowners. You may also work to get the homeowner under an


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agreement to sell contract before approaching the real estate investor with
your lead.

It only takes a few closings before you get the hang of the process, but
you’ll start out with a lot of false leads. This is one of the drawbacks of
starting out as a bird dog. You may have to offer the real estate investor
you’re working with up to 20 leads before they’ll find one acceptable
property.

Learning about starting a wholesaling business takes a lot of time, but with
every lead that the investor turns down you’ll learn a little bit more about
the business. That investor will have to spend time with you to explain why
a property isn’t acceptable. It may mean taking a lot of time out of their
day, but in exchange the real estate investor is getting someone else to
search out properties for him or her. Hopefully, you’ll pick up the process
quickly enough that you actually start to make money flipping houses and
stick with the work.

Over the course of your working education as a bird dog you’ll also pick up a
lot of other tips and real estate wholesaling knowledge. Just to get you to
start bringing in better wholesaling leads the investor will have to teach you
about:

   •   Locating deals
   •   Placing your own ads in the paper
   •   Putting out bandit signs
   •   Direct mailers
   •   Negotiating deals
   •   Assigning contracts and more.

If you have little to no money to invest in starting a wholesaling business
birddogging can be a good alternative option. Instead of paying a ‘guru’ for
the chance to ride along with him or her on all of his deals, you get a
working education with profits once you bring in an acceptable offer. Most
bird dogs bring in about $500 to $2,000 per wholesaling deal once it closes,
so it’s still a good way to making money flipping houses at the start of your
real estate business. As you gain more experience you’ll be able to branch
off to other investors and negotiat higher ‘finder’s fees’ for the wholesaling
leads you bring in.




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        The Different Property Closing Methods

Investors can easily tell you that there are plenty of distressed and
unwanted homes available on the market. These homes generally get
overlooked by the buying public because they have some damage or are run-
down and just because they aren’t being marketed to the traditional home
buyer market.

When you do begin to flip properties you’ll find that there are three basic
methods to house flipping property. They are all useful and proven in their
own way. As a real estate wholesaler you may close deals using all three
methods or you may find that you prefer to stick to just one method.

Retailing Houses
Those starting a wholesaling business will know this kind of deal from the
popular television shows that have been on recently. The investor buys a
run down property and fixes it up. This house is then placed on the
traditional real estate market and marketed to buyers looking to live in the
home.

Investors involved in this type of house flipping will usually invest a lot of
money in the property to fix it up and remodel it. However, they can also
purchase the house from the buyer or place it under contract.

Basic steps for retailing a property include:

   1.   Finding a homeowner with property for sale,.
   2.   Hire a home inspector to evaluate the damage and rehabbing costs.
   3.   Making an offer on the property.
   4.   Buying the house from the homeowners.
   5.   Fixing up the property with partners or contractors.
   6.   Placing the property on the traditional real estate market.
   7.   Finding a buyer and selling that home!

Hopefully, you walk away from the deal with a large chunk of profits after
paying for the purchase of the home, the contractors, carrying costs and the
realtor. The process of retailing houses can take anywhere between a few
months up to a year. It’s a very time consuming investment and ties up a
lot of money too. Retailing house flips is a practice best left to those with
some experience in real estate investment and enough money to invest.

You can also pay cash for a house and flip it to another investor without
bothering to fix it up first. This method really only requires that you have
the cash or credit to buy the house.

Wholesaling with Simultaneous Closing




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The simultaneous closing method on properties is an alternative method for
house flippers. You don’t make a lot of profits but, a few thousand here and
a few thousand there quickly adds up to large profits.

Wholesalers will find a cheap house for sale and sell it to another investor
for a profit during a simultaneous closing.

The steps involved in a wholesale with simultaneous closing are:

   1.  Finding a homeowner with property for sale.
   2.  Get them under contract with a an agreement to purchase.
   3.  Find a buyer through your network.
   4.  Get the buyer under an agreement to purchase from you.
   5.  Have them send funds to escrow account with your title company.
   6.  Bring the buyer to the closing with the homeowner.
   7.  You sign the purchase agreement with the homeowner.
   8.  In a separate room, you sign the purchase agreement with your
       buyer.
   9. Submit both contracts to the title company.
   10. Title company sees your buyer has already funded the escrow
       account.
   11. They use those funds to complete both transactions.
   12. You receive a check for the difference. Profits!

The simultaneous closing is becoming very difficult to complete. It carries a
bad reputation with mortgage companies and title companies alike, because
it’s one of the preferred methods for some involved in real estate fraud. An
investor will be hard pressed to find a title company willing to complete a
simultaneous closing.

Assigning the Contract
This method of starting a wholesaling business is also used by investors in
other kinds of real estate deals, such as closing a short sale deal.

You’ll assign the purchase contract to your buyer when closing the sale. It’s
as easy as signing your name and/or assigns on the purchase agreement with
the homeowner’s. Later on, when you bring your buyer to the closing you’ll
write in the buyer’s name on the original contract.

Basic steps of assigning a contract:

   1. Find a homeowner with property for sale
   2. Get them under contract with a an agreement to purchase.
   3. Begin title work with title company.
   4. Find a buyer for the real estate.
   5. Get the buyer to sign an assignment contract giving you a ‘finder’s
      fee’.
   6. Bring the buyer to the closing.
   7. Turn over the purchase agreement to the buyer.
   8. Collect your fee from the buyer.


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   9. Provide the purchase agreement and a copy of the assignment
      contract to the title company.

Assigning contracts is getting a little tricky these days. Mortgage companies
and title companies can insist that the only name on the purchase
agreement be that of the final buyer.

Anyway you slice it, there are tons of different ways to close on a house flip
property. You just need to find the right method that works for your needs.
The rewards for your work and time involved in real estate investment are
truly consistent with the number sales and lots of profits.




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                        How to Find a Buyer

Marketing is very important in wholesaling property. Almost every kind of
real estate investment relies on marketing to make successful deals. It’s
the advertising you use that draws in real estate leads and the networking
you do that draws in the buyers for your property, especially when flipping
real estate contracts.

Getting the Buyer’s Contact Information
There are many kinds of advertising and networking you can use to find a
buyer for your wholesaling property. These methods are best used in
combination to ensure you hit the most potential buyers. Even if you sell
that property to the first buyer that contacts you, it never hurts to have a
bunch of other buyers waiting in the wings.

When interested buyers do start contacting you about the properties, ask
them if you can keep their information on hand in case you get other similar
properties in. Many real estate investors will gladly give you their name,
phone number or email so you can contact them about other properties.

Take the information you get and place it into a spreadsheet program or
database. This is an easy way to build up your buyer’s list so you won’t
have to do as much advertising in the future.

Advertising Ideas for Flipping Real Estate Contracts:

Brochure Boxes
It’s always a good idea to place a brochure box on the lawn of the property
you currently have under contract. You can fill the box with very simple
brochures about wholesaling property that you’ve made at home. Most
word processing programs have brochure templates that you just fill in with
the proper information about the property.

Don’t give out all of the information about the property though. You want
interested buyers to contact you for more information on the property.
However, you can state in the brochure that you are looking for buyers
interested in purchasing cheaper properties at 50% to 70% of the fair market
value.

Bandit Signs
Real estate investors can also make use of bandit signs when flipping
wholesale property. Whether you are house flipping or just flipping real
estate contracts you can place these signs in your local area with your
information on them.

Your bandit sign information will change depending on what wholesaling
method you’ll be using. Those flipping houses will state, ‘House for Sale’
and the street address or even ‘House for Sale by Owner’. Bandit signs for


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those flipping real estate contracts will simply state, ‘Houses for Sale’ or ‘I
sell cheap houses’ implying multiple properties available to investors. You
can pull in a few handyman types with these signs who are looking for a
fixer upper kind of property.

Flyers
You can sell a lot of houses with flyers, especially if you are flipping houses.
Making flyers is as easy as making brochures. Many word processing
programs have templates for flyers that you can fill in the information on.

On the top of the flyer in bold, print ‘cheap house for sale’ and provide a
little bit of information on one of your available wholesale properties.
When interested buyers call in you can let them know that house has
already sold, but you’ve got plenty of other properties on hand if they are
interested. Or you can take their contact information for later.

Networking Ideas for finding a buyer:

Local Real Estate Investment Groups
It never hurts to be a member of the neighborhood real estate investment
group in your area. You’ll learn more about real estate and you’ll make
contacts with other investors. When you are flipping real estate contracts,
be sure to see if any of the other investors in your group are interested in
buying that property.

Rental Agencies and Landlords
Check your local phone book for local landlords and rental agencies that
rent out homes. A quick phone call will help you break the ice with the
people working at the company and you can also let them know that you are
in the business of wholesaling property should they be interested in picking
up a few more rentals.

If they aren’t currently interested in what you have to offer, remember to
ask if it’s okay to keep their information on hand so you can call or email
them with other properties you get in the future. Also ask them if they
have a certain time period when the do invest in new properties.

Contractors and Local Handymen
Keep the information for your local contractors, carpenters, electricians and
handymen. They have been known to pick up a few wholesaling properties
to fix up and sell on the traditional real estate market for extra cash.

You can also call local contractors in your area to see if they are interested
in picking up some real estate investment properties for cheap.

It’s not difficult to find a wholesaling buyer with the right networking and
advertising strategies and these ideas are only a few of the many marketing
methods available to find buyers. You just need to keep your eye out for




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potential sales and always remember to take down contact information to
add to your buyer’s list for the future.




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            The Wholesaling Deal: Step-by-Step

The process of real estate wholesaling can go very quickly if you know what
steps to follow. It’s only when you are new to a type of real estate
investment or a few pitfalls crop up that the process slows down.

Investors that take the time to read house flipping guides and speak with
other investors about the process will find themselves well prepared to
complete a wholesaling deal step by step. In fact, writing down the steps
you need in order to get that real estate wholesaling deal closed is a good
idea.

The 8 Step Wholesale

   1. Find the Property

There are lots of ways to generate real estate wholesaling leads. You can
put up bandit signs, you can place ads in the newspaper, you can even call
local bank and retirement attorneys to see if their clients have unwanted
properties they need to unload.

Once you get a wholesale lead, you’ll have to speak with the homeowner
over the phone. Collect enough information to decide if the property is a
good wholesaling deal and set up a meeting with the homeowner.

   2. Get the Homeowner under contract

When you attend that first meeting with the homeowner, you need to get
him or her to sign a purchase agreement with you. This puts them under
contract to sell the home to you in 30, 45, 60 or even 90 days, depending on
how you’ve written the contract. That time period gives you the time you
need to contact other investors and get yourself a buyer for the property.

Be sure to explain that you’ll be looking for a buyer during the closing
period and intend to assign the contract to that buyer.

   3. Take the contract to a title company

After the meeting with the homeowners, take a copy of the purchase
agreement to your chosen title company. Let the company know that you’ll
be bringing in an assignment document and another copy of the purchase
agreement at the time of closing. Taking that document now, lets the title
company begin the closing process by doing a title search and ordering a
home survey.

   4. Call potential buyers




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Hopefully, you used your time while waiting for wholesaling lead to build up
a buyer’s list. Buyers interested real estate wholesaling deals are going to
be other investors. Become a member of your local real estate investors
group. Call local landlords and see if they need another house or two. Even
check with your contractors and builders to see if they are interested in a
fixer upper. My other house flipping guides will have plenty about finding
those buyers. You may have to show the house to the buyers to get their
interest.

   5. Sign an assignment contract with the buyer

When you get a buyer for your real estate wholesaling deal you’ll have him
or her sign the assignment of contract document. This is a simple document
that states you are giving up your rights to purchase the property you have
under contract to the buyer. In exchange the buyer pays you a fee you’ve
both agreed on before hand.

   6. Collect your ‘finder’s fee’

Have the buyer bring a check or cash to the meeting when he or she signs
the assignment document. After signing you can collect your fee from the
buyer and shake hands. It’s a good idea to also set up the closing deal
between the homeowner and the buyer and attend the closing too. This
way the homeowner feels more comfortable with a different person signing
the closing papers.

   7. Have buyer sign the purchase agreement with homeowner

Attend that closing deal with the buyer and make sure all the 'I's are dotted
and the T’s are crossed. In other words make sure that the closing goes
smoothly and the homeowner is paid or that the buyer has transferred funds
to buy the property into an escrow account with your title company.

   8. Take a copy of both documents to the title company

After the meetings are over, take a copy of the assignment document to the
title company so they know a different name will go on the title. You may
also take over closing documents, but the buyer may prefer to drop those
documents off themselves.

Most house flipping guides make too much of the process of real estate
wholesaling, but as you can see the steps are easy. You only really need to
know what order to complete each step in and where to go for your next
piece of information. Wholesaling is an excellent way to earn a living
without spending a lot of time on each real estate property.




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             Assigning a Contract for Wholesale

The Gurus always talk about how easy it is to start real estate wholesaling
without using your own money. Yet, it always seems that they gloss over
the necessaries of actually doing so in real life. Flipping real estate
contracts seems like an easy move, but for the investor new to wholesaling
the idea is confusing. After all, how can you assign a contract when you
don’t even know what to do to accomplish it?

Flipping Real Estate Contracts is Simple
Perhaps the reason that so many real estate gurus gloss over the topic of
assigning a contract, is because it’s so simple. They just forget about it in
the larger scheme of real estate wholesaling.

You’ll be surprised at how easy it really is to assign a contract to a buyer
and what it all really means behind the legalese.

Assigning a contract is the ‘turning over’ of your rights to purchase a piece
of real estate to another investor, your buyer. The contract that you assign
is the original purchase agreement that you get the homeowner to sign.

Don’t worry that you’ll have a hard time getting your hands on the
documents and contracts required in real estate wholesaling. There are
plenty of places to get purchase agreements and the other necessary
documents for a real estate transaction online. These documents are
perfectly legal. Just be sure to read over them to make sure you
understand what they say. A real estate contract doesn’t have to use hard
to understand wording to make a legally binding document.

The Mechanics of Assigning a Contract
Once you have your contract, you’ll make a few adjustments to it. Begin by
adding the phrase, ‘and/or ASSIGNS’ after all the spaces where you, the
buyer, sign your name on the contract. As well as including a small section
in the contract stating you are allowed to assign your rights to this purchase
agreement to another buyer. Of course, you can also find contracts that
already include the ‘and/or ASSIGNS’ sections if you look around.

Getting set up to start flipping real estate contracts is as easy as that. As
long as you let everyone know beforehand that you’ll be looking for a buyer
to whom you can assign your contract.

There is another document you’ll need to complete your real estate
wholesaling deal. It is the assignment contract. This document is an
essential for flipping real estate contracts.

The assignment contract is the legal document between you and the buyer
stating that you’ve agreed to give up your rights to the homeowner’s
purchase agreement in exchange for a fee.


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You should also be able to find this document on the web. It’s not difficult
to write up if you can’t. You’ll simply state in the document that you agree
to give up rights to the purchase agreement for the property at a certain
address. Be sure to state:

   •   your full names,
   •   the name of the homeowner,
   •   the selling price of the property and
   •   the address of the property in your assignment document.

In addition you’ll want to state the amount of the fee you’ll be receiving
from the buyer in exchange for your rights to the contract. Don’t forget the
dates, your signatures and a space for the notary to sign and validate your
assignment document.

Mechanics of Flipping Real Estate Contracts After Signing…
At this point you’ll write in the buyer’s name on the original purchase
agreement with the homeowner after the ‘and/or ASSIGNS’ sections. The
buyer will sign his or her name on the purchase agreement.

From here it’s your responsibility to make sure that a copy of the
assignment contract makes it to the title company. So, they know that
you’ve assigned the contract willingly and can complete title change.

It’s not difficult to start flipping real estate contracts. You just need to
learn the process once, and from there will be able to repeat it. Investors
can assign a contract in real estate wholesaling, short sales and even the
purchase of a home at full market value. The possibilities are endless.




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             Salesman’s Tricks to Make a Sale!

There are plenty of pluses in your favor as a wholesaling investor. The
economy is slow, houses have glutted the market and people need to sell.
You’ll be able to take advantage of all of these potential sales with a good
buyers list, some legwork and a few house flipping basics.

Beyond your time and effort there are a few little salesman tips you can use
to ensure that the homeowner sells with you or that the buyer wants your
deal.

Closing with the Buyer or the Homeowner
As with any real estate investment, you’ll need to close the deal. This can
mean convincing the homeowner’s to sign with you or convincing the buyer
of what a really great property you’ve got. Here are a few quick house
flipping tips and sales methods you can use to help close that deal.

Empathy Closing:
This is a great closing method to practice with homeowners. You discuss
the homeowner’s situation with them and try to develop some empathy.
Perhaps this house they are selling cheap is an inheritance from a relative
that recently died. Almost everyone has lost a relative and you’ll be able to
understand what they are going through and develop that needed
connection with the homeowner.

Order Form Closing:
Sometimes the buyer or homeowner you are talking with may be hesitant to
start filling out paper work. You can turn over the form to the homeowner
or buyer and just have them fill in a few spaces, like their name or address.
You can say that you’ll fill out the rest of the information for them. Then
during the course of the conversation just ask them those pertinent bits of
information and fill in the form as you go.

Not For You Closing:
This is a great closing method to use on buyers. You’ll create competitive
feelings by letting the buyer know that you’ve got a few other buyers lined
up who would be interested in the property. You can also begin to
commiserate with the buyer if they start coming up with reasons that they
can’t buy right now. Say something like, ‘Oh you’re right, you probably
wouldn’t want to invest in this area of the state. It is out of the way, but I
just had such a fantastic offer on the property it’s going to go fast,’ or ‘I
understand you’ve got too many houses at the moment, this deal may suit
another buyer.’

Staging the House
Apart from getting the contracts and documents signed, you’ll have stage
the house for a house flip. This isn’t necessary for those wholesaling
houses, but those looking to house flip will need to show the property to


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buyers who are more interested in living in the house, than using it as an
investment.

   •   Purchase Surplus and Discount Appliances for the House

You’ll make the house more attractive to buyers if it already comes with its
own appliances. They don’t have to be brand new, they just have to work.

House Flipping Tip: Most homeowners prefer electric appliances these days
to cut down on gas costs.

   •   Use interesting but neutral colors

Buyers won’t want to move into a home with the same old white washed
walls and brown carpeting that they’ve seen every where else. Plus, it’s
more work for them to have to repaint walls they can’t stand looking at.
Pick out different colors for your walls, but keep them neutral so they also
won’t crowd the senses of people looking at your home.

House Flipping Tip: Pale tans warm a room making it cozy; while pastel
blues and greens cool a room, making it seem larger.

   •   Less is more when flipping houses

A big mistake real estate investors make when staging a house is going
overboard with decoration and furniture. An already vacant property needs
just a little staging because the buyer wants to visualize how the home will
look when they move their stuff into it. A table here, a chair there, some
flowers and some curtains is all you really need.

House Flipping Tip: Limit the amount of time you take staging an empty
house.


Some wholesaling deals will be so easy it just seems to fall into your lap.
However, most deals require a little work and access to a few great secrets.
That’s why it’s a great idea to learn some of these little Salesmanship tricks
for really hooking those buyers and sellers.




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      Potential Mistakes Every Wholesaler Makes

Real estate wholesaling is all about closing the deal. You may spend a lot of
time looking for a house to flip or you may spend very little. You may keep
a house flipping guide by your side at all times, but when it comes down to
closing the deal, you need to be a good seller.

There are plenty of way to close a wholesale deal or flip a house, but what
catches the real estate investor off guard are the little mistakes or
sometimes big mistakes that make people nervous about a sale. Beware of
falling into these traps!

Bragging Rights:
They say a first impression is very important and that is especially true of
the first meeting with your homeowners. The goal of this meeting is to get
them under contract with you to sell the house. During that meeting you
want to be polite and professional. That doesn’t mean bragging about the
hundreds of deals you may or may not have completed already.

House Flipping Tip: Coming off too slick when meeting with a buyer or the
homeowners before any contracts are signed can cause you to lose that
contract.

Greed:
This is an especially problematic trait for house flippers. There is a
tendency to want to bring in just one big sell through house flipping a
property. This desire for a large cash payoff can cause the investor to lose
the chance to make any sale on the property. An asking price that is too
high will be out of reach or unattractive for potential homebuyers.

House Flipping Tip: Take the first good offer that is made on your real
estate wholesale or house flip.

Impulsiveness:
Your best chances for making a profit in real estate wholesaling is to create
a process and perform due diligence before signing anything. Some
investors just want to jump right in on a house flip or wholesale. So, they
sign that contract before figuring out if they can really make a profit on
their investment of time and money. Take a little time to calculate the
market value of the property you are interested in compared to the price
the homeowners are asking. Then, you’ll know what you can offer the
homeowners and what you can ask in finder’s fees from the buyer on a
wholesale.

House Flipping Tip: Perform Due Diligence and develop a plan for your
house flip before signing.

Real Estate Pitfalls


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You can also fail to close a wholesaling deal through some common pitfalls
that crop up. The failure to make a closing can be very damaging to the
house flipper, who has to cover the investment in the property and carrying
costs until it sells.

Over budget:
It’s easy to get over budget when fixing up a property for the house flip and
that can ruin your bottom line even when you sell the property. Keep a
tight rein on your remodeling budget during a house flip. That means paying
close attention to your contractors, being sparing with what you purchase
for the home and being vigilant about turning off utilities or remembering to
turn off things like the lights when you leave the home.

House Flipping Tip: Set a budget and stick to it.

Lazy Contractors:
It’s the proverbial contractor who is always claiming to be done in ‘two
weeks’ but he or she tends to run into the months late time period. There
are a lot of great contractors out there, but also a few poor contractors.
When you are remodeling a house to flip, you’ll have to do your research
before hiring a contractor. You’ll also have to be willing to fire that
contractor if he or she isn’t up to snuff.

House Flipping Tip: Research a contractor before hiring and don’t forget to
ask for references.

No Inspection:
Don’t just take the homeowner’s word for it. Pay to get an inspector to
look over the property before you enter the purchase agreement. This way
you’ll have the information you need to fix up a property and won’t be
caught off guard by any major structural problems. It’s also a good idea to
have the inspector’s report on hand for the buyer.

House Flipping Tip: Pay the few hundred dollars up front to have the
property inspected.

Any of the above reasons can be the cause of your inability to close a
wholesaling deal. Stick close to this house flipping guide and you’ll find
that you are more likely to flip those houses successfully.




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             Don’t Fall into Wholesaling Scams!

House flipping is a tempting prospect for new real estate investors. It offers
the lure of quick, large profits for anyone with the time and investment.
Yet, the world of real estate wholesaling is also a temptation for fraudsters
looking to make an even quicker buck.

As a new real estate investor it could be very easy to fall into one of these
wholesaling scams without realizing it. In real estate, just about anyone
can be scammed too. The mortgage companies, the homeowners, the
investor, and even the buyer have all been caught in a fraudulent real
estate wholesaling deal on occasion.

Common Real Estate Wholesaling Scams
You owe it to yourself to learn about potential scams so you don’t
inadvertently enter one when investing in your own house flip. There are
quite a few common real estate scams.

Crooked Appraisals
One in particular involves hiring a crooked real estate appraiser to appraise
the market value of a piece of property at way above or below the real
value of the home. This kind of scam is used by homeowners, investors and
even crooked mortgage companies to make a higher profit on the sale of a
property. The person who loses out here is the buyer, who ends up with a
piece of property that they paid way too much for. Or the mortgage
company accepting say a short sale price that’s vastly undervalued for a
property.

Don’t ever higher someone you know to appraise the property for a certain
price that you want. Or let them convince you that they can ‘appraise’ the
property in your favor for a few extra bucks. It’s a slippery slope that real
estate investors can easily fall down.

Simultaneous Closing Scams
The simultaneous closing is a great way for an investor without a lot of
capital to get involved with real estate wholesaling. However, there is
some potential for fraudulent sales here. Many of you many have already
read that title companies are refusing to take a simultaneous closing deal
because of recent real estate scams in the news.

It’s better to avoid the use of a simultaneous closing these days when
investing in real estate. You’ll still be able to make profits without a lot of
investment using other real estate wholesaling methods.

Deals Too Good to Be True!
This is a deal that gets a lot of new investors who like to attend free
seminars for the house flipping tips and advice. Often you’ll get a call out
of the blue from a company that claims to be hosting a free real estate


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seminar with lunch or food. Now a free seminar is a very common practice
in real estate and normally a great idea to attend.

However, the scammers running this free seminar will ask you to register
with your name, address, phone and social security number. You should
never need to provide your social security number to register for a free
seminar.

Giving this company your social security number allows them to look up your
credit report and see whether or not you make a good potential mark. The
higher your credit score the better, because it means you are able to get a
very large loan.

At the seminar these marks are approached by members of the ‘investment
company’ with a potential deal on a million dollar house that they claim is
worth $2 million dollars.

The investor that agrees to enter the deal is coerced into getting a
mortgage loan for $1.5 million dollars and the ‘investment’ company will do
all the work. They claim that they can negotiate the selling price of this $2
million dollar home to just $1.5 million. Then, you’ll be able to sell the
home for its full $2 million dollar value and make a nice profit.

What the real estate investment company isn’t telling you is that the home
they’ve agreed to buy for you is only worth $1 million at full market value
and that’s what it really sells for. The investment company takes your loan
and buys the house for $1 million then gets away with the excess $500,000.
The mark is left with a home they paid $500,000 too much for!


Tips to Avoid Scams
You can become a successful investor in real estate wholesaling without
falling prey to a couple of real estate scams. All it takes is some due
diligence and following these house flipping tips to avoid scams.

   •   Don’t give your social security number to just anyone. You may need
       it to give to the bank and to place on paperwork for a title company,
       but that’s about it.
   •   If you get a mortgage for real estate wholesaling, make sure you get
       your own separate mortgage to purchase the property. Don’t let
       anyone get the mortgages for you.
   •   Perform due diligence on any property you invest in. This helps you
       find any anomalies and come to your own appraisal value.

As a wholesaling investor you’ll serve yourself well to avoid scams and other
kinds of questionable deals. These listed scams are just a few of the many
lessons to learn about real estate investment.




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            Securing Your Leads against Buyers!

Another potential problem to beware of in real estate is the greedy buyer.
You’ve been flipping real estate contracts for a few months now, making a
pretty good profit wholesaling houses for a living. As a real estate investor,
you are still fairly new to the process but feel secure in your own personal
niche. You’ve got a couple of regular buyers and have a good wholesaling
lead coming in every couple of weeks.

One day another more experienced investor approaches you to invest in
some of your wholesales. You provide this investor with information on a
few great homes, including their addresses, that you’ve signed contracts on
and haggle a bit about the assignment of contract fee. Then you shake
hands and part ways, with you expecting a check in the mail or a call back
with confirmation on one of the properties.

What you don’t expect is for that interested investor to approach all of the
homeowners you had under contract behind your back and offer them a
slightly better price to sell the property directly to him! All of the
homeowners agree and you’ve just lost a month’s worth of income, at least!
What happened?

Scam Artists Preying on New Wholesalers
Those thinking about wholesaling houses for a living will have to be
prepared for the above possibility. As more and more ‘newbie’ wholesale
investors are entering the market, the scam artists in real estate investment
have found a way to take advantage of them. If not taking your best
wholesaling lead from you and gypping you out of a finder’s fee at the very
least, the experience can leave you wanting to get out of real estate
wholesaling altogether.

Flipping real estate contracts can be a great way to earn and income and
not all real estate investors are looking to cheat new and even practiced
wholesalers out of their finder’s fee. It’s usually too much effort to track
down a homeowner anyway, even with their address. There’s also the time
involved in giving the homeowner another sales pitch and convincing them
that it’s ‘okay’ to sell to someone else under your nose. It’s just not worth
the finder’s fee of only a few thousand for most real estate investors.
There are just a few bad apples that you need to guard against when you
start wholesaling houses for a living.

There are a couple of different ways you can lose a wholesaling lead to a
deceitful buyer. During an initial conversation you may let slip or just
reveal without knowing better, the names of the homeowner you have
under contract and their address. Armed with this knowledge the buyer is
able to track down the homeowners and offer them a better deal to sell
directly to him or her.



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Another way to lose that finder’s fee is by simply neglecting to use an
assignment of contract document when you close that deal. If you don’t put
your agreement down on paper how can anyone know it really happened?
Should you decide to sue for your fee after that sale goes through and you
don’t receive any money, the courts won’t be able to award you the funds.
The only thing the courts know is that you signed in the buyer’s name on
that purchase agreement with the homeowner.

When flipping real estate contracts you’ll have to guard yourself against
these little mistakes. A few simple steps to follow with every wholesaling
lead can protect you from the occasional scam artist trying to trick you out
of that finder’s fee.

Protect Yourself When Wholesaling Houses for a Living
   •   Create or find a good Assignment of Contract Document and use it for
       every deal you close with the buyer.

   •   Start using Non Compete Non Disclosure (NCND) agreements if you
       find a lot of buyers are just going behind your back to negotiate with
       the homeowner.

   •   Bring copies of both documents to every meeting, even the first one.

   •   Safeguard the homeowner’s name and address during initial
       conversations or until the NCND agreement is signed.

   •   Drop off a copy the assignment of contract document with the county
       clerk as soon as it’s signed. This ensures it comes up during a title
       search.

   •   Also ask the buyer to reference your services on their HUD 1 form
       during closing. The closing agent/lawyer can simply reference you as
       a consultant.

   •   Request the buyer make payment in the form of a cashier’s check
       when you both sign the assignment of contract document, instead of
       giving you your finder’s fee after closing.

   •   Be above board and honest with all parties when flipping real estate
       contracts.

Flipping real estate contracts need not be a scary practice and you
shouldn’t be afraid of every new buyer that comes along. Wholesaling
houses for a living is a business-to-business trade and in this business you
are bound to lose a few deals. However, with a few simple safeguards you
can ensure that you don’t needlessly lose wholesaling leads to the bad or
greedy buyer.




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         Flipping Homes with Hard Money Loans

Real estate investors planning to flip houses will often need to take out a
loan to purchase the property they are flipping. Some have enough money
on hand to pay cash for a property or to use a line of credit, but it can take
several years before an investor is able to build up this kind of financial
backing. In the meantime you’ll have to make use of a loan or mortgage.
Hard money loans are some of the best funding methods to use in house
flipping.

Hard money lenders (HML) are often private investors or companies that
lend people money based on the property or business deal that money is
going to secure. It’s a much faster way to get cash for a real estate
investment than going through the red tape at the bank. Plus, the lenders
will usually look at the kind of deal you have or the property’s potential
resale value when giving a loan instead of your credit score.

In exchange for the chance to get a quick loan, within just a few days, the
HMLs will charge a higher interest rate on that loan and high origination
fees.

However, many flippers looking to make money flipping houses prefer the
hard money loans because they’ll often fund up to 100% of the purchase
price for the property.

Common Questions about Hard Money Loans:

What is the average interest rate on a hard money loan?
Hard money loans can charge anywhere from 12% to 18% interest on the
amount of the loan. For a loan with 18% interest that can be a 5%
origination fee, plus 12% annually.

Are there any other costs?
Yes, most HMLs will require there to be a Title Policy, some insurance on
the property and a property appraisal. You’ll also need to put some money
down on the loan. So, you should expect to pay the origination points, any
discount points and other closing costs before getting the loan. You know
what they say, it takes money to make money flipping houses!

Do I make Monthly Payments on the loan?
Most of these loans are only going to be out for 3 months to a year. During
that time you’ll make interest payments on the loan. That is, only paying
the interest on the loan. At the time you sell the property you’ll repay the
HML the full amount of the loan plus any remaining interest on the loan.

Sometimes you can defer the interest to the end of the loan if you know the
HML and have completed previous deals with them.


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How long is the hard money loan for?
Hard money loans can vary in their length of time. When you take out a
loan with the HML you’ll usually write a note for any where between 3 and
12 months. It really depends on the lender and how much time you need to
make money flipping houses with these loans.

Will they look at my credit?
HMLs do check your credit, but they aren’t looking at your credit score.
Instead they are looking at your history for evidence of bankruptcy,
foreclosures, charge offs and listings from collection agencies. They just
want to know if you have a history of skipping out on paying back loans and
bad debt.

It’s possible to have a low credit score, but not have any bad marks on your
credit history. So, hard money loans are a good option for young real estate
investors and those who don’t typically carry a lot of credit.

How soon can I get the funds?
You can get access to a hard money loan within 3 days from them receiving
the final documentation for a loan application. This allows investors to
move quickly on a property deal that they find.

What’s the most I can get on a hard money loan?
HMLs will usually only give hard money loans up to 70% of the after repaired
value (ARV) of a property. That’s about 30% less than the selling price of
the property once you get it rehabbed and placed on the housing market.
This practice helps ensure that an investor will be able to pay back the loan
and still make money flipping houses.

Hard money loans are a great idea for short term property investments.
They are not a good idea for a long term real estate practices such as land
lording because of the high interest rate. However, those investors looking
to make money flipping houses can easily use the hard money loan to their
benefit.




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  Picking the Right Contractor for Your House Flip
One of the biggest concerns in house flipping is finding yourself a reliable
and competent contractor for those remodeling jobs. Yet, many new and
even seasoned investors neglect this basic house flipping essential before
jumping into the real estate business.

Lack of planning can lead to a loss of income, or profits, especially in the
case of wholesaling. You can save yourself a lot of hassle, money and time
by following these house flipping basics to finding yourself a great
contractor for those real estate wholesaling jobs.

   1. Don’t Take the Low Ball Offer

Sure, you are running a business and have to keep an eye on the budget, but
don’t automatically pick the contractor with the lowest offer. If most of
your estimates fall within a close range and then there’s one contractor
offering a drastically reduced price, you’ve got to assume that there is a
reason for this. He or she isn’t just offering a great price out of the
kindness of their heart. In fact, this contractor may have something of a
reputation in the area for bad work and is having a hard time getting jobs
because of it. Or the contractor may be inexperienced and really has no
idea how involved the work will be on your house flip.

Real estate wholesaling, especially in house flipping, is about taking old
cheaper houses and selling them after fixing them up. Sometimes you fix
them up just a little or you invest a lot in them. No matter how involved
the work, it should be completed properly. So don’t automatically pick the
lowest bid.

   2. Don’t Be Rushed When Looking

Hopefully, you’ll start looking at contractors before you actually have a lot
of homes to start flipping. It’s not a good idea to be rushed when looking
for a contractor. Call around when you decide to invest in real estate
wholesaling. Speak with a few contractors to get an idea of their
experience, prices and what services they offer.

That way, when you get a real emergency on hand like termite damage, you
can just flip through your contacts to a couple of contractors you’ve already
picked out for the job and give them a call.

   3. Don’t Get Pressured into Hiring a Certain Contractor

House flipping basics says you should never feel pressured into hiring a
contractor. If a contractor or salesperson starts trying to pressure you into
signing with them for the job ask them to back off. Remodeling or



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rehabbing a house takes a lot of effort and you want to feel comfortable
with the contractor you’ve hired.

It’s time to ask the contractor to leave if they don’t ease up on the high
pressure sales routine. You should also be prepared to end the meeting if
the contractor tries to get you locked in by saying that this is a ‘today only’
offer or special. This is a common high pressure tactic designed to get
homeowners to hire that contractor now instead of looking around for other
deals.

   4. Don’t Pay Hourly

Even when remodeling in real estate wholesaling it’s best to avoid paying by
the hour. You may think you are getting a great deal because the
contractor says a project can be done in so many hours, but that’s really
just an estimate. You’d be surprised how quickly those man hours add up
when the project gets started.

If there is anything you take to heart from these house flipping basics, it
should be the practice of paying a flat rate for the entire project with the
contractor. This also works well in getting a project done quickly. The
contractor knows he or she will be getting the same price for completing the
job no matter how much time is put into it. So, why should they take their
time dawdling on the job and stretching out their hours?

   5. Don’t Hire Unlicensed Contractors!

It’s illegal in most states for contractors to work without a license. You’ll
certainly avoid a big mess in your real estate wholesaling project by asking
the contractor if he or she is properly licensed to do the job.

Don’t just take their word for it either. Be sure you get a look at their
general contracting license before hiring them, either a photo copy or the
real deal. You’ll be able to confirm that the contractor is currently licensed
with your state’s Secretary of State website or office.

These five tips will take you far in your decision to pick a good contractor.
No matter the size of your current real estate wholesaling project, large or
small, you’ll save yourself a lot of time and money with the right guy.




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Cutting Costs and Increasing Profits on a House Flip

Anyone wholesaling property will want to keep their costs down and profits
high. In the house flipping game it’s all about how you set your budget and
the final selling price of the home. So, with the aims of keeping you, the
real estate investor, within budget here are several tips towards success.

   •   Hold out for the Right House

It’s possible to be so eager to get into wholesaling property that you buy the
first cheap house you can find. House flipping is about more than buying a
cheap house. It’s about finding the right cheap house. You want a property
that is structurally sound, but needs a lot of cosmetic repairs. This way it
won’t cost you a lot of money to invest in that property, fix it up and you’ll
still be able to sell it at close to current market value.

Another house flipping tip to keep in mind here is to make sure you get a
home inspector to look over the property you’ll be signing papers on. A
home inspection can ensure that the property is structurally sound before
you buy.

   •   Look for Homes Needing Cosmetic Repairs

This was touched on by the first of the house flipping tips, but warrants
further explanation. You’ll want to seek out wholesaling property that is in
need of yard work and a good coat of paint. These are the kinds of repairs
that a homeowner doesn’t want to do themselves, when moving out or
moving in. Yet, they can greatly increase or decrease the value of a
property.

Plus, new paint on the exterior, fresh paint on the interior and some yard
work are all investments that can be done quickly and less expensively than
major home remodeling or rehabbing.

   •   Avoid Mold!

Mold is a deal breaker. Recent news has made the average homeowner
terrified of possible black mold in a home. Plus, it’s really hard to get out
of a home once it shows up, meaning more time and expense.

When you see mold in a home you’re considering you may want to
reconsider it. At the very least it’s bound to lower the price of the home.

   •   Figure your Cost and Double it




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Basic house flipping tips say that you should always double your estimate for
fixing up a property. Keep that in mind when figuring how much you think
you can offer to buy a property and still come away with a profit.

No matter how accurately your contractors estimate the cost of repairs,
something inevitably happens to increase the final price. So, doubling your
repair budget automatically creates a buffer zone for wholesaling property.
If you come in under that amount at the end, then its just more profits for
you.

   •   Contractors take time

This isn’t so much a cutting costs tip as a warning. Most contractors have
multiple jobs going on at once or backlogged. If you decide to just pick a
contractor out of the yellow pages one day he or she may not be able to get
to work on your house for a few days or weeks, maybe even months. So,
keep this in mind if you have a property that will need major repairs or are
running short on funds for carrying costs. It may be better once you get low
on funds to just cut your losses on a property that still needs repairs by
selling it as is.

   •   Realistic Improvements

A lot of investors wholesaling property make the mistake of going overboard
in their improvements. They don’t take into account what homes in the
surrounding area are actually selling for and so invest a more money than
needed in a property. This can be in time, effort and especially money.

For instance, if no other homes in the surrounding neighborhood have
miniature water features in the backyard, there is no need for you to add a
miniature water feature to your home’s backyard. It increases the price a
lot, but also requires a lot of care on the part of the buyer and really only
appeals to a certain select group of homeowners.

There are plenty of other house flipping tips you can follow to keep those
costs down when wholesaling property. In fact you’ll probably come across
a few of your own private tips and ideas as you start flipping more houses.
Hopefully, the above tips are a good start for your burgeoning real estate
investor’s tool box.




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       House Flipping and the New FHA Seasoning
                      Regulations

The popularity of wholesaling is evident in the number of house flipping
shows we see on cable tv. Many new and seasoned investors see house
flipping as the perfect way to grow one’s investment and even earn a living.
However, it’s also being misused by fraudsters.

This is a practice that is casting a pall on anyone investing in flips and even
giving out house flipping advice to other investors. The number of first time
homeowners losing their homes because they paid too much for flipped
houses is such that there are now some FHA rules in effect to protect the
market.

You can bet that these new rules are wreaking havoc on those honest real
estate wholesaling investors like us.

How Did These Rules Come Into Effect?
The US Department of Housing and Urban Development (HUD) noticed that
there were quite a few homes going into foreclosure in past years. A lot of
these homes were owned by first time low income homeowners. Most of
these homeowners obtained government backed loans such as from the FHA,
VA or Fannie Mae. These are all loans that are protected by Principal
Mortgage Insurance (PMI) that is provided by HUD.

So when the homeowners ended up losing their homes because they
couldn’t afford the over inflated prices or deal with major repairs, you can
imagine who ended up covering the cost of that mortgage? HUD!

This is why HUD has passed these FHA rules which are really clamping down
on real estate wholesaling. The rules in their entirety are published in a
document called, ‘Prohibition of Property Flipping in HUD's Single Family
Mortgage Insurance Programs; Final Rule; 24 CFR Part 203, Doc. No. FR-
4615-F-02.’ You can usually obtain the entire document from the
government’s Federal Register Site.

However, the main points of the new FHA rules are basically:

   •   Real estate wholesaling properties resold within 90 days of their last
       purchase won’t be able to get financing with FHA mortgages covered
       with HUD insurance.
   •   Anyone reselling a property between 91 and 180 days of purchase has
       to document the resale value if it’s a certain percentage higher than
       the last purchase price.
   •   If the property is being resold between 91 days and 12 months of its
       last purchase, HUD may require that the mortgage lender get
       additional documentation of the property’s value. This is if its resale


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       value is 5% or greater than the lowest sales price of the property in
       the last year.

As you can plainly see, these FHA rules make it difficult for real estate
investors to ‘flip’ a property by selling it to anyone with a lender using HUD
covered insurance. These rules are also commonly referred to as ‘seasoning
issues’. You’d have to hold the property for at least three months before
you could sell it to a buyer with financing of this type.

There are only three standard exceptions to these rules. They are:

   1. The resale of HUD real estate owned property.
   2. The resale of a property purchased by an employer for the relocation
      of an employee.
   3. The sale of a newly built home by the builder.

These exceptions don’t apply to real estate wholesaling. However, there
are plenty of other buyers in the real estate sea and you’ll find that you can
still make big profits in real estate wholesaling or the still popular practice
of house flipping.

House Flipping Advice for dealing with Seasoning:
   •   Document all costs and profits with each real estate wholesaling
       deal. This means keeping all of your receipts and creating a personal
       record of whom you paid for what and what kinds of improvements
       were made to each property.

   •   Sell only to other investors. A lot of real estate wholesaling investors
       simply avoid the FHA rules by selling their properties cheaply to other
       investors who tend to pay cash for the property rather than looking
       for a homeowner who will seek a mortgage.

   •   Sell to Homeowners with Non-Conforming Loans. Even though lenders
       with HUD covered insurance are unable to provide mortgages on your
       house flips, there are still a lot of other mortgages out there that
       don’t require or use PMI. These are often more traditional loans
       made to homeowners who can make large down payments and are
       more likely to purchase a very nice remodelled house anyway. So, if
       you are into buying cheap houses and investing a lot to really fix
       them up, keep this bit of house flipping advice in mind.

   •   Lease-to-own your house flips. The FHA rules only apply to recently
       purchased homes. If you opt to let your new or first time buyer lease-
       to-own the property instead of going after immediate profits you’ll
       avoid seasoning issues entirely. Since, the homeowner won’t need to
       worry about getting a mortgage to pay off the property for a few
       years; you don’t have to worry about them being denied because the
       property was recently purchased.




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Even though the FHA rules are stiff, there are still plenty of ways to flip a
house. You could say that the rules help both real estate wholesaling
investors and HUD by keeping those fraudulent deals out of the market.




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                                About REI

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Wholesaling Ebook Pdf

  • 1. Getting Started with Wholesaling Written by REI Co-Founders Colin Andrews Egbert and Matthew Leitz
  • 2. Getting Started with Wholesaling ~ RealEstateInvestor.com Table of Contents What is Real Estate Wholesaling?........................................5 Benefits of Wholesaling Real Estate.....................................7 Is Real Estate Wholesaling Illegal?…………………………………………….…..9 Costs of Starting a Wholesaling Business…………….………………………..11 How Much Can You Make Wholesaling? …………….………………………….14 How Does the Homeowner Benefit?………….…….…………………..….…..16 Find Wholesaling Leads………………………………….……………………………..18 Starting a Wholesaling Business by Bird Dogging…………………….…..20 The Different Property Closing Methods……..………………………………..22 How to Find a Buyer……………………………………...………………………………25 The Wholesaling Deal: Step-by-Step………….………….……………………..28 Assigning a Contract for Wholesale………….……………………………………30 Salesman’s Tricks to Make a Sale…………..……………………………..…….32 Potential Mistakes Every Wholesaler Makes………………………....…..34 Don't Fall into Wholesaling Scams…………………………………………….….36 Securing Your Leads Against Bad Buyers………………………..…….…….38 Special Section on House Flipping! Flipping Houses with Hard Money Loans………………………….….…….…40 Picking the Right Contractor for Your House Flip………………..……..42 Cutting Costs and Increasing Profits on a House Flip…………..……..44 House Flipping and the New FHA Seasoning Regulations..........…46 Copyright © 2008 RealEstateInvestor.com 2
  • 3. Getting Started with Wholesaling ~ RealEstateInvestor.com Legal Matters: ALL RIGHTS RESERVED. DISCLAIMER AND/OR LEGAL NOTICES The information presented herein represents the views of the publisher and his contributors as of the date of publication. Because of the rate with which conditions change, the publisher and his contributors reserve the rights to alter and update their opinions based on the new conditions. This ebook is for informational purposes only and the publisher and his contributors do not accept any responsibilities for any liabilities resulting from the use of this information. While every attempt has been made to verify the information provided here, neither the publisher nor his contributors and partners assume any responsibility for errors, inaccuracies or omissions. Any slights of people or organizations are unintentional. Copyright © 2008 RealEstateInvestor.com 3
  • 4. Getting Started with Wholesaling ~ RealEstateInvestor.com Introduction They say the real estate market moves in cycles from a buyer’s market to a seller’s market and back again. You know there is only one kind of person that can make a profit no matter what the market and that is the real estate investor. When you work as a wholesale investor you’ll be able to fill both roles, buyer and seller, and make money in any market. Not a lot of people consider the benefits of real estate wholesaling so if you’ve stumbled upon this ebook then you are on of the lucky few. Wholesaling is a chosen money-making path that operates on a very simple and basic business principle, buy low and sell high. In this ebook you’ll find out how to find those cheap real estate properties and get them under contract. Plus, since you can’t make money just buying property, you’ll also learn where to find the perfect buyer for your wholesale. Whether you want to work birddogging to seek out those perfect deals for other investors, work as a wholesaler finding cheap properties to buy and sell for a slightly higher price or to work as a house flipper buying cheap houses and rehabbing them to sell at top dollar there is a place in the real estate market for your plans. Should you find the chapters in this wholesaling ebook informative feel free to drop in at Real Estate Investor.com and sign up for a free membership to life long learning and knowledge in real estate. Sincerely, Colin Egbert CEO Real Estate Investor.com Copyright © 2008 RealEstateInvestor.com 4
  • 5. Getting Started with Wholesaling ~ RealEstateInvestor.com What is Real Estate Wholesaling? Real estate investing is an excellent way to earn profits or earn a living, but before you start wholesaling houses for a living you should take a little time to learn what it’s all about. Wholesaling is in essence a business-to-business trade. You, as the wholesaler seek out a product for a certain ‘low cost’ price and then place that product in the hands of your buyer who is often a hard money lender or another investor. You seek out affordable properties and put them in the hands of other investors or buyers. For your trouble you get paid a nice profit that is almost like a finder’s fee. The process of wholesaling houses is one of the most simple and straightforward investing practices out there. The time from find to closing is also one of the shortest periods out of all the other niches in real estate investing. Don’t Buyers Search Out Property Themselves? On the surface it may appear as if real estate wholesaling is a little redundant. It seems like the buyer could easily search out cheap properties on his or her own with no need for a middleman. These buyers do seek out properties on their own, but they can’t find all of the great deals. The kind of buyer that seeks out wholesale deals is usually always on the lookout for more properties. These buyers are also very busy. Wholesaling buyers are constantly working on properties, rehabbing them and selling them on the traditional home market. Plus, who wouldn’t jump at a property that’s still offered to them at way below the market value? Wholesaling Versus House Flipping Real estate wholesaling and house flipping often confused in real estate, but they are both slightly different practices. When you wholesale property you act as the middleman seeking out cheap properties and connecting them with buyers for a slightly higher price or a kind of finder’s fee, either way it depends on how you arrange the closing. Very little time is spent fixing up the houses or even placing them on the traditional housing market. House flipping usually involves rehabbing a house with the homeowner or fixing it up enough to make it very ‘market ready’. There are also a lot of open houses and attempts to bring in a more traditional buyer who is looking to live in the home after purchase. House flipping can provide larger pay offs than wholesaling houses for a living as these cheap houses now sell for full market value. It also involves a lot of extra work and it’s harder to sell a house at full value. Copyright © 2008 RealEstateInvestor.com 5
  • 6. Getting Started with Wholesaling ~ RealEstateInvestor.com Real estate wholesaling is really a very simple business. You develop a process for bringing in wholesale leads, develop a buyer list and start assigning contracts to your buyers. It really is easy once you get the process started. Copyright © 2008 RealEstateInvestor.com 6
  • 7. Getting Started with Wholesaling ~ RealEstateInvestor.com Benefits of Real Estate Wholesaling These days it’s incredibly tempting to start wholesaling when you are looking for a long term investment or quick cash profit. Yet, it’s also a little bit intimidating. Legal issues tend to muddy the waters for new investors and there is even a sense of fear. No one wants to take a risk and lose their money. Yet, that’s what people do with their money every single day. Invest in the stock market and you are taking a risk. Buy gold and you are taking a risk. Sometimes, especially with the stock market, that risk is even higher than the potential risks of starting a wholesaling business. Wholesaling Benefits As a wholesaling investor there are lots of benefits too. Wholesaling does not require a lot of money to get started; sometimes it requires very little cash indeed for investors who are selling those properties almost immediately to buyers. Plus, when you take advantage of real estate wholesaling you can learn as you go. No need for certificates or special degrees. Heck, even a real estate agent needs a license to sell houses, but you won’t! There are even more great benefits and plusses to being a real estate investor. Basically, the benefits to starting a wholesaling business are: • Little to no start up money required (if done right). • No educational requirements, degrees or licenses needed. • Work when you want on houses that you want! • Pick the people that you want to work with and when. • Not time consuming. • Don’t need good credit. • Start earning now! • Small to large cash profits as soon as you sell. That’s cash in hand! What’s Your Place in Wholesaling? As a real estate wholesaling investor you are essentially the middleman. You are the guy that finds the houses for sale and connects the buyers with them. Once you start learning more about starting a wholesaling business you’ll find that there are plenty of buyers for wholesales as long as you look in the right places. Plus, there are plenty of motivated sellers and it will be easy to get them to come to you with the right marketing. When you find a property that the owners are motivated to sell you’ll lock the owners into a purchase agreement and start looking for a buyer during the 30-60 day period before closure. If you’ve already gotten your buyer list built up it may not take you very long at all to find a buyer. Then you just mark up the price a little on the sale. A wholesale deal done properly can earn you at least a few thousand dollars without putting down more than a Copyright © 2008 RealEstateInvestor.com 7
  • 8. Getting Started with Wholesaling ~ RealEstateInvestor.com few hundred in cash. This is because your buyer will pay the marked up price of the property to your title company and the title company will just cut you a check for the difference. Barring that, you simply ask for a finder’s fee when you turn over the property to the buyer that you’ve found. Starting a wholesaling business has never been easier. If you are looking for a great career or a way to make some extra cash then real estate wholesaling is for you. Copyright © 2008 RealEstateInvestor.com 8
  • 9. Getting Started with Wholesaling ~ RealEstateInvestor.com Is Real Estate Wholesaling Illegal? Real estate wholesaling is not illegal and it is not a scam. Know that now and relax! You may be concerned that your potential new real estate opportunity is some sort of morally bankrupt scam. It is not. It is true that some real estate investors have taken advantage of the wholesaling process to scam the homeowners and their buyers. In addition the new phenomenon called, house flipping, has given rise to many inexperienced investors making lots of blunders and losing cash. The Bad Reputation Most of the bad reputation for real estate wholesaling has arisen from buyers paying very over inflated prices for properties. In the past years of the inflated housing market it was incredibly easy for a buyer to get duped or just get overly optimistic about purchasing real estate for way more than it was worth. The buyer is then stuck with a property they can’t make a profit on or a mortgage that they will have a hard time paying for. This happens when the real estate investor works with a crooked home appraiser to value the property at more than it’s worth. Then the investor gets larger profits on a property and the buyer gets stuck with a loss of profits and even bad credit. Real Estate Wholesaling is Good! You and I both know that you’re not going to take advantage of the buyers or the sellers. In fact, wholesaling offers a win-win situation for everyone involved in the deal. The homeowner gets to unload a property that’s costing them money, time and energy in the wholesale deal. Plus, you can pay a little extra cash to any person referring the homeowner or the deal to you, creating an extra benefit for the homeowner’s friend or family. The buyer gets a cheap property that they can still sell for a profit of their own, live in or even fix up and rent out. This is because you’ll only be marking up the price on that wholesale property a little bit. You, as the real estate wholesaler, will get to take home cash profits, for little work and without putting any money down on the property. Weasel Clauses A parting bit of house flipping advice is to be careful of weasel clauses. These are clauses that you can add to any ‘agreement to purchase’ contract, but are written in such a manner that you can easily pull out of the property sale without worrying about the homeowner suing you for not closing the deal. Copyright © 2008 RealEstateInvestor.com 9
  • 10. Getting Started with Wholesaling ~ RealEstateInvestor.com There are good reasons for inserting clauses in your purchase agreement. You may learn that the house needs major repairs that would screw up your profit margins. You may be looking for a specific kind of house for a buyer and learn that the property doesn’t fit. However, some clauses are more like ‘weasel clauses’ that allow the investor to pull out of a property sale for any reason on very little notice. Let the homeowner know when you set up the contract, that the purchase is contingent on your being able to find a buyer. You’ll be surprised how many homeowners still want to sign that contract with you. The prospect of selling their property is often enough for them to take the risk of the investor being unable to find a buyer. So, if you practice your real estate wholesaling business in an upright and honest manner you have nothing to fear. Real estate wholesaling is only as good or as bad as the investor making the deal. Copyright © 2008 RealEstateInvestor.com 10
  • 11. Getting Started with Wholesaling ~ RealEstateInvestor.com Costs of Starting a Wholesaling Business There are a lot of things to be responsible for when starting a wholesaling business. You’ll be in charge of finding the leads, finding the buyers, bringing them together, finding a good title company and even drawing up appropriate contracts. Once you get the know-how of house flipping basics, these responsibilities become quick and easy. Yet, when you are starting off, it’s a lot to take in. No one wants to further muck-up the process with worry about unpaid bills and trying to finance these wholesaling efforts. Yet, there are a few costs to be aware of when starting a wholesaling business. House Flipping Basics and Wholesaling Basics When involved in wholesaling there are two levels of cost. The first is the cost associated with house flipping. The second is the cost associated with wholesaling. These are two separate, but closely related enterprises. You’ll have to decide as a real estate investor whether you’ll be flipping a house or just wholesaling it. This will determine your costs. Wholesaling Costs The costs of starting a wholesaling business are really minimal. You’ll be focused on selling that house before the agreement to sell the house reaches its closing date. As soon as you get a client to sign the agreement to sell their house you should be out the door or on the phone looking for potential buyers. These buyers are usually other investors who like to buy houses cheaply and fix them up for rental or the traditional real estate market. They may even be hard money lenders who are looking to expand their business into new areas. You won’t be spending money to fix up the house, on insurance or even placing the property with a realtor if you can help it. Yet, you’ll also usually be responsible for closing costs and even a referral bonus if someone referred the property lead to you. Basic Wholesaling Property Costs: • Loan costs or closing fees You may be responsible for one set of closing fees when you buy the house and sell it to your buyer. This depends on how you set up the sale. Most likely the title company will just deduct the closing costs from your profits before cutting you a check. • Referrals Copyright © 2008 RealEstateInvestor.com 11
  • 12. Getting Started with Wholesaling ~ RealEstateInvestor.com Property wholesalers sometimes offer referral bonuses to people who provide them with property leads. This is usually about $500 to $1000. • Advertising You’ve got to get your name out there. Advertising doesn’t need to cost much, just as much as a ream of paper and some printing ink or as much as a radio spot and classified ads in the local paper. This is up to you. • Appraisal Costs Depending on where you are and how you close the deal you may need to hire an appraiser to look over the house and give you an estimate of its market value. • Home inspection Wholesaling property buyers aren’t usually nervous about buying a home that needs some work, but they may want to know what kind of work needs to be done before purchase. So, you’ll have to get a property inspector out there to evaluate the damage so you can present the information to your buyer. House Flipping Costs When you decide to start house flipping as an investor your costs will include all of the above and more. House flippers often fix up the property they are trying to flip first and will even place it with a real estate agent to try and sell the property for top dollar. Basic House Flipping Costs: • Loan or Mortgage House flippers can also buy the house they intend to flip. This can mean a mortgage in your name or at least cash out of pocket that you’ll have to make back on the sale of the property. • Insurance Since the property will be in your name house flipping basics says you’ve got to cover it! It can be difficult to get homeowner’s insurance for a wholesale property. Your best bet may be to pick up Builder’s Risk Insurance. This is insurance that’s intended for properties being built or in the process of being remodeled. • Carrying Costs Copyright © 2008 RealEstateInvestor.com 12
  • 13. Getting Started with Wholesaling ~ RealEstateInvestor.com These are the basic costs of owning a home. You won’t have to worry about them when starting a wholesaling business, but if you intend to be a house flipper this is what you’ll be responsible for: o Utilities o Monthly Mortgage Payment o Property Taxes o Regular Maintenance House flipping basics says; the longer you hold that property in your name, the more carrying costs you’ll have. The more cost you have, the more you have to sell the property for just to break even. • Remodeling and Repair House Flippers will want to repair any damage to the cheap property they’ve just purchased. So you’ll be responsible for remodeling costs and repair costs to the contractors you hire. • Realtor Commission When the house actually sells on the market, you’ll probably have a realtor’s commission to pay. However, this usually comes out of the profits from the sale of the real estate property. This is usually about 6% of the selling price. As you can see, house flipping costs are much higher than the basic costs for wholesaling a property. Yet, there are benefits to both options. Starting a wholesaling business costs very little for the investor, and involves wholesaling a lot of houses for an average of $3,000 to $5,000. House flipping costs a lot of money initially, but promises a bigger payoff on one house. Some flippers claim to make anywhere from $50,000 profit per sale all the way up to a whopping half a million dollars (in rare cases when the housing market was explosive!) Copyright © 2008 RealEstateInvestor.com 13
  • 14. Getting Started with Wholesaling ~ RealEstateInvestor.com How Much Can You Make Wholesaling Houses for a Living? Many real estate investors use wholesaling to supplement their income on a regular basis. However, if done right you can use wholesaling for your entire income. You too can take advantage of wholesaling to supplement or complete your income, but just how much money can you bring in through wholesaling houses for a living? Real estate wholesaling is different from flipping houses, so those who make money flipping houses should know that real estate wholesaling will bring in considerably less money. However, you’ll be able to make more deals as a wholesaler so you’ll be bringing in that money more often. Real estate wholesalers can count on a glut of cheap homes being available on the market. Even though you’ll only be bringing in a certain amount of money per sale you’ll always have another sale around the corner. This can certainly be called job security. Average Profit Per Wholesaling Deal How much money can you make wholesaling houses for a living as opposed to those who make money flipping houses? The average real estate wholesaling deal brings in between $3,000 and $10,000 in profits for the investor. This is a very small amount compared to the profits of those who make money flipping houses. A house flipping deal can bring in about $30,000 once the house sells to a buyer. Remember, that house flipping can take several months, up to a year to complete. Plus, you’ll be investing a lot of money and time in that one house flip. A wholesaling deal can close in just a few days, and I’ve heard of deals that closed on the same day as the investor found out about the property. That’s $3,000 in one day. Imagine closing 3 or 4 wholesale deals a month for just $3,000. 4 deals times $3,000 equals $12,000 a month wholesaling houses for a living. Now, take that $12,000 times 12 months in year and you get $144,000 a year wholesaling house for a living! That’s an incredible profit compared to the measly $30,000 you’d make flipping a house over the course of a year. The idea in wholesaling houses for a living is for your buyer to get the majority of the profit. You’ll be getting a kind of ‘finder’s fee’ for the property and the buyer gets to spend time fixing up the property and marketing it for a larger profit of his or her own. Copyright © 2008 RealEstateInvestor.com 14
  • 15. Getting Started with Wholesaling ~ RealEstateInvestor.com This doesn’t mean that you have to let the properties go for a pittance. Don’t ever let that buyer talk you out of the fee you ask for assigning the contract on a wholesale property or even talk you down to a drastically reduced fee. The lowest you should make on a real estate wholesale deal is about $3,000. This is often on properties that you may only hold for a few days and don’t even spend a lot of time on looking for a buyer. Of course, all sales also depend on the house and its real market value. When Do I Get the Money? Any investor who wants to make money flipping houses will find that they don’t actually get their profits until after the house is sold. After you find a buyer for a home it can take about 30-45 days for the mortgage company to get to the actual closing. You’ll have to wait until the title has cleared with the title company. That means an investor can spend months investing time and money into the house and not get paid until that property is sold. When you close a wholesale deal, it’s possible to get your profits within as little as a week. You’ll be lining up another real estate investor to buy this property, so it’s likely that they’ll be able to pay cash for the house. A cash buyer is a great lead to have when wholesaling houses for a living. You can have the buyer transfer the funds to pay for the property right into an escrow account with the title company. The title company processes the paperwork and you can pick up a check with your profits in just a few days. When you are assigning a contract on a wholesale deal, there is potential for an even quicker payment. Just instruct the buyer to bring a cashier’s check for the amount of your fee to the closing deal. Once you assign the contract, the buyer hands you the cashier’s check and you only have to wait as long as it takes for the check to clear with your bank. Compared to those who make money flipping houses, the concept of wholesaling houses for a living is a great idea. You’ll close deals more often and get cash buyers for the wholesales, meaning that you’ll get more profits faster. Copyright © 2008 RealEstateInvestor.com 15
  • 16. Getting Started with Wholesaling ~ RealEstateInvestor.com How Does the Homeowner Benefit? Real estate wholesaling has numerous benefits for the real estate investor. House flipping is a good way of earning large sums of money. However, there are also benefits for the seller in real estate wholesaling. The seller, being the homeowner who agrees to let you find a buyer for their property. In the case of house flipping, you may also purchase the property from the homeowner, but they still receive the same benefits. Sure, the seller is letting go of the property cheaply. Plus, you are also going to make a profit just for matching the seller with the buyer. These points are actually benefits! Your Benefits are their Benefits! As a real estate wholesaling investor you’ll have to realize that the services you provide the homeowner and the buyer are really benefits for both sides. • You are the one that does all the legwork, (of course, you don’t even have to do that if you market properly!) and you are the one with all the house flipping tips and secrets. This saves the homeowner lots of time! • Wholesalers usually end up buying unwanted or run down properties. Even though the homeowners are letting the property go for a low price, they have a good reason too. Most likely they were unable to sell the home on the traditional market and it’s become a money pit! You are helping them out by finding a willing buyer and making an offer they can live with. • You have access to the real estate wholesaling market and can serve as the all important link between that market and the homeowners. In other words, you bring the homeowners and the buyers together. Most of the time these homeowners wouldn’t know where to begin in order to sell their property for even a cheaper price, but you do! • No need to hire a realtor when you make a wholesale deal. So, you’ll even be saving the homeowners a real estate agent’s commission on the sale of the house. NOTE: Unless you’ve already hired a realtor such as when you are trying to flip a house on the traditional housing market. Providing Access to the Wholesaling Real Estate Market Perhaps the most important benefit, your seller receives from this deal is the chance to sell their property without a lot of effort. They provide you with the necessary information. You decide how much everyone will need to make in order to be happy and work out the details with a buyer. Copyright © 2008 RealEstateInvestor.com 16
  • 17. Getting Started with Wholesaling ~ RealEstateInvestor.com Homeowners willing to wholesale their property are folks that have old rundown homes they can’t sell on the home market without first fixing up the place. They are also landlords and bank attorneys with a lot of property and very little time. They are people who’ve just inherited a house and literally have no desire for it or the carrying costs needed to keep the place. All of these people are homeowners looking for someone with a few house flipping tips, contacts and some knowledge on wholesaling real estate to buy their home cheap! They come away with a nice cash sum, you get a profit, and your buyer still gets a cheap investment property. Copyright © 2008 RealEstateInvestor.com 17
  • 18. Getting Started with Wholesaling ~ RealEstateInvestor.com Find Wholesaling Leads Marketing is an important element for success in any real estate investment. In wholesaling property it’s essential for bringing in leads and selling property. It’s very difficult to find enough homeowners looking to sell property without marketing. You can’t exactly go door-to-door asking people if they are selling. Plus, looking up properties in the county courthouse will only let you know which homeowners are in debt and in foreclosure. Not which ones are looking to sell their homes. House Flipping Basics: Marketing So, you need to draw the homeowners to you with marketing and advertising. This isn’t as difficult as it sounds. Marketing your wholesale business can be as simple as putting up a few handwritten signs in the area where you’re looking for wholesaling property. Or it can be as quick as placing an ad in the local newspaper. Bandit Signs A lot of real estate investors use bandit signs to advertise houses for sale, but you can also use them to advertise your wholesaling business. You should ideally place these signs everywhere you can in your area. Signs are the easiest and most visible marketing tool you can use. Make sure that your signs are simple, with bold print or bold dark handwriting on them. You can simply state, ‘I buy cheap real estate’ on your bandit signs, along with your phone number or even website. Or you can also write, ‘Will Pay Cash for Any House’ on your signs. These are great and simple ways of drawing in house flipping leads. Flyers In addition, you can use your word processing program to create a simple flyer with tear off strips at the bottom containing your contact information. Blanket your area with these flyers. Place them in laundry mats, on telephone poles and even ask local businesses if you can place a pile of them on their check out counter. A great place to see if you can leave a bunch of flyers is the local library. They’ll often have a bulletin board for these kinds of items. Classified Ads Another option is to place a simple classified ad in the local newspapers. Place your ad in the papers, the local shoppers and even in local real estate magazines. The wording for these ads is the same as above. Tell them ‘I buy houses!’ and provide your contact information. Copyright © 2008 RealEstateInvestor.com 18
  • 19. Getting Started with Wholesaling ~ RealEstateInvestor.com Networking You can also bring in wholesaling property leads by getting people to work for you! A network is very easy to build up and usually starts by talking shop with other local real estate types. You can contact all kinds of investors and people involved with real estate to let them know you are buying homes. There is a long list of people you can contact to bring into your network: • Local Real Estate Clubs Contact and join these local clubs. It’s a great way to meet like-minded people, educate yourself and find both buyers and sellers. • Realtors There are plenty of realtors and they usually specialize in different kinds of property, including foreclosures. Make contact with a few realtors and let them know that you are looking to buy some cheaper houses that they wouldn’t normally be able to place on the market. You might be surprised what they have on hand. • Landlords Landlords are a great resource for both selling property and buying property. Give them your card, tell them you’ve got properties on hand for cheap and that you are always looking to buy properties too. • Local Attorneys Attorneys are involved in all kinds of real estate from foreclosures to inherited properties. Let them know that you are looking to buy unwanted homes. The attorneys may have clients who are looking to sell off some property on the cheap. Finding wholesaling leads is a cinch once you get started. All you need is the proper advertising and a good network to bring the leads to you. It may take you a little while to get the leads started coming in, but remain optimistic and persistent and you’ll find more work than you can handle. Copyright © 2008 RealEstateInvestor.com 19
  • 20. Getting Started with Wholesaling ~ RealEstateInvestor.com Birddogging: The New Wholesaling Career For those involved in real estate or who just want to make money flipping houses there is a new real estate term in town. It’s called ‘bird dogging’ and no, it’s not about breeding hounds. Birddogging is the practice of hunting down potential wholesaling leads for other real estate investors and getting paid a ‘finder’s fee’ for the assignment of contract or just the lead itself. This is a great way for those just starting a wholesaling business to learn the ropes. Many seasoned investors bring in a lot of their properties and wholesaling leads through the assistance of their ‘bird dogs’ who are new investors just learning how to make money flipping houses. This practice of bringing in wholesaling leads benefits both the experienced wholesaler by saving them a lot of time searching for leads and the new investor by giving them an easy way to learn wholesaling while at the same time picking up some cash. Birddogging can even be considered something of a student/mentor relationship as the new investor picks up experience and skills while starting their own wholesaling business. Finding a Seasoned Real Estate Mentor Anyone who wants to make money flipping houses can start in birddogging real estate. When starting a wholesaling business like this though, you’ll need to find yourself a mentor or a real estate investor who is willing to take new investors under their wing in exchange for time and effort. These aren’t investors who charge a fee for mentoring. These are real estate investors who get you involved in the nitty gritty work of searching out wholesaling leads. You’ll be able to find such investors through the classifieds. Look out for ads offering to ‘buy unwanted or foreclosed homes’. These are usually posted by the kind of investor who could use a birddog. Let the investor know you are looking to get started in wholesaling by referring leads to them. If they’re interested make sure you find out all of their particulars such as; • What kinds of properties they prefer? • Where they are looking for property? • What they are willing to pay for the house? • What they’ll offer in finder’s fees? In exchange for working with a seasoned real estate investor to make money flipping houses you’ll have to be willing to do the legwork. That means networking to find properties that homeowners are selling on the cheap, going out to look at the property and negotiating a potential price with the homeowners. You may also work to get the homeowner under an Copyright © 2008 RealEstateInvestor.com 20
  • 21. Getting Started with Wholesaling ~ RealEstateInvestor.com agreement to sell contract before approaching the real estate investor with your lead. It only takes a few closings before you get the hang of the process, but you’ll start out with a lot of false leads. This is one of the drawbacks of starting out as a bird dog. You may have to offer the real estate investor you’re working with up to 20 leads before they’ll find one acceptable property. Learning about starting a wholesaling business takes a lot of time, but with every lead that the investor turns down you’ll learn a little bit more about the business. That investor will have to spend time with you to explain why a property isn’t acceptable. It may mean taking a lot of time out of their day, but in exchange the real estate investor is getting someone else to search out properties for him or her. Hopefully, you’ll pick up the process quickly enough that you actually start to make money flipping houses and stick with the work. Over the course of your working education as a bird dog you’ll also pick up a lot of other tips and real estate wholesaling knowledge. Just to get you to start bringing in better wholesaling leads the investor will have to teach you about: • Locating deals • Placing your own ads in the paper • Putting out bandit signs • Direct mailers • Negotiating deals • Assigning contracts and more. If you have little to no money to invest in starting a wholesaling business birddogging can be a good alternative option. Instead of paying a ‘guru’ for the chance to ride along with him or her on all of his deals, you get a working education with profits once you bring in an acceptable offer. Most bird dogs bring in about $500 to $2,000 per wholesaling deal once it closes, so it’s still a good way to making money flipping houses at the start of your real estate business. As you gain more experience you’ll be able to branch off to other investors and negotiat higher ‘finder’s fees’ for the wholesaling leads you bring in. Copyright © 2008 RealEstateInvestor.com 21
  • 22. Getting Started with Wholesaling ~ RealEstateInvestor.com The Different Property Closing Methods Investors can easily tell you that there are plenty of distressed and unwanted homes available on the market. These homes generally get overlooked by the buying public because they have some damage or are run- down and just because they aren’t being marketed to the traditional home buyer market. When you do begin to flip properties you’ll find that there are three basic methods to house flipping property. They are all useful and proven in their own way. As a real estate wholesaler you may close deals using all three methods or you may find that you prefer to stick to just one method. Retailing Houses Those starting a wholesaling business will know this kind of deal from the popular television shows that have been on recently. The investor buys a run down property and fixes it up. This house is then placed on the traditional real estate market and marketed to buyers looking to live in the home. Investors involved in this type of house flipping will usually invest a lot of money in the property to fix it up and remodel it. However, they can also purchase the house from the buyer or place it under contract. Basic steps for retailing a property include: 1. Finding a homeowner with property for sale,. 2. Hire a home inspector to evaluate the damage and rehabbing costs. 3. Making an offer on the property. 4. Buying the house from the homeowners. 5. Fixing up the property with partners or contractors. 6. Placing the property on the traditional real estate market. 7. Finding a buyer and selling that home! Hopefully, you walk away from the deal with a large chunk of profits after paying for the purchase of the home, the contractors, carrying costs and the realtor. The process of retailing houses can take anywhere between a few months up to a year. It’s a very time consuming investment and ties up a lot of money too. Retailing house flips is a practice best left to those with some experience in real estate investment and enough money to invest. You can also pay cash for a house and flip it to another investor without bothering to fix it up first. This method really only requires that you have the cash or credit to buy the house. Wholesaling with Simultaneous Closing Copyright © 2008 RealEstateInvestor.com 22
  • 23. Getting Started with Wholesaling ~ RealEstateInvestor.com The simultaneous closing method on properties is an alternative method for house flippers. You don’t make a lot of profits but, a few thousand here and a few thousand there quickly adds up to large profits. Wholesalers will find a cheap house for sale and sell it to another investor for a profit during a simultaneous closing. The steps involved in a wholesale with simultaneous closing are: 1. Finding a homeowner with property for sale. 2. Get them under contract with a an agreement to purchase. 3. Find a buyer through your network. 4. Get the buyer under an agreement to purchase from you. 5. Have them send funds to escrow account with your title company. 6. Bring the buyer to the closing with the homeowner. 7. You sign the purchase agreement with the homeowner. 8. In a separate room, you sign the purchase agreement with your buyer. 9. Submit both contracts to the title company. 10. Title company sees your buyer has already funded the escrow account. 11. They use those funds to complete both transactions. 12. You receive a check for the difference. Profits! The simultaneous closing is becoming very difficult to complete. It carries a bad reputation with mortgage companies and title companies alike, because it’s one of the preferred methods for some involved in real estate fraud. An investor will be hard pressed to find a title company willing to complete a simultaneous closing. Assigning the Contract This method of starting a wholesaling business is also used by investors in other kinds of real estate deals, such as closing a short sale deal. You’ll assign the purchase contract to your buyer when closing the sale. It’s as easy as signing your name and/or assigns on the purchase agreement with the homeowner’s. Later on, when you bring your buyer to the closing you’ll write in the buyer’s name on the original contract. Basic steps of assigning a contract: 1. Find a homeowner with property for sale 2. Get them under contract with a an agreement to purchase. 3. Begin title work with title company. 4. Find a buyer for the real estate. 5. Get the buyer to sign an assignment contract giving you a ‘finder’s fee’. 6. Bring the buyer to the closing. 7. Turn over the purchase agreement to the buyer. 8. Collect your fee from the buyer. Copyright © 2008 RealEstateInvestor.com 23
  • 24. Getting Started with Wholesaling ~ RealEstateInvestor.com 9. Provide the purchase agreement and a copy of the assignment contract to the title company. Assigning contracts is getting a little tricky these days. Mortgage companies and title companies can insist that the only name on the purchase agreement be that of the final buyer. Anyway you slice it, there are tons of different ways to close on a house flip property. You just need to find the right method that works for your needs. The rewards for your work and time involved in real estate investment are truly consistent with the number sales and lots of profits. Copyright © 2008 RealEstateInvestor.com 24
  • 25. Getting Started with Wholesaling ~ RealEstateInvestor.com How to Find a Buyer Marketing is very important in wholesaling property. Almost every kind of real estate investment relies on marketing to make successful deals. It’s the advertising you use that draws in real estate leads and the networking you do that draws in the buyers for your property, especially when flipping real estate contracts. Getting the Buyer’s Contact Information There are many kinds of advertising and networking you can use to find a buyer for your wholesaling property. These methods are best used in combination to ensure you hit the most potential buyers. Even if you sell that property to the first buyer that contacts you, it never hurts to have a bunch of other buyers waiting in the wings. When interested buyers do start contacting you about the properties, ask them if you can keep their information on hand in case you get other similar properties in. Many real estate investors will gladly give you their name, phone number or email so you can contact them about other properties. Take the information you get and place it into a spreadsheet program or database. This is an easy way to build up your buyer’s list so you won’t have to do as much advertising in the future. Advertising Ideas for Flipping Real Estate Contracts: Brochure Boxes It’s always a good idea to place a brochure box on the lawn of the property you currently have under contract. You can fill the box with very simple brochures about wholesaling property that you’ve made at home. Most word processing programs have brochure templates that you just fill in with the proper information about the property. Don’t give out all of the information about the property though. You want interested buyers to contact you for more information on the property. However, you can state in the brochure that you are looking for buyers interested in purchasing cheaper properties at 50% to 70% of the fair market value. Bandit Signs Real estate investors can also make use of bandit signs when flipping wholesale property. Whether you are house flipping or just flipping real estate contracts you can place these signs in your local area with your information on them. Your bandit sign information will change depending on what wholesaling method you’ll be using. Those flipping houses will state, ‘House for Sale’ and the street address or even ‘House for Sale by Owner’. Bandit signs for Copyright © 2008 RealEstateInvestor.com 25
  • 26. Getting Started with Wholesaling ~ RealEstateInvestor.com those flipping real estate contracts will simply state, ‘Houses for Sale’ or ‘I sell cheap houses’ implying multiple properties available to investors. You can pull in a few handyman types with these signs who are looking for a fixer upper kind of property. Flyers You can sell a lot of houses with flyers, especially if you are flipping houses. Making flyers is as easy as making brochures. Many word processing programs have templates for flyers that you can fill in the information on. On the top of the flyer in bold, print ‘cheap house for sale’ and provide a little bit of information on one of your available wholesale properties. When interested buyers call in you can let them know that house has already sold, but you’ve got plenty of other properties on hand if they are interested. Or you can take their contact information for later. Networking Ideas for finding a buyer: Local Real Estate Investment Groups It never hurts to be a member of the neighborhood real estate investment group in your area. You’ll learn more about real estate and you’ll make contacts with other investors. When you are flipping real estate contracts, be sure to see if any of the other investors in your group are interested in buying that property. Rental Agencies and Landlords Check your local phone book for local landlords and rental agencies that rent out homes. A quick phone call will help you break the ice with the people working at the company and you can also let them know that you are in the business of wholesaling property should they be interested in picking up a few more rentals. If they aren’t currently interested in what you have to offer, remember to ask if it’s okay to keep their information on hand so you can call or email them with other properties you get in the future. Also ask them if they have a certain time period when the do invest in new properties. Contractors and Local Handymen Keep the information for your local contractors, carpenters, electricians and handymen. They have been known to pick up a few wholesaling properties to fix up and sell on the traditional real estate market for extra cash. You can also call local contractors in your area to see if they are interested in picking up some real estate investment properties for cheap. It’s not difficult to find a wholesaling buyer with the right networking and advertising strategies and these ideas are only a few of the many marketing methods available to find buyers. You just need to keep your eye out for Copyright © 2008 RealEstateInvestor.com 26
  • 27. Getting Started with Wholesaling ~ RealEstateInvestor.com potential sales and always remember to take down contact information to add to your buyer’s list for the future. Copyright © 2008 RealEstateInvestor.com 27
  • 28. Getting Started with Wholesaling ~ RealEstateInvestor.com The Wholesaling Deal: Step-by-Step The process of real estate wholesaling can go very quickly if you know what steps to follow. It’s only when you are new to a type of real estate investment or a few pitfalls crop up that the process slows down. Investors that take the time to read house flipping guides and speak with other investors about the process will find themselves well prepared to complete a wholesaling deal step by step. In fact, writing down the steps you need in order to get that real estate wholesaling deal closed is a good idea. The 8 Step Wholesale 1. Find the Property There are lots of ways to generate real estate wholesaling leads. You can put up bandit signs, you can place ads in the newspaper, you can even call local bank and retirement attorneys to see if their clients have unwanted properties they need to unload. Once you get a wholesale lead, you’ll have to speak with the homeowner over the phone. Collect enough information to decide if the property is a good wholesaling deal and set up a meeting with the homeowner. 2. Get the Homeowner under contract When you attend that first meeting with the homeowner, you need to get him or her to sign a purchase agreement with you. This puts them under contract to sell the home to you in 30, 45, 60 or even 90 days, depending on how you’ve written the contract. That time period gives you the time you need to contact other investors and get yourself a buyer for the property. Be sure to explain that you’ll be looking for a buyer during the closing period and intend to assign the contract to that buyer. 3. Take the contract to a title company After the meeting with the homeowners, take a copy of the purchase agreement to your chosen title company. Let the company know that you’ll be bringing in an assignment document and another copy of the purchase agreement at the time of closing. Taking that document now, lets the title company begin the closing process by doing a title search and ordering a home survey. 4. Call potential buyers Copyright © 2008 RealEstateInvestor.com 28
  • 29. Getting Started with Wholesaling ~ RealEstateInvestor.com Hopefully, you used your time while waiting for wholesaling lead to build up a buyer’s list. Buyers interested real estate wholesaling deals are going to be other investors. Become a member of your local real estate investors group. Call local landlords and see if they need another house or two. Even check with your contractors and builders to see if they are interested in a fixer upper. My other house flipping guides will have plenty about finding those buyers. You may have to show the house to the buyers to get their interest. 5. Sign an assignment contract with the buyer When you get a buyer for your real estate wholesaling deal you’ll have him or her sign the assignment of contract document. This is a simple document that states you are giving up your rights to purchase the property you have under contract to the buyer. In exchange the buyer pays you a fee you’ve both agreed on before hand. 6. Collect your ‘finder’s fee’ Have the buyer bring a check or cash to the meeting when he or she signs the assignment document. After signing you can collect your fee from the buyer and shake hands. It’s a good idea to also set up the closing deal between the homeowner and the buyer and attend the closing too. This way the homeowner feels more comfortable with a different person signing the closing papers. 7. Have buyer sign the purchase agreement with homeowner Attend that closing deal with the buyer and make sure all the 'I's are dotted and the T’s are crossed. In other words make sure that the closing goes smoothly and the homeowner is paid or that the buyer has transferred funds to buy the property into an escrow account with your title company. 8. Take a copy of both documents to the title company After the meetings are over, take a copy of the assignment document to the title company so they know a different name will go on the title. You may also take over closing documents, but the buyer may prefer to drop those documents off themselves. Most house flipping guides make too much of the process of real estate wholesaling, but as you can see the steps are easy. You only really need to know what order to complete each step in and where to go for your next piece of information. Wholesaling is an excellent way to earn a living without spending a lot of time on each real estate property. Copyright © 2008 RealEstateInvestor.com 29
  • 30. Getting Started with Wholesaling ~ RealEstateInvestor.com Assigning a Contract for Wholesale The Gurus always talk about how easy it is to start real estate wholesaling without using your own money. Yet, it always seems that they gloss over the necessaries of actually doing so in real life. Flipping real estate contracts seems like an easy move, but for the investor new to wholesaling the idea is confusing. After all, how can you assign a contract when you don’t even know what to do to accomplish it? Flipping Real Estate Contracts is Simple Perhaps the reason that so many real estate gurus gloss over the topic of assigning a contract, is because it’s so simple. They just forget about it in the larger scheme of real estate wholesaling. You’ll be surprised at how easy it really is to assign a contract to a buyer and what it all really means behind the legalese. Assigning a contract is the ‘turning over’ of your rights to purchase a piece of real estate to another investor, your buyer. The contract that you assign is the original purchase agreement that you get the homeowner to sign. Don’t worry that you’ll have a hard time getting your hands on the documents and contracts required in real estate wholesaling. There are plenty of places to get purchase agreements and the other necessary documents for a real estate transaction online. These documents are perfectly legal. Just be sure to read over them to make sure you understand what they say. A real estate contract doesn’t have to use hard to understand wording to make a legally binding document. The Mechanics of Assigning a Contract Once you have your contract, you’ll make a few adjustments to it. Begin by adding the phrase, ‘and/or ASSIGNS’ after all the spaces where you, the buyer, sign your name on the contract. As well as including a small section in the contract stating you are allowed to assign your rights to this purchase agreement to another buyer. Of course, you can also find contracts that already include the ‘and/or ASSIGNS’ sections if you look around. Getting set up to start flipping real estate contracts is as easy as that. As long as you let everyone know beforehand that you’ll be looking for a buyer to whom you can assign your contract. There is another document you’ll need to complete your real estate wholesaling deal. It is the assignment contract. This document is an essential for flipping real estate contracts. The assignment contract is the legal document between you and the buyer stating that you’ve agreed to give up your rights to the homeowner’s purchase agreement in exchange for a fee. Copyright © 2008 RealEstateInvestor.com 30
  • 31. Getting Started with Wholesaling ~ RealEstateInvestor.com You should also be able to find this document on the web. It’s not difficult to write up if you can’t. You’ll simply state in the document that you agree to give up rights to the purchase agreement for the property at a certain address. Be sure to state: • your full names, • the name of the homeowner, • the selling price of the property and • the address of the property in your assignment document. In addition you’ll want to state the amount of the fee you’ll be receiving from the buyer in exchange for your rights to the contract. Don’t forget the dates, your signatures and a space for the notary to sign and validate your assignment document. Mechanics of Flipping Real Estate Contracts After Signing… At this point you’ll write in the buyer’s name on the original purchase agreement with the homeowner after the ‘and/or ASSIGNS’ sections. The buyer will sign his or her name on the purchase agreement. From here it’s your responsibility to make sure that a copy of the assignment contract makes it to the title company. So, they know that you’ve assigned the contract willingly and can complete title change. It’s not difficult to start flipping real estate contracts. You just need to learn the process once, and from there will be able to repeat it. Investors can assign a contract in real estate wholesaling, short sales and even the purchase of a home at full market value. The possibilities are endless. Copyright © 2008 RealEstateInvestor.com 31
  • 32. Getting Started with Wholesaling ~ RealEstateInvestor.com Salesman’s Tricks to Make a Sale! There are plenty of pluses in your favor as a wholesaling investor. The economy is slow, houses have glutted the market and people need to sell. You’ll be able to take advantage of all of these potential sales with a good buyers list, some legwork and a few house flipping basics. Beyond your time and effort there are a few little salesman tips you can use to ensure that the homeowner sells with you or that the buyer wants your deal. Closing with the Buyer or the Homeowner As with any real estate investment, you’ll need to close the deal. This can mean convincing the homeowner’s to sign with you or convincing the buyer of what a really great property you’ve got. Here are a few quick house flipping tips and sales methods you can use to help close that deal. Empathy Closing: This is a great closing method to practice with homeowners. You discuss the homeowner’s situation with them and try to develop some empathy. Perhaps this house they are selling cheap is an inheritance from a relative that recently died. Almost everyone has lost a relative and you’ll be able to understand what they are going through and develop that needed connection with the homeowner. Order Form Closing: Sometimes the buyer or homeowner you are talking with may be hesitant to start filling out paper work. You can turn over the form to the homeowner or buyer and just have them fill in a few spaces, like their name or address. You can say that you’ll fill out the rest of the information for them. Then during the course of the conversation just ask them those pertinent bits of information and fill in the form as you go. Not For You Closing: This is a great closing method to use on buyers. You’ll create competitive feelings by letting the buyer know that you’ve got a few other buyers lined up who would be interested in the property. You can also begin to commiserate with the buyer if they start coming up with reasons that they can’t buy right now. Say something like, ‘Oh you’re right, you probably wouldn’t want to invest in this area of the state. It is out of the way, but I just had such a fantastic offer on the property it’s going to go fast,’ or ‘I understand you’ve got too many houses at the moment, this deal may suit another buyer.’ Staging the House Apart from getting the contracts and documents signed, you’ll have stage the house for a house flip. This isn’t necessary for those wholesaling houses, but those looking to house flip will need to show the property to Copyright © 2008 RealEstateInvestor.com 32
  • 33. Getting Started with Wholesaling ~ RealEstateInvestor.com buyers who are more interested in living in the house, than using it as an investment. • Purchase Surplus and Discount Appliances for the House You’ll make the house more attractive to buyers if it already comes with its own appliances. They don’t have to be brand new, they just have to work. House Flipping Tip: Most homeowners prefer electric appliances these days to cut down on gas costs. • Use interesting but neutral colors Buyers won’t want to move into a home with the same old white washed walls and brown carpeting that they’ve seen every where else. Plus, it’s more work for them to have to repaint walls they can’t stand looking at. Pick out different colors for your walls, but keep them neutral so they also won’t crowd the senses of people looking at your home. House Flipping Tip: Pale tans warm a room making it cozy; while pastel blues and greens cool a room, making it seem larger. • Less is more when flipping houses A big mistake real estate investors make when staging a house is going overboard with decoration and furniture. An already vacant property needs just a little staging because the buyer wants to visualize how the home will look when they move their stuff into it. A table here, a chair there, some flowers and some curtains is all you really need. House Flipping Tip: Limit the amount of time you take staging an empty house. Some wholesaling deals will be so easy it just seems to fall into your lap. However, most deals require a little work and access to a few great secrets. That’s why it’s a great idea to learn some of these little Salesmanship tricks for really hooking those buyers and sellers. Copyright © 2008 RealEstateInvestor.com 33
  • 34. Getting Started with Wholesaling ~ RealEstateInvestor.com Potential Mistakes Every Wholesaler Makes Real estate wholesaling is all about closing the deal. You may spend a lot of time looking for a house to flip or you may spend very little. You may keep a house flipping guide by your side at all times, but when it comes down to closing the deal, you need to be a good seller. There are plenty of way to close a wholesale deal or flip a house, but what catches the real estate investor off guard are the little mistakes or sometimes big mistakes that make people nervous about a sale. Beware of falling into these traps! Bragging Rights: They say a first impression is very important and that is especially true of the first meeting with your homeowners. The goal of this meeting is to get them under contract with you to sell the house. During that meeting you want to be polite and professional. That doesn’t mean bragging about the hundreds of deals you may or may not have completed already. House Flipping Tip: Coming off too slick when meeting with a buyer or the homeowners before any contracts are signed can cause you to lose that contract. Greed: This is an especially problematic trait for house flippers. There is a tendency to want to bring in just one big sell through house flipping a property. This desire for a large cash payoff can cause the investor to lose the chance to make any sale on the property. An asking price that is too high will be out of reach or unattractive for potential homebuyers. House Flipping Tip: Take the first good offer that is made on your real estate wholesale or house flip. Impulsiveness: Your best chances for making a profit in real estate wholesaling is to create a process and perform due diligence before signing anything. Some investors just want to jump right in on a house flip or wholesale. So, they sign that contract before figuring out if they can really make a profit on their investment of time and money. Take a little time to calculate the market value of the property you are interested in compared to the price the homeowners are asking. Then, you’ll know what you can offer the homeowners and what you can ask in finder’s fees from the buyer on a wholesale. House Flipping Tip: Perform Due Diligence and develop a plan for your house flip before signing. Real Estate Pitfalls Copyright © 2008 RealEstateInvestor.com 34
  • 35. Getting Started with Wholesaling ~ RealEstateInvestor.com You can also fail to close a wholesaling deal through some common pitfalls that crop up. The failure to make a closing can be very damaging to the house flipper, who has to cover the investment in the property and carrying costs until it sells. Over budget: It’s easy to get over budget when fixing up a property for the house flip and that can ruin your bottom line even when you sell the property. Keep a tight rein on your remodeling budget during a house flip. That means paying close attention to your contractors, being sparing with what you purchase for the home and being vigilant about turning off utilities or remembering to turn off things like the lights when you leave the home. House Flipping Tip: Set a budget and stick to it. Lazy Contractors: It’s the proverbial contractor who is always claiming to be done in ‘two weeks’ but he or she tends to run into the months late time period. There are a lot of great contractors out there, but also a few poor contractors. When you are remodeling a house to flip, you’ll have to do your research before hiring a contractor. You’ll also have to be willing to fire that contractor if he or she isn’t up to snuff. House Flipping Tip: Research a contractor before hiring and don’t forget to ask for references. No Inspection: Don’t just take the homeowner’s word for it. Pay to get an inspector to look over the property before you enter the purchase agreement. This way you’ll have the information you need to fix up a property and won’t be caught off guard by any major structural problems. It’s also a good idea to have the inspector’s report on hand for the buyer. House Flipping Tip: Pay the few hundred dollars up front to have the property inspected. Any of the above reasons can be the cause of your inability to close a wholesaling deal. Stick close to this house flipping guide and you’ll find that you are more likely to flip those houses successfully. Copyright © 2008 RealEstateInvestor.com 35
  • 36. Getting Started with Wholesaling ~ RealEstateInvestor.com Don’t Fall into Wholesaling Scams! House flipping is a tempting prospect for new real estate investors. It offers the lure of quick, large profits for anyone with the time and investment. Yet, the world of real estate wholesaling is also a temptation for fraudsters looking to make an even quicker buck. As a new real estate investor it could be very easy to fall into one of these wholesaling scams without realizing it. In real estate, just about anyone can be scammed too. The mortgage companies, the homeowners, the investor, and even the buyer have all been caught in a fraudulent real estate wholesaling deal on occasion. Common Real Estate Wholesaling Scams You owe it to yourself to learn about potential scams so you don’t inadvertently enter one when investing in your own house flip. There are quite a few common real estate scams. Crooked Appraisals One in particular involves hiring a crooked real estate appraiser to appraise the market value of a piece of property at way above or below the real value of the home. This kind of scam is used by homeowners, investors and even crooked mortgage companies to make a higher profit on the sale of a property. The person who loses out here is the buyer, who ends up with a piece of property that they paid way too much for. Or the mortgage company accepting say a short sale price that’s vastly undervalued for a property. Don’t ever higher someone you know to appraise the property for a certain price that you want. Or let them convince you that they can ‘appraise’ the property in your favor for a few extra bucks. It’s a slippery slope that real estate investors can easily fall down. Simultaneous Closing Scams The simultaneous closing is a great way for an investor without a lot of capital to get involved with real estate wholesaling. However, there is some potential for fraudulent sales here. Many of you many have already read that title companies are refusing to take a simultaneous closing deal because of recent real estate scams in the news. It’s better to avoid the use of a simultaneous closing these days when investing in real estate. You’ll still be able to make profits without a lot of investment using other real estate wholesaling methods. Deals Too Good to Be True! This is a deal that gets a lot of new investors who like to attend free seminars for the house flipping tips and advice. Often you’ll get a call out of the blue from a company that claims to be hosting a free real estate Copyright © 2008 RealEstateInvestor.com 36
  • 37. Getting Started with Wholesaling ~ RealEstateInvestor.com seminar with lunch or food. Now a free seminar is a very common practice in real estate and normally a great idea to attend. However, the scammers running this free seminar will ask you to register with your name, address, phone and social security number. You should never need to provide your social security number to register for a free seminar. Giving this company your social security number allows them to look up your credit report and see whether or not you make a good potential mark. The higher your credit score the better, because it means you are able to get a very large loan. At the seminar these marks are approached by members of the ‘investment company’ with a potential deal on a million dollar house that they claim is worth $2 million dollars. The investor that agrees to enter the deal is coerced into getting a mortgage loan for $1.5 million dollars and the ‘investment’ company will do all the work. They claim that they can negotiate the selling price of this $2 million dollar home to just $1.5 million. Then, you’ll be able to sell the home for its full $2 million dollar value and make a nice profit. What the real estate investment company isn’t telling you is that the home they’ve agreed to buy for you is only worth $1 million at full market value and that’s what it really sells for. The investment company takes your loan and buys the house for $1 million then gets away with the excess $500,000. The mark is left with a home they paid $500,000 too much for! Tips to Avoid Scams You can become a successful investor in real estate wholesaling without falling prey to a couple of real estate scams. All it takes is some due diligence and following these house flipping tips to avoid scams. • Don’t give your social security number to just anyone. You may need it to give to the bank and to place on paperwork for a title company, but that’s about it. • If you get a mortgage for real estate wholesaling, make sure you get your own separate mortgage to purchase the property. Don’t let anyone get the mortgages for you. • Perform due diligence on any property you invest in. This helps you find any anomalies and come to your own appraisal value. As a wholesaling investor you’ll serve yourself well to avoid scams and other kinds of questionable deals. These listed scams are just a few of the many lessons to learn about real estate investment. Copyright © 2008 RealEstateInvestor.com 37
  • 38. Getting Started with Wholesaling ~ RealEstateInvestor.com Securing Your Leads against Buyers! Another potential problem to beware of in real estate is the greedy buyer. You’ve been flipping real estate contracts for a few months now, making a pretty good profit wholesaling houses for a living. As a real estate investor, you are still fairly new to the process but feel secure in your own personal niche. You’ve got a couple of regular buyers and have a good wholesaling lead coming in every couple of weeks. One day another more experienced investor approaches you to invest in some of your wholesales. You provide this investor with information on a few great homes, including their addresses, that you’ve signed contracts on and haggle a bit about the assignment of contract fee. Then you shake hands and part ways, with you expecting a check in the mail or a call back with confirmation on one of the properties. What you don’t expect is for that interested investor to approach all of the homeowners you had under contract behind your back and offer them a slightly better price to sell the property directly to him! All of the homeowners agree and you’ve just lost a month’s worth of income, at least! What happened? Scam Artists Preying on New Wholesalers Those thinking about wholesaling houses for a living will have to be prepared for the above possibility. As more and more ‘newbie’ wholesale investors are entering the market, the scam artists in real estate investment have found a way to take advantage of them. If not taking your best wholesaling lead from you and gypping you out of a finder’s fee at the very least, the experience can leave you wanting to get out of real estate wholesaling altogether. Flipping real estate contracts can be a great way to earn and income and not all real estate investors are looking to cheat new and even practiced wholesalers out of their finder’s fee. It’s usually too much effort to track down a homeowner anyway, even with their address. There’s also the time involved in giving the homeowner another sales pitch and convincing them that it’s ‘okay’ to sell to someone else under your nose. It’s just not worth the finder’s fee of only a few thousand for most real estate investors. There are just a few bad apples that you need to guard against when you start wholesaling houses for a living. There are a couple of different ways you can lose a wholesaling lead to a deceitful buyer. During an initial conversation you may let slip or just reveal without knowing better, the names of the homeowner you have under contract and their address. Armed with this knowledge the buyer is able to track down the homeowners and offer them a better deal to sell directly to him or her. Copyright © 2008 RealEstateInvestor.com 38
  • 39. Getting Started with Wholesaling ~ RealEstateInvestor.com Another way to lose that finder’s fee is by simply neglecting to use an assignment of contract document when you close that deal. If you don’t put your agreement down on paper how can anyone know it really happened? Should you decide to sue for your fee after that sale goes through and you don’t receive any money, the courts won’t be able to award you the funds. The only thing the courts know is that you signed in the buyer’s name on that purchase agreement with the homeowner. When flipping real estate contracts you’ll have to guard yourself against these little mistakes. A few simple steps to follow with every wholesaling lead can protect you from the occasional scam artist trying to trick you out of that finder’s fee. Protect Yourself When Wholesaling Houses for a Living • Create or find a good Assignment of Contract Document and use it for every deal you close with the buyer. • Start using Non Compete Non Disclosure (NCND) agreements if you find a lot of buyers are just going behind your back to negotiate with the homeowner. • Bring copies of both documents to every meeting, even the first one. • Safeguard the homeowner’s name and address during initial conversations or until the NCND agreement is signed. • Drop off a copy the assignment of contract document with the county clerk as soon as it’s signed. This ensures it comes up during a title search. • Also ask the buyer to reference your services on their HUD 1 form during closing. The closing agent/lawyer can simply reference you as a consultant. • Request the buyer make payment in the form of a cashier’s check when you both sign the assignment of contract document, instead of giving you your finder’s fee after closing. • Be above board and honest with all parties when flipping real estate contracts. Flipping real estate contracts need not be a scary practice and you shouldn’t be afraid of every new buyer that comes along. Wholesaling houses for a living is a business-to-business trade and in this business you are bound to lose a few deals. However, with a few simple safeguards you can ensure that you don’t needlessly lose wholesaling leads to the bad or greedy buyer. Copyright © 2008 RealEstateInvestor.com 39
  • 40. Getting Started with Wholesaling ~ RealEstateInvestor.com Flipping Homes with Hard Money Loans Real estate investors planning to flip houses will often need to take out a loan to purchase the property they are flipping. Some have enough money on hand to pay cash for a property or to use a line of credit, but it can take several years before an investor is able to build up this kind of financial backing. In the meantime you’ll have to make use of a loan or mortgage. Hard money loans are some of the best funding methods to use in house flipping. Hard money lenders (HML) are often private investors or companies that lend people money based on the property or business deal that money is going to secure. It’s a much faster way to get cash for a real estate investment than going through the red tape at the bank. Plus, the lenders will usually look at the kind of deal you have or the property’s potential resale value when giving a loan instead of your credit score. In exchange for the chance to get a quick loan, within just a few days, the HMLs will charge a higher interest rate on that loan and high origination fees. However, many flippers looking to make money flipping houses prefer the hard money loans because they’ll often fund up to 100% of the purchase price for the property. Common Questions about Hard Money Loans: What is the average interest rate on a hard money loan? Hard money loans can charge anywhere from 12% to 18% interest on the amount of the loan. For a loan with 18% interest that can be a 5% origination fee, plus 12% annually. Are there any other costs? Yes, most HMLs will require there to be a Title Policy, some insurance on the property and a property appraisal. You’ll also need to put some money down on the loan. So, you should expect to pay the origination points, any discount points and other closing costs before getting the loan. You know what they say, it takes money to make money flipping houses! Do I make Monthly Payments on the loan? Most of these loans are only going to be out for 3 months to a year. During that time you’ll make interest payments on the loan. That is, only paying the interest on the loan. At the time you sell the property you’ll repay the HML the full amount of the loan plus any remaining interest on the loan. Sometimes you can defer the interest to the end of the loan if you know the HML and have completed previous deals with them. Copyright © 2008 RealEstateInvestor.com 40
  • 41. Getting Started with Wholesaling ~ RealEstateInvestor.com How long is the hard money loan for? Hard money loans can vary in their length of time. When you take out a loan with the HML you’ll usually write a note for any where between 3 and 12 months. It really depends on the lender and how much time you need to make money flipping houses with these loans. Will they look at my credit? HMLs do check your credit, but they aren’t looking at your credit score. Instead they are looking at your history for evidence of bankruptcy, foreclosures, charge offs and listings from collection agencies. They just want to know if you have a history of skipping out on paying back loans and bad debt. It’s possible to have a low credit score, but not have any bad marks on your credit history. So, hard money loans are a good option for young real estate investors and those who don’t typically carry a lot of credit. How soon can I get the funds? You can get access to a hard money loan within 3 days from them receiving the final documentation for a loan application. This allows investors to move quickly on a property deal that they find. What’s the most I can get on a hard money loan? HMLs will usually only give hard money loans up to 70% of the after repaired value (ARV) of a property. That’s about 30% less than the selling price of the property once you get it rehabbed and placed on the housing market. This practice helps ensure that an investor will be able to pay back the loan and still make money flipping houses. Hard money loans are a great idea for short term property investments. They are not a good idea for a long term real estate practices such as land lording because of the high interest rate. However, those investors looking to make money flipping houses can easily use the hard money loan to their benefit. Copyright © 2008 RealEstateInvestor.com 41
  • 42. Getting Started with Wholesaling ~ RealEstateInvestor.com Picking the Right Contractor for Your House Flip One of the biggest concerns in house flipping is finding yourself a reliable and competent contractor for those remodeling jobs. Yet, many new and even seasoned investors neglect this basic house flipping essential before jumping into the real estate business. Lack of planning can lead to a loss of income, or profits, especially in the case of wholesaling. You can save yourself a lot of hassle, money and time by following these house flipping basics to finding yourself a great contractor for those real estate wholesaling jobs. 1. Don’t Take the Low Ball Offer Sure, you are running a business and have to keep an eye on the budget, but don’t automatically pick the contractor with the lowest offer. If most of your estimates fall within a close range and then there’s one contractor offering a drastically reduced price, you’ve got to assume that there is a reason for this. He or she isn’t just offering a great price out of the kindness of their heart. In fact, this contractor may have something of a reputation in the area for bad work and is having a hard time getting jobs because of it. Or the contractor may be inexperienced and really has no idea how involved the work will be on your house flip. Real estate wholesaling, especially in house flipping, is about taking old cheaper houses and selling them after fixing them up. Sometimes you fix them up just a little or you invest a lot in them. No matter how involved the work, it should be completed properly. So don’t automatically pick the lowest bid. 2. Don’t Be Rushed When Looking Hopefully, you’ll start looking at contractors before you actually have a lot of homes to start flipping. It’s not a good idea to be rushed when looking for a contractor. Call around when you decide to invest in real estate wholesaling. Speak with a few contractors to get an idea of their experience, prices and what services they offer. That way, when you get a real emergency on hand like termite damage, you can just flip through your contacts to a couple of contractors you’ve already picked out for the job and give them a call. 3. Don’t Get Pressured into Hiring a Certain Contractor House flipping basics says you should never feel pressured into hiring a contractor. If a contractor or salesperson starts trying to pressure you into signing with them for the job ask them to back off. Remodeling or Copyright © 2008 RealEstateInvestor.com 42
  • 43. Getting Started with Wholesaling ~ RealEstateInvestor.com rehabbing a house takes a lot of effort and you want to feel comfortable with the contractor you’ve hired. It’s time to ask the contractor to leave if they don’t ease up on the high pressure sales routine. You should also be prepared to end the meeting if the contractor tries to get you locked in by saying that this is a ‘today only’ offer or special. This is a common high pressure tactic designed to get homeowners to hire that contractor now instead of looking around for other deals. 4. Don’t Pay Hourly Even when remodeling in real estate wholesaling it’s best to avoid paying by the hour. You may think you are getting a great deal because the contractor says a project can be done in so many hours, but that’s really just an estimate. You’d be surprised how quickly those man hours add up when the project gets started. If there is anything you take to heart from these house flipping basics, it should be the practice of paying a flat rate for the entire project with the contractor. This also works well in getting a project done quickly. The contractor knows he or she will be getting the same price for completing the job no matter how much time is put into it. So, why should they take their time dawdling on the job and stretching out their hours? 5. Don’t Hire Unlicensed Contractors! It’s illegal in most states for contractors to work without a license. You’ll certainly avoid a big mess in your real estate wholesaling project by asking the contractor if he or she is properly licensed to do the job. Don’t just take their word for it either. Be sure you get a look at their general contracting license before hiring them, either a photo copy or the real deal. You’ll be able to confirm that the contractor is currently licensed with your state’s Secretary of State website or office. These five tips will take you far in your decision to pick a good contractor. No matter the size of your current real estate wholesaling project, large or small, you’ll save yourself a lot of time and money with the right guy. Copyright © 2008 RealEstateInvestor.com 43
  • 44. Getting Started with Wholesaling ~ RealEstateInvestor.com Cutting Costs and Increasing Profits on a House Flip Anyone wholesaling property will want to keep their costs down and profits high. In the house flipping game it’s all about how you set your budget and the final selling price of the home. So, with the aims of keeping you, the real estate investor, within budget here are several tips towards success. • Hold out for the Right House It’s possible to be so eager to get into wholesaling property that you buy the first cheap house you can find. House flipping is about more than buying a cheap house. It’s about finding the right cheap house. You want a property that is structurally sound, but needs a lot of cosmetic repairs. This way it won’t cost you a lot of money to invest in that property, fix it up and you’ll still be able to sell it at close to current market value. Another house flipping tip to keep in mind here is to make sure you get a home inspector to look over the property you’ll be signing papers on. A home inspection can ensure that the property is structurally sound before you buy. • Look for Homes Needing Cosmetic Repairs This was touched on by the first of the house flipping tips, but warrants further explanation. You’ll want to seek out wholesaling property that is in need of yard work and a good coat of paint. These are the kinds of repairs that a homeowner doesn’t want to do themselves, when moving out or moving in. Yet, they can greatly increase or decrease the value of a property. Plus, new paint on the exterior, fresh paint on the interior and some yard work are all investments that can be done quickly and less expensively than major home remodeling or rehabbing. • Avoid Mold! Mold is a deal breaker. Recent news has made the average homeowner terrified of possible black mold in a home. Plus, it’s really hard to get out of a home once it shows up, meaning more time and expense. When you see mold in a home you’re considering you may want to reconsider it. At the very least it’s bound to lower the price of the home. • Figure your Cost and Double it Copyright © 2008 RealEstateInvestor.com 44
  • 45. Getting Started with Wholesaling ~ RealEstateInvestor.com Basic house flipping tips say that you should always double your estimate for fixing up a property. Keep that in mind when figuring how much you think you can offer to buy a property and still come away with a profit. No matter how accurately your contractors estimate the cost of repairs, something inevitably happens to increase the final price. So, doubling your repair budget automatically creates a buffer zone for wholesaling property. If you come in under that amount at the end, then its just more profits for you. • Contractors take time This isn’t so much a cutting costs tip as a warning. Most contractors have multiple jobs going on at once or backlogged. If you decide to just pick a contractor out of the yellow pages one day he or she may not be able to get to work on your house for a few days or weeks, maybe even months. So, keep this in mind if you have a property that will need major repairs or are running short on funds for carrying costs. It may be better once you get low on funds to just cut your losses on a property that still needs repairs by selling it as is. • Realistic Improvements A lot of investors wholesaling property make the mistake of going overboard in their improvements. They don’t take into account what homes in the surrounding area are actually selling for and so invest a more money than needed in a property. This can be in time, effort and especially money. For instance, if no other homes in the surrounding neighborhood have miniature water features in the backyard, there is no need for you to add a miniature water feature to your home’s backyard. It increases the price a lot, but also requires a lot of care on the part of the buyer and really only appeals to a certain select group of homeowners. There are plenty of other house flipping tips you can follow to keep those costs down when wholesaling property. In fact you’ll probably come across a few of your own private tips and ideas as you start flipping more houses. Hopefully, the above tips are a good start for your burgeoning real estate investor’s tool box. Copyright © 2008 RealEstateInvestor.com 45
  • 46. Getting Started with Wholesaling ~ RealEstateInvestor.com House Flipping and the New FHA Seasoning Regulations The popularity of wholesaling is evident in the number of house flipping shows we see on cable tv. Many new and seasoned investors see house flipping as the perfect way to grow one’s investment and even earn a living. However, it’s also being misused by fraudsters. This is a practice that is casting a pall on anyone investing in flips and even giving out house flipping advice to other investors. The number of first time homeowners losing their homes because they paid too much for flipped houses is such that there are now some FHA rules in effect to protect the market. You can bet that these new rules are wreaking havoc on those honest real estate wholesaling investors like us. How Did These Rules Come Into Effect? The US Department of Housing and Urban Development (HUD) noticed that there were quite a few homes going into foreclosure in past years. A lot of these homes were owned by first time low income homeowners. Most of these homeowners obtained government backed loans such as from the FHA, VA or Fannie Mae. These are all loans that are protected by Principal Mortgage Insurance (PMI) that is provided by HUD. So when the homeowners ended up losing their homes because they couldn’t afford the over inflated prices or deal with major repairs, you can imagine who ended up covering the cost of that mortgage? HUD! This is why HUD has passed these FHA rules which are really clamping down on real estate wholesaling. The rules in their entirety are published in a document called, ‘Prohibition of Property Flipping in HUD's Single Family Mortgage Insurance Programs; Final Rule; 24 CFR Part 203, Doc. No. FR- 4615-F-02.’ You can usually obtain the entire document from the government’s Federal Register Site. However, the main points of the new FHA rules are basically: • Real estate wholesaling properties resold within 90 days of their last purchase won’t be able to get financing with FHA mortgages covered with HUD insurance. • Anyone reselling a property between 91 and 180 days of purchase has to document the resale value if it’s a certain percentage higher than the last purchase price. • If the property is being resold between 91 days and 12 months of its last purchase, HUD may require that the mortgage lender get additional documentation of the property’s value. This is if its resale Copyright © 2008 RealEstateInvestor.com 46
  • 47. Getting Started with Wholesaling ~ RealEstateInvestor.com value is 5% or greater than the lowest sales price of the property in the last year. As you can plainly see, these FHA rules make it difficult for real estate investors to ‘flip’ a property by selling it to anyone with a lender using HUD covered insurance. These rules are also commonly referred to as ‘seasoning issues’. You’d have to hold the property for at least three months before you could sell it to a buyer with financing of this type. There are only three standard exceptions to these rules. They are: 1. The resale of HUD real estate owned property. 2. The resale of a property purchased by an employer for the relocation of an employee. 3. The sale of a newly built home by the builder. These exceptions don’t apply to real estate wholesaling. However, there are plenty of other buyers in the real estate sea and you’ll find that you can still make big profits in real estate wholesaling or the still popular practice of house flipping. House Flipping Advice for dealing with Seasoning: • Document all costs and profits with each real estate wholesaling deal. This means keeping all of your receipts and creating a personal record of whom you paid for what and what kinds of improvements were made to each property. • Sell only to other investors. A lot of real estate wholesaling investors simply avoid the FHA rules by selling their properties cheaply to other investors who tend to pay cash for the property rather than looking for a homeowner who will seek a mortgage. • Sell to Homeowners with Non-Conforming Loans. Even though lenders with HUD covered insurance are unable to provide mortgages on your house flips, there are still a lot of other mortgages out there that don’t require or use PMI. These are often more traditional loans made to homeowners who can make large down payments and are more likely to purchase a very nice remodelled house anyway. So, if you are into buying cheap houses and investing a lot to really fix them up, keep this bit of house flipping advice in mind. • Lease-to-own your house flips. The FHA rules only apply to recently purchased homes. If you opt to let your new or first time buyer lease- to-own the property instead of going after immediate profits you’ll avoid seasoning issues entirely. Since, the homeowner won’t need to worry about getting a mortgage to pay off the property for a few years; you don’t have to worry about them being denied because the property was recently purchased. Copyright © 2008 RealEstateInvestor.com 47
  • 48. Getting Started with Wholesaling ~ RealEstateInvestor.com Even though the FHA rules are stiff, there are still plenty of ways to flip a house. You could say that the rules help both real estate wholesaling investors and HUD by keeping those fraudulent deals out of the market. Copyright © 2008 RealEstateInvestor.com 48
  • 49. Getting Started with Wholesaling ~ RealEstateInvestor.com Resources Profiles Darren Dicke Profile Preston Ely Profile Steve Cook Profile Tim Mai Profile Education The REI Power Team Wholesaling for Quick Cash Hot Bargain Properties Flip Your Way to Financial Freedom Ultimate Buying and Selling Machine Flipping Fundamentals Flipping Homes Bootcamp Real Estate Rant Newsletter Quick Cash Wholesaling and Flipping Investment Strategies: Wholesales Briefcase Investor Financing Property Valuation Legal Services Lead Generation Legal Contracts Media Center Power Team Interviews Investor Interviews Speaking Engagements Investing Tips Specific Niches Our Members Tool Box Online Marketing Real Estate Signs Foreclosure Listings Copyright © 2008 RealEstateInvestor.com 49
  • 50. Getting Started with Wholesaling ~ RealEstateInvestor.com About REI Real Estate Investor.com is built around the ideal that anyone looking to be successful in real estate needs help and support to reach their goals. We’ve worked hard to gather the educational resources, tools; information and community that new investors and seasoned investors need to make a success of their efforts. A dedicated real estate community is the greatest resource you can have and Real Estate Investment.com is the place to find other like-minded investors and the knowledge to work with those investors on many property investment deals yet to come. The site is managed by a strongly bonded group of individuals with solid professional success in Real estate, Internet Marketing, Human Resources, Accounting and more. All of our skills go towards maintaining and building this excellent internet resource for like-minded people interested in buying, selling, renting and investing in property. Copyright © 2008 RealEstateInvestor.com 50