By Greg Herlean
As you probably already know, Mike and I focus mainly on flipping houses when we work together. But that’s not all we do, and it’s definitely not the only real estate investment I advise others to do. Most people think that there’s only one real alternative—holding rental properties for passive income. That’s not true, though. In addition to flipping and holding properties, there’s another way to make money on distressed real estate, and you don’t ever have to actually take ownership of any properties in the process.
I’m talking, of course, about real estate wholesaling. In this type of investment, instead of buying distressed properties from motivated sellers, you buy the contracts for those properties and then sell them to real estate investors who either fix and flip them or hold them as rentals. The profits from wholesale deals are not as high as those you’d get from flipping houses, but they also don’t take nearly as much time or effort. In fact, with the right connections, you could make multiple wholesale deals per week and make a lot of money without ever flipping or holding a single property. If you want to be a successful wholesaler, though, I recommend following a few expert tips.
Build a Strong Network of Buyers
As a wholesaler, your goal is to contract with a seller at a given price and then turn around and sell that contract to a buyer at a slightly higher price before your contract is up with the seller. If you don’t move fast, you’ll lose the deal and your reputation will suffer, making it harder to make deals in the future.
So how can you ensure that you’ll have a buyer every time you enter a contract with a seller? Do some networking before you start wholesaling. Get to know house flippers and prospective rental investors in your area and let them know that you’re in the wholesale business. Build a portfolio with a brief dossier on each of your potential buyers. When you get a contract, look through that portfolio to see who fits the property best. Then call your buyers to find out who wants it. Continue to meet new investors and build your network of buyers, and you won’t have any trouble finding people to buy your contracts from you.
Insist on Getting Earnest Money from the Buyer
You might think that only the seller should collect earnest money from the buyer, but in this case—as long as you have the contract—you are the seller. Getting a couple thousand dollars in earnest money can go a long way toward making sure that your buyer doesn’t back out at the last minute and leave you in the lurch.
Don’t Be Afraid to Make Low Offers
If you’re looking for great deals that real estate investors will want to get in on, you need to make low offers to motivated sellers. Don’t go so low that your offer is a joke, but don’t be embarrassed about making an offer that will make you a decent profit. Remember, motivated sellers are interested in getting financial relief from houses they can’t afford. You’re doing them a favor, and the worst they can say is “no.”
Follow these three tips, and wholesaling real estate will be a lot easier and more profitable for you. Whether you use this as a stepping stone toward flipping or you just want to make some decent income without a lot of work, wholesaling is a great option.