I recently received a detailed email from a frustrated real estate wholesaler stating that he is sending thousands of postcards every month and is still rarely able to connect with a motivated seller.
Spending a lot of money on marketing and not getting a return can lead to big-time frustration for a wholesaler, which is why I advocate using effective guerrilla marketing techniques that I discussed in earlier blog articles:
- Are You Ready to Be a Bandit Investor and Steal Some Deals?
- A Super Motivated Seller: The Burned Out Landlord
- More Motivated Sellers: The Code Violators
Wholesaling is a great way to get started into real estate because it does not require good credit and takes very little money to get started. Wholesaling allowed me to escape my “Corporate America” job. I wholesaled in very high volume for a few years, which created a nice income stream to replace the salary from my job.
Wholesaling real estate in high volume is not for everyone because it is a lot of work, but I believe the recent market changes we are experiencing will lead to a strong resurgence for the demand of good wholesalers.
Wholesaling Real Estate Is All About “Deal Making”
Wholesaling real estate is all about making money in the middle of the deal. To be successful, you need to be a successful wheeler-dealer because wholesaling is all about deal making.
First, you have to make a deal with the motivated seller to allow you to control his property and market to find a new buyer. Then you have to work directly with your new buyer to seal the deal on the final sale.
See how you are in the middle? Wholesalers work directly between the motivated seller and the investor-buyer to carefully craft the entire transaction.
You Control the Property Without Owning It
Wholesalers must learn to “control” real estate without owning it. This can be accomplished with option contracts or joint venture agreements. Once the house is properly controlled, the wholesaler has equitable interest in the property and can resell the house, sell the option, or collect a nice assignment fee.
When the wholesaler properly controls a house and contracts with a new buyer, he can enjoy the benefits of wholesaling in a risk-free environment that provides a very nice income stream.
One key to staying out of trouble is being up-front with the motivated seller so they know your wholesaling game plan. You do not want to mislead the seller as that can add risk into your transaction if you do not resell the house or run into obstacles when closing.
“Virtual” Wholesaling with the MLS
One growing trend over the past couple years has been “virtual” wholesaling. Wholesaling houses directly off the MLS (Multiple Listing Service) is definitely a trending technique for wholesalers.
How does it work?
Wholesalers search the MLS for the very best deal in their local market and put it under contract with a contingency. The contingency can be “subject to suitable financing” or an inspection period.
Once the house is under contract, they can resell it to a new buyer and create a profit based on the spread of what they are able to buy and sell the house for.
They are still in the middle of transactions, like all wholesale deals. This is a method I see Realtors beginning to use to essentially collect a commission and a wholesale fee, as well.
Pay Attention to Details
When wholesaling off the MLS there is more risk than when working directly with a motivated seller not on the MLS. The risk is even higher if the property is an REO (real estate owned), as the wholesaler will need to sign a large pile of addenda from the asset management company. Sometimes the addenda have requirements such as deed restrictions and encumbrance restrictions that can kill the deal if the wholesaler is not careful.
And if you are wholesaling HUD homes, you need to be aware that the closings are “witnessed” by a contracted HUD representative. There are a number of things that have to go just right in order to wholesale off the MLS.
But is it possible to wholesale MLS listed house? Yes, it is possible, and it can create a nice income stream. Just be aware that your risk is higher and that the transactions require a lot of things to be carefully controlled to get the closings completed.