to invest in real estate with no financial risk and no money or credit?
Wholesaling houses is a popular choice. I personally think wholesaling
can be a challenging way to get started, but the fact that you can get
started in real estate investing without any barrier of entry makes
wholesaling an attractive option. If you can get good at this side of
the business, you will be success with anything you want to do. The
reason I say that is finding deals is what makes a wholesaler
successful. If you can get good at finding deals, you have unlimited
Once you find a deal, you need to understand how to
sell it to make your profit. Here are four ways you can structure your
Contract Assignment: This
is the easiest, but comes with some risks if not done correctly. It is
also somewhat restrictive as bank owned properties will prevent this.
This works well when you negotiate your deals directly with the seller.
The way this works is you will get a house under contract and then you
will assign your rights in the contract to another buyer for a fee. That
new buyer will take on the rights and responsibilities in the contract
and will close in your place. It is best to get your fee paid up front,
but it is very common to get your fee when your buyer buys the house.
Here are a few things to keep in mind when assigning contracts.
sure that you always disclose to your seller that you are or may assign
the agreement to another buyer for a fee. I suggest you actually put
this in the contract. Sellers should be OK with this if you are
transparent that you are an investor who buys houses for a profit before
you start to negotiate.
I would get money from your money that is
at least enough to cover any earnest money you put up with your seller.
That way if your buyer defaults on the agreement you at least cover
your costs. Always try to get the entire fee paid when you assign the
I like this way the best because it is easy to do on
your end, it is easy for the buyer and the buyer’s lender, and it is the
cheapest way to go.
Double Close: This just
means that you actually buy the house and then resell it. There are
several ways to do this, but the most common is to buy and sell in the
same day or within a day. Typically, you will need to bring in financing
to get your closing done with the seller, which is why this is my least
preferred method to wholesale. Also, because you have two closings you
will have two sets of closing costs, so it is the most expensive way
too. With that said, some wholesalers prefer this method because they do
not have to disclose to the seller their intent to resell and they can
both keep their deal with the seller and their deal with their buyer
private. It is believed by some that this is a good way to protect your
profits. The information will all become public record at some point,
but that is well after the closing.
This is the method you will
use by default if you do not do your contract on the front end
correctly, so we do see double closing frequently.
Flip the Entity: This
has become the most common way to wholesale in my market. Most, if not
all, the successful wholesalers will use this strategy. Especially when
wholesaling foreclosures where contract assignments are forbidden.
way this works is the wholesaler will set up a separate entity, like an
LLC or a Trust, and put that entity as the buyer of the house to be
wholesaled. They will then sell the entity itself for a fee. The benefit
with using this strategy is that actual contract on the house does not
change. Since the buyer of the house is the entity, there are no issues
with any regulation or assignment restrictions. The downside is it could
be more work because of the extra step to set up the entity, and there
could be additional fees to register the entity with the state. The risk
for the buyer is whenever you buy a company you are buying all of it.
So, if the entity was used in another transaction and owes money to
anyone, the new buyer could be on the hook. Knowing this, the best way
to do this transaction is with a brand-new entity used for this one
Relationship Close: I don’t know if
there is an actual name for this method. In fact, it is rarely seen.
What I mean by relationship close is that you have such a strong
relationship with a buyer that you write offers in the buyer’s name. For
this to work, you should be a licensed agent and preview houses for
your buyer. You would need to understand their criteria and only offer
on houses they will want to buy. I have a client that works this way. He
has an agent write his offers and the agent/wholesaler gets paid a
commission with each successful closing. They do 2 to 3 deals a month
with this strategy. My client just signs contracts without looking at
them at this point and trusts what the wholesaler is putting together
solid offers. There is always an inspection clause protecting the buyer
and the agent, but more than 9 out of 10 houses that go under contract
close. That is because the agent/wholesaler knows the business and knows
what this buyer will buy.