How Real Estate Investors Wholesale Houses For A Profit

written by: Simon Macharia; article published: year 2010, month 05;

In: Root » Legal and finance » Real estate

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Flipping houses is most regularly used to refer to buying and selling houses. It really means wholesaling houses even though most people take it to mean buying, fixing and selling houses. Wholesaling houses involves buying houses low, restoring them to marketable condition then selling them at a higher price for a profit.

This is the definition we will stick to in this article.

Wholesaling houses is the quickest method to create cash in real estate investing. It also needs the least amount of cash invested in the deal. Occasionally you can wholesale houses without using your own cash.

So how do you do it?

1) Identify distressed cheap houses
Motivated sellers form the best source of cheap houses. I target people with legal issues and who own real estate. These are people with inherited property, bad tenants, liens on their properties, divorcing and so on.

You target them with mail pieces such as letters or post cards. In my business, they get 2 mail pieces 30 days apart. Each letter or post card prominently displays my website URL as the main call to action. My phone number is not as prominent. This way, they go to my real estate investor website rather than call me; my website pre-sells for me.

Chances are the transactions I get are fully pre-screened and pre-negotiated so I need just a few minutes to tell whether it is a deal or not - then make an offer or move on.

Some people wholesale properties that have been foreclosed, but this is not the subject of this article.

2) Sign a contract to buy
As soon as you have identified a good deal whose figures look desirable, you must put it into contract. In each state, there are contracts regularly used by real estate agents, or you can get contracts that can be used countrywide. I prefer to use contracts mandated by our state real estate commission because they are more popular and most people, including title companies and sellers are more comfortable with them.

3) Begin title work.
The first thing I do is fax my contracts to my title company for title work to begin. You must ensure you will clear all liens on the house before you buy and sell. The title company does this job. As an investor, you do not need to get too concerned about the technicalities involved. I prefer to let professionals do their work.

4) Identify buyer with cash
Buyers with real cash in the bank are preferable. With cash transactions, you have few limitations in the transaction. Most real estate investors buying houses may have sold a house or have a line of credit for cash purchases.

Alternatively they have private money lenders or get cash from hard money lenders.

Avoid buyers looking for traditional mortgages. Most loan companies will not lend on houses that need renovation and you could have seasoning issues, meaning you must hold the property for 6 months to 1 year before you can sell it.

5) Sign a contract to sell
The type of contract you sign depends on the amount of money in the deal. You must ensure to leave enough profit for your real estate investor buyer. After all they will fix up the house.

I prefer to do a contract assignment if my potential profit is less than $10,000.

In contract assignment, you simply assign your contract to your real estate investor buyer. You assign the contract; you do not sell or assign the house. This is perfectly legal all over the country and you do not need a license for it. This contract is usually as little as 2 to 3 paragraphs.

In this case, the real estate investor buyer you wholesale the deal to closes the transaction, not you. You collect an assignment fee once the deal is closed.

If I am making more than $10,00 or my profits are near or the same as the real estate investor I sell to, then I prefer to do a simultaneous closing, also called double closing. This involves buying the house from my motivated seller, then selling it to my real estate investor buyer.

In a double closing, you buy and sell on the same table, so it involves 2 transactions. In this cash as the property changes hands, you own it for a few minutes before you sell it. Of course, you have to incur closing costs that you do not incur in contract assignment.

He contract for simultaneous closing id just like the one to buy with a higher selling price and more favorable terms for you.

Whichever contract you sign, make sure to collect earnest money. Always make sure they lose their earnest money if they do not close on the transaction. You must make sure the contract expires before your contract to buy and the property reverts back to you.

6) Collect your cash
You must make ensure follow the transaction process until the deal is closed. You collect your check from the title company when the transaction is completed. It is therefore in your best interest to make sure you close any loose ends and make sure the deal does not fall between your fingers.

How much cash is needed to flip houses?
When you sign your contract with the buyer, you may have to put up earnest money, usually between $100 to $500. There is no contract without earnest money. When I sign the contract to sell, I collect an earnest money check which is deposited with the title company.

In simultaneous closing, you can use the cash from your investor buyer to close the first transaction so you may not need to use your own money. If your buyer source of funds does not allow you to use his money to close the first transaction, then you might need to get transactional funding to a few points to close the first transaction before you can sell.

Ultimately, the checks you collect from wholesaling houses will be easy and fast. It is practical to flip a transactions every month.

ABOUT THE AUTHOR

Simon Macharia flips houses in Dallas, Texas. He runs his business from a real estate investors Web Site from http://www.RealEstateInvestorsWebsites.Net

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