THE ART OF WHOLESALING PROPERTIES

HOW TO FIND THE JUICY DEALS

Ok, now you have a nice buyers list with active buyers in your area that are ready to purchase some property. All you have to do now is find a deal. Don’t worry, this part is actually easier than building your cash buyers list! To begin, what you want to find is distressed homeowner’s. You want to find people that NEED to sell. No matter what area you live in, I can guarantee that there are plenty of people going through some type of hardship or situation that they NEED to sell of their property and they need to get rid of it fast.

A very important rule is to pay less attention to the situation (divorce, foreclosure, probate) than to the motivation of the seller. It DOES NOT matter why the seller is motivated. All that matters is that the seller is motivated to do a deal. Motivation over situation will always make you more money in this business. With that being said, nothing sounds better to a distressed homeowner than a cash offer, so that is where you come in.

Now that you have a buyer’s list, you don’t want it to go stale or get old. Remember that people come in and out of the market all the time. A cash buyer today may not be a cash buyer tomorrow. I want you to close your first deal as soon as possible. After all, time is money right? Therefore, I want you to act quickly. The quickest way to get a deal under contract is to start making offers.

INSIDER TIP: The art-of-wholesaling or flipping a contract is all about time management. It’s like a fruit. If you buy a piece of fruit and let it sit there too long without eating it will get rotten. The minute you lock up a deal the clock is ticking. Tick tock. Get it under contract with your cash buyer ASAP!

There are other creative ways to get deals, but I want you to start making money right away with little investment. There is no better avenue to start making offers in a place that is filled with active sellers that you know who WANT to sell their property than the multiple listing service (MLS). I want you to try to get access to the MLS. Remember, this stands for Multiple Listing Service and it is the system that realtor’s use to buy and sell property. Here’s where the realtor friend will come in handy. See if they will give you access to the MLS. Realtors pay a fee to become a member of the real estate association in their area to allow access so they might be rightfully protective of this privilege.

Maybe you can offer them a small weekly or monthly payment to have access to it. Trust me, it’s worth it if you want to succeed early. Or better yet, you can tell them that you will list them as the realtor on every deal that you can get under contract. What do they have to lose? They get the commission and you’re the one doing all of the work. This is why I recommend you getting your real estate license so you can get paid on this part of the transaction as well. We’ll talk about this in further detail later. In the event that you meet a realtor who doesn’t want to give you access to the MLS, you can simply ask if they’d be willing to help you find properties. Again, tempt them with the “commission carrot” and tell them you will allow them to be your realtor on any deal you get under contract.

Or, if you want to search on your own, you can always check websites like realtor.com, trulia.com, Zillow.com, Craigslist.com and many more to see properties for sale in your area. If a realtor lists a property, this can be a great thing for a wholesaler. In a transaction, realtors typically get 3% of the sales price in commission per transaction. Therefore, if they are representing the seller and get an unrepresented buyer or buyer without a realtor, then the realtor can get the other 3% for a total of 6% commission known as “double dipping.” He or she is much more motivated to get the seller to accept the contract even if you are up front about the fact that you are looking to flip the contract. You’d be surprised how willing a realtor would be to work with you once they find out that you are going to help them make 6% commission!

When you do your property search, these are the criteria that you are looking for in a deal, which will typically fit your cash investor’s specifications. If you can’t access the MLS yourself, simply tell your realtor to look for properties with the following criteria:

1) The property must be in an area with a lot of movement and high appreciation rate. Your local realtor can help you determine this if you don’t know the market. Also, join investor clubs and network with other people that buy properties. Talk to them. Get an idea of where the next redevelopment phases are going to happen. The players know where to go, and you need to find them so you can go there too. The worst-case scenario is that you find this out through trial and error. A lot of trial and error may occur at first until you get to know your market. You’ll find the areas that just don’t move and the ones that do simply by making many offers. Don’t be afraid to offer in lower-income areas. Sometimes, these properties move faster than homes in higher income neighborhoods! Each area and each market is different.

2) The property type must be a single-family home with 3 bedrooms or more. It can also be a multifamily up to 4 units; this is what investors prefer because they generally hold their value best and provide the best return on investment. A 3 bedroom house is always more desirable than a 2 bedroom house because there are more families than not, therefore the value holds better more which makes it a better investment. Also, if your end buyer is not an investor but someone who wants to live in the property, an “owner-occupant” will prefer the 3 bedrooms to the 2 bedrooms. You want your net to be able to catch the maximum number of fish (buyers) as possible. Multi-units are duplexes, triplexes, and fourplexes.

Typically, with multi-units, investors look at what is called “cap rate.” The capitalization rate is simply the rate of return on the property at any given point in time. The formula is simple; it is the net operating income "NOI" of the property divided by the purchase price "PP". (CAP RATE=NOI/PP). Net operating income is simply the yearly rents minus yearly expenses. Remember: you want to be as accurate as possible here. Account for insurance, taxes, maintenance etc. when calculating expenses. The owner or realtor should know these figures. If the cap rate is 10% or greater, you have a good deal and should not have a hard time selling it. Just remember to not go over four units.

When you go over four units, it typically becomes a commercial deal, and those are much harder to wholesale simply because there aren't as many commercial CASH buyers as there are for residential properties within a short 15-20 day time frame. Investors love multi-unit properties because they can get more rent than they can from a single family home typically. As you start out, stick to residential properties up to four units. As you become more seasoned, you can try to wholesale five unit properties or more. The spreads or commission can be huge, but the amounts of buyers in this segment are fragmented.