The Wholesaling Blueprint - Real Estate Investing with No Money out of your Pocket

Chapter 1

Wholesaling, So What Is It Really?

Wholesaling is the art of selling your interest in a contract to a third party for profit. Let’s break that down a little bit more, but don’t forget, this truly is an art form. You can be really good at it and sell your art next to a Picasso or a Van Gogh for the big bucks, or you can just be doing funny drawings of tourists for tips on a boardwalk somewhere. Which do you want to be?

Let’s do a quick breakdown of the basic parts of a wholesale deal. There are four main components to a wholesale transaction:

1. The Property
2. The Contract
3. The Assignment
4. The Buyer

The Property

The property in a wholesale deal can really be any type of property. I have wholesaled and bought from wholesalers land, condominiums, townhouses, manufactured homes, single-family homes, apartment buildings, office space, and even a church. Typically, a motivated seller owns these properties, someone who just doesn’t want the property anymore for a number of reasons. There are several different ways to find these properties, and we will go into detail on these in a later chapter.

The Contract

The contract, or purchase contract, is a signed agreement between you and the seller stating that you will be buying the property for a certain amount of money on a certain day. Don’t worry about the paperwork, I’ll show you where you can get contracts later.

The Assignment

The assignment, or assignment agreement, is a signed agreement between you and the buyer stating that you are selling your interest—your rights in the contract—to them for a certain amount of money and that, by signing the agreement, they accept all of the terms within the original contract with the seller. That means that what you originally agreed to, they now have to do.

The Buyer

The buyer is the person or entity who is actually going to put up the money to buy the property. This can be a person looking for properties to fix and flip, someone looking to add to a rental portfolio or even Joe and Jane Homebuyer looking for their family home. There are different types of buyers and different reasons to go after certain ones (again, we’ll cover this in more detail in a later chapter). The main thing to understand is that the buyer is the person bringing the money to the deal and they will be the eventual owner. This is how you can wholesale real estate or flip contracts with no money out of your own pocket: you aren’t buying anything! Someone else, with money in their pocket, is the buyer!

Let’s break this down into an actual example. You are sitting at lunch with a friend from high school who you haven’t seen in a few years and explaining what you do. As you discuss your real estate-investing firm, the waiter, who has been secretly eavesdropping on your conversation, says, “Hey, if you buy houses, I need to sell mine and get out of town, do you want to buy it?” Of course, you tell him you will happily take a look at it. You ask him what the address is and how much he wants for it. He gives you the address, and tells you he just needs to get out quick and will take $130,000 for it. You let him know you will do a little research and let him know if you can help him (it’s always about the seller, and it’s always about helping them). While still sitting at the table, you text the address to one of your trusted realtors and ask them for an After Repair Value (ARV—this is what a house can sell for after it has been repaired or improved). Five minutes later, your realtor texts you back “ARV $190,000.” As the waiter shows up to see if you are enjoying your food, you tell him “I took a look at your property and I can probably do the $130,000 on it, what kind of condition is it in?” The waiter says it’s in pretty good shape, since it was remodeled before he bought it three years ago, but probably could use some new carpet and paint. You ask him for his phone number and email, and then order dessert. You text one of your repeat buyers the address and a price of $140,000, and by the time your tiramisu gets to the table, the buyer has already replied that he will take it. From your phone at the restaurant, you fill out a purchase contract and email it to the waiter for his digital signature and you send an assignment agreement to the buyer for his signature. Before the lunch bill comes to the table, you have signed contracts and $10,000 coming your way. Your friend looks across the table, smiles, and says, “You’re paying for lunch.”

Obviously, this is a simplified and glorified example of how this business can work, but these kinds of deals do happen and can happen that quickly. With the right team in place and a little knowledge, you can be doing deals just like this. Opportunity is out there and it is waiting for you to take action and get it.

The typical question I get when I give this is example, is “Why would this waiter sell to me?” Why? Because you offered to buy the house and solve his problem. It doesn’t matter if you have never bought a house before or if you were only meeting your friend for lunch because you didn’t have any money and he offered to pay for it. You can get this contract signed and write up an assignment agreement. When your buyer closes, you get the difference between the $140,000 the buyer is paying and the $130,000 the seller is getting. That is $10,000 for you!

I invited a wholesaler out for drinks with me one day. This wholesaler had been doing pretty well, I had bought six deals from him and I had paid him more than $100,000 in assignment fees in less than nine months, and I just wanted to grow our business relationship and see what I could do to help him grow his business. As we made small talk and got to know each other, I found out that he still lived with his mom, had never owned his own house, had never paid a single dollar for marketing, and he was only twenty-four years old. All of his leads were from his straight hustle. He posted free ads on Craigslist that he bought houses for cash. He posted in garage-sale groups that he could help people who were being foreclosed on. He knocked on doors and tracked down owners of vacant houses. Zero money spent on marketing. Six deals, nine months, one hundred thousand dollars. He had no education beyond books and watching free videos on YouTube. Why would people sell houses to him? He didn’t have any money when he started. His car was a junker. He didn’t even own his own home. Why did people sign his contracts? Because he solved their problems. You aren’t really in the business of buying and selling houses, you are in the business of solving problems and helping people.

One hundred thousand dollars in profit is amazing for nine months of work, but that profit could have been over $300,000 if this wholesaler bought the houses himself, fixed them up, and flipped them. I made more than $200,000 on these deals, so why didn’t he just buy them himself? Why wholesale? There are a lot of reasons to wholesale real estate instead of actually buying the property yourself, then fixing and flipping it, and for many people it is for very specific reasons. The wholesaler I mentioned above didn’t want to flip because he didn’t have the funds or the connection to the funds to actually purchase these houses himself. Additionally, he knew zero, zilch, nada about construction and didn’t want to learn it. He had no desire to work with contractors or manage a rehab. He really just enjoyed the hunt for the property, the satisfaction of getting properties under contract, and getting the immediate reward of the assignment fee. There is nothing wrong with that. I know other people who wholesaled their first ten to twenty properties to build up some cash reserves and learn what their buyers were doing to make the projects successful flips so they in turn could find an amazing deal, buy it for themselves, get it fixed up, and then sell it and keep all the profits for themselves. They wholesale the okay deals and the decent deals but keep the best ones for themselves. This keeps their risk down and their cash flow high, as it takes money to remodel a house and sit on that property for three to nine months as it is being rehabbed and waiting to sell to a retail buyer. I know other investors who flipped houses and had so much stress from it that they just didn’t want to do that side of the business anymore. Even though they were financially successful at it, they liked the quick money from wholesaling more. I know other people, like me, who just use wholesaling as another tool in their tool belts. It’s easier to wholesale a property out of state, for example, than flip it in most cases. Some deals make just as much money(or more) as a wholesale deal than as a flip. It really just comes down to a numbers game and where is my money, or my private investor’s money, best spent? There are many different reasons to wholesale versus fixing properties up or building your own rental portfolio. It depends on your cash flow, your desires, your comfort levels, your experience, your drive, and many other factors. Even though I fix and flip most of my own properties, I still wholesale a lot of properties as well. I’ve been wholesaling for years, and I will continue to wholesale in the years ahead.

The main thing to know is that there is no correct cycle to this business....