One of the biggest questions I think people have when it comes to real estate investing is how to get started.
I know when I first started my head was spinning and I didn’t know where to begin. I ended up buying my first property when I was 20, so don’t worry you can do it too.
There are many unique strategies to investing in real estate so it’s important to not get overwhelmed when you’re first learning about the business.
But today I’ll share a beginner friendly real estate investing strategy called “wholesaling” which is basically flipping real estate without doing the renovations.
Step 1: Decide Your Goals
Before you even think about acquiring property, flipping, etc; you first need to lay out your goals!
Create short term goals that you want to accomplish within the first year. Create medium term goals that you’ll complete between years 1-5, and then come up with long term goals for after your first 5 years in real estate investing.
Example:
My Short Term Goals: One Year or Less
- Create my real estate investing team
- Set up a website
- Acquire my first property
- Lease out my property so it begins cash flowing
Update: All 4 short term goals have been completed. I can now focus on my medium term goals and shift certain goals into the short term timeline to knock out again.
My Medium Term Goals:
- Acquire 2 new properties in Year 2
- Acquire 3 new properties in Year 3
- Acquire 5 new properties in Year 4
- Acquire 9 new properties in Year 5
- Buy, Rehab, & Flip my first property
- Fix & Flip 5 properties
- Earn gross revenue of $500,000 by year 5
My Long Term Goals:
- Acquire 1,000+ units
- Eventually outright own 1,000+ units
- My business is automated to where I’m hands off earning passive income
- I get to retire in my 30’s and collect my passive income from real estate business
- My business is grossing $1,000,000+ annually
Real Estate Investing School – Start Lesson 01
In order to know where to start in real estate investing you need to know your goals.
You can see mine broken down into three different periods so that I can focus on year 1 goals first to lay the foundation then mid term goals to build the foundation and then finally my long term goals once I’ve gotten my business rolling in years 1-5.
Here are some questions to ask yourself that may help you in deciding your goals:
- How much time do you want to dedicate to building your investing business?
- How much money does your business need to gross & how much to net for you to retire from your job and earn a living from real estate instead?
- How much money do you want your business to gross in revenue per year 5 years from now?
- How much money do you want your business to net in revenue per year 5 years from now?
- Do you want to be heavily involved in your business or allocate most of the work?
Once you have created your goals then you can calculate how many units you need to acquire to reach your goal. For example, if you want to gross $100,000 per year and you expect to average $800 per month in rent per unit you can then calculate how many units will be needed which in this case is 11:
- $800 x 12 months = $9,600 per unit
- $100,000/$9,600 = 10.41 units
Setting revenue goals will give you a clear perception of how many properties you need to acquire if you are renting and how many flips you need to do if you are a rehab investor. That leads us to step two where you decide your strategy.
Learn –> How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
Step 2: Learn How Wholesaling Works
If you’re looking to get into real estate investing but don’t have much capital or a good credit score don’t worry.
Wholesaling is one of the best strategies available to beginning investors and I wrote multiple blog posts covering different angles including this one which shares how an example deal would work.
Wholesaling doesn’t require any capital to complete a deal IF YOU KNOW WHAT YOU ARE DOING.
And what about your credit score?
With wholesaling, your credit score is completely irrelevant for this investing strategy. Lucky you! (:
Wholesaling Real Estate Investing Strategy
What is wholesaling and how does it work?
Let’s say a wholesaler finds a property that is under market value (meaning the property is selling for less than similar properties on the block).
A wholesaler would get that property under contract with the seller and then assign or sell that contract to another investor or buyer and that investor or buyer would complete the purchase with the seller.
A wholesaler does not improve the property at all. The only job is to get it under contract and sell the contract to another investor who is looking for a worn down house in need of repair.
Pretty simple huh?
Real Estate Investing School – Start Lesson 01
How Much Can a Wholesaler Sell a Contract For?
Great question. It all depends on how good of a deal the wholesaler is able to find.
If a house is selling for $40,000 and it’s after repair value is $100,000 then the wholesaler needs to calculate up how much it will cost in repairs to bring the house up to market value of $100,000.
Whatever the difference is will be profit and the wholesaler can choose how big of a slice of profit to take while still leaving the investor enough room to profit a good amount.
If your fee is too large compared to the investor’s potential profit then the investor may not accept the deal so don’t be greedy but don’t short yourself either.
Generally, wholesalers can charge anywhere from $1,000 to $20,000 in assignment fees but it all depends on the financials of the deal.
Resources:
- Real Estate Investing School: How to Retire on Passive Income
- How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
The reason investors/buyers will pay a wholesaler a fee for the property is because of convenience.
Time is valuable and many flippers are stretched for time due to ongoing projects they may have with other houses they are currently rehabbing.
As a result, your end buyer doesn’t have the time to search for deals and instead prefers to use wholesalers to locate them deals.
Then the investor can get back to the current project and when it’s complete they can transition their crew to the next rehab seamlessly without any down time in between projects.
Wholesaling can be an easy way to earn commissions without doing any work to the property. It’s useful for those who don’t have the skill set or finances to handle rehabbing properties.
Rehabbing homes, which I show you the cost breakdown in this course, is a great way for earning substantial profits but also carries the risk of potential unforeseen problems arising during the rehab that add to costs and time commitment.
Wholesaling allows for quick hands-off commissions where time is spent looking for deals and connecting deals with buyers. But don’t get hyped up just yet..
The Challenging Side of Wholesaling
Wholesaling is a simple concept but not easy by any means.
It’s tough to locate properties at 50% discount to the market value. Expect to spend a lot of time searching through deals to find properties selling at huge discounts.
Once you’ve found one though you should be able to find a buyer for it rather easily.
Real estate is a supply/demand market.
The supply of heavily discounted properties is low in most markets and the demand for them by investors is high so when one is discovered it’s a great opportunity to make money wholesaling it.
Real Estate Investing School – Start Lesson 01
How do you know if you are wholesaling a property at the right price?
Generally, you will be able to sell a property to an end buyer at between 60-70% ARV.
This means you will want to contract the property from the seller at 50-60% of market value. Properties that sell for these low of prices are either in great need of repair or have a really motivated seller.
Sellers have all kinds of problems that could result in them wanting out of a home.
Maybe they don’t have the cash to fix up the property and sell for market value. It could also be a result of falling behind on mortgage payments and needing out soon before foreclosure.
Who knows…
It’s your job to find out the reasoning from the seller and look for any red flags as well that could turn you away from the deal.
Here are some possibilities of motivated sellers:
- Job loss (cannot afford to continue making payments or fix up to get to market value)
- Probate property (out of state family member passed away and left property that needs repair to unexcited heir)
- Relocation/Moving (person doesn’t want to be a landlord or own multiple houses)
- Vacant house
- Burned out landlord
- Divorce
Now that you’ve read a little about wholesaling it’s important to note that before you take action you need to know what you are doing.
If this is your first time reading about wholesaling I would encourage you to do further research and grow your education.
Step 3: Build Your Real Estate Investing Team
Now that you have set your goals and decided on a strategy to reach your goals it is important to build a team that can assist you.
Real estate transactions deal with many industry professionals so it will benefit you to have relationships with all the players in the game.
Your core team should consist of the following:
- Real Estate Agent
- Attorney
- Accountant/Tax Specialist
- Contractors/Maintenance Services
- Property Manager
- Title Company
If you don’t have the capital to acquire properties cash then you’ll want to build a relationship with local banks and lenders.
On that note, if your credit score or income won’t qualify you for a loan then seek out private and hard money lenders in the real estate community.
The interest rates will be a little higher but you should be able to get a loan from them easier than a bank.
Step 4: Set Up A Website
You’ll want to create a website (which I show you in this tutorial) for your real estate investing business because it will make you seem more professional and it will be important for capturing leads.
For example, let’s say you are at a networking meeting for a local real estate club and you get talking with some local investors.
It would be smart to have a website you can reference them to so they can learn more about your business and make them feel better about doing business with you whether it’s lending you money or partnering for a rehab project.
It’s also crucial for capturing leads from both sellers and buyers. I personally have two websites, one for capturing seller leads and one for capturing buyer leads.
What are seller leads?
If you are searching for properties you’ll usually be looking for motivated sellers who can sell you their property at a discount price compared to market value.
Craigslist is commonly a location that motivated sellers can be found posting ads about their house for sale as they desperately want to sell it.
By having a website you can click on their post and send them a message linking your website for them to visit and fill out your motivated seller form which I’ll get into in a future post soon.
You can also post ads to craigslist that motivated sellers will see and click on and ultimately be funneled to your website form that they fill out describing their home and reason for selling.
These leads are then analyzed by you to see if there are any good deals worth pursuing.
Learn –> How to Increase Your Income and Master Your Money (Saving, Investing, Taxes)
On the buyer side I would have a website that captures contact info from buyers and fellow investors in your local area.
Your buyer website is where you can send people you network with, craigslist investors, etc so that you have their info for future properties you acquire that maybe you are wholesaling or that maybe you need funding for.
You can turn to your buyers list and take the necessary actions to get a deal done with their help.
So how do you set up a website?
I’ve written a detailed blog post that will walk you through the steps and also contains a video if you learn better visually. I’ll also put the video here for you to watch if you’d like.
Click Here: How To Create A Website For My Business
You can also finds lots of helpful video lessons and tips on my YouTube Channel.
Step 5: Find Real Estate Deals to Wholesale
You have your goals, strategy, team, and a website so now it’s time to search through properties and find your first deal.
Expect to sift through hundreds of deals before finding a good one that is profitable. It takes practice looking through deals to get a feel for if it is good or not.
I would recommend setting a goal of 20 properties or more per day to look through so that you can build your experience and skills at analyzing deals.
Resource: Real Estate Investing School – Start Lesson 01
Also, I would show it to your realtor or a mentor who has experience in the industry and get their opinion before pursuing it just to be safe.
By now you have spent hours searching for properties that are below market value that you can wholesale to your end buyer investors.
Finally you come across a property for sale at a steep discount to market value and you decide to contact the seller to learn more about the property and their reasoning behind selling.
After eliciting information from the seller you discovered they are moving out of state and are greatly motivated to sell their home so that they don’t have to deal with the costs of two homes.
After a showing with the seller it’s obvious the home needs some repairs, such as carpet, paint, roof, and landscaping, but is structurally sound.
Found a deal? Next we’ll discuss how to analyze it to see if it makes since to pursue further as a wholesale deal.
How to Analyze Real Estate Flip for Wholesaling
Step 1: Determine the After Repair Value (ARV)
You should have a real estate team set up to assist your business so first you’ll want to contact your realtor who is a vital member of your team.
Your realtor will be able to analyze the sales comps in the area to see what prices similar houses in good condition sold for.
They’ll be able to tell you the comparable price per square foot of similar houses as well as the low and high comps. When you go to make an offer to the seller you will want to use the lowest comp in the neighborhood.
Step 2: Calculate the repairs
Drive by the property and give it a quick glance for any major concerns.
If you get to go to a showing of the house then you can roughly estimate the repairs needed on the interior.
Look at the ceilings for water damage and in the bathrooms for water damage. Roofs are expensive to repair so make sure to ask how old the current roof is and analyze its condition.
Your buyer will do the thorough inspection and decide on repair costs but by calculating up estimates ahead of time you will be more likely to get a buyer to take the deal from you since you’ve saved them some time on work.
Step 3: Make an offer to the seller
You want to make an offer that will help out your business right? Your asking price should be lower than what the seller probably expects to get for the house.
It’s your call how much lower to go than what your gut is telling you the house is worth or what your realtor advises but ultimately expect to get declined the majority of the time.
Some sellers will counter offer and some will accept depending on how motivated they are. Construct your offer so that you can profit and your end buyer can profit.
Work backwards figuring out how much profit your end buyer will want in order to accept the deal and then add in your fee.
Without an end buyer you have no wholesale business so consider their needs.
Construct your offer so that it considers:
- Repair costs
- Holding costs for 6 months (general time required to rehab)
- Closing costs
- End buyer profit
- Your wholesale profit
The following formula helps me determine how much to offer:
* Know the conservative ARV: $150,000
* Determine Repair Costs: $25,000
* Fixer’s profit: $25,000
* Est holding costs: $8,000 (loan fees, utilities, taxes, etc)
* Est closing costs: $12,000
* Total Costs ($70,000)
* My PROFIT or assignment fee: $5,000
* Maximum Asking price $75,000
The asking price of $75,000 in this example would be 50% ARV but again your numbers may turn out 50-65%.
Should you offer the $75,000 in this example?
No. I would offer the seller between 40-50% ARV and see what happens considering they’ll most likely counter offer up to 50-60%.
Starting with your maximum asking price will not leave yourself with any negotiating room. For the sake of this example, let’s say the eventual purchase price is $70,000.
Step 4: Get a Buyer to Wholesale To
Ideally you want to have a list of buyers ready to go that you have met and networked with. You’ll contact your buyers and let them know about the property hoping one will spark interest in purchasing it.
Then you would add $5,000 to the $70,000 and request a purchase price of $75,000 from them.
Have a stipulation in your contract that states the buyer will need to buy with cash within 5 days. After the fixer agrees to purchase, then you go to the final and most important step.
Step 5: Collect $5,000!
How many homes do you think you can sell for $.50 on the dollar?
No matter what market or economic condition, if you purchase at the right price and sell at the right price, you will find buyers!
Once you get that first deal completed you’ll have confidence and experience to pull from.
Overtime your business will improve and you just may become a wholesaling king doing 5-10 deals per month. Not a bad income to live off of.
