You may have heard the adage, “If something sounds too good to be true, it probably is.” but real estate wholesalers beg to differ. Wholesaling real estate presents a lucrative business opportunity for eager investors with limited starting capital.
However, there are still legal implications that you must consider before starting your real estate wholesaling business. Each state has different laws and regulations dictating ethical real estate practices. If you’re ready to begin your wholesaling journey, understand the rules in your area and choose a wholesaling method that works best for you.
The Legality of Real Estate Wholesaling
Real estate wholesaling is perfectly legal, but you must adhere to the laws and processes in your area. Abiding by these laws ensures that you can protect yourself and anyone involved in the wholesaling process.
Before getting started in real estate wholesaling, assess the laws in your start and perform your due diligence. Engaging in real estate wholesaling can be challenging if your state’s laws are unclear. While some states require wholesalers to obtain a real estate license, most do not. The only states requiring a real estate license to partake in wholesaling are Illinois and Oklahoma.
As a beginner wholesaler, your best option is to seek the assistance of a real estate attorney. They will provide legal advice so that you can make legally sound decisions when completing wholesaling transactions.
The 3 Types of Real Estate Wholesaling
Most real estate investors are interested in wholesaling due to its lower barrier to entry. However, there are several different methods of real estate wholesaling, and some of them require a more significant amount of starting capital. Before getting started in real estate wholesaling, assess all your options to ensure that you make the most profitable decisions for your business.
1. Assignment of Contract
The most common type of real estate wholesaling is the “assignment of contract” method. During this process, the wholesaler obtains a property under contract and assigns the rights to another buyer. If you choose this route, most states do not require a real estate license because you’re simply the principal in the transaction.
When you assign a contract to an investor, they will hand over the rights and responsibilities of the contract. The profit that you earn comes from your “assignment fee,” which is similar to the commission structure of a real estate agent. Wholesalers receive their assignment fee when the deal officially closes.
2. Double Closing
During double closing, you will complete two separate transactions. First, you will buy an undervalued property from a motivated seller. After that, you will sell the property to a buyer and collect the profit. If you’re double closing, you won’t need to disclose your initial purchasing price information to investors. You also have more control over the property’s asking price.
Double closing is the “safest” type of wholesaling deal because you’re purchasing the property yourself instead of simply assigning a contract. However, double closing means that you are responsible for two different types of closing costs. Beginner wholesalers are deterred from double closing because it requires a significant upfront investment, and wholesalers must meet the qualifications to purchase the property.
3. Buying and Selling
During a double close, the end buyer typically renovates the property and sells it for a profit. As a result, wholesalers don’t improve the property because they will not own it for more than a few days. However, some end buyers choose to buy the property from a wholesaler and flip the property.
In this instance, making renovations is entirely up to the end buyer. However, their decision will impact their deal with you because they must calculate their total investment cost. When meeting with potential buyers, ensure that you understand their intentions with the property before proceeding.
How to Get Started Wholesaling Real Estate
Wholesaling real estate can quickly become one of your most profitable investment opportunities. However, you must perform due diligence and make strategic choices to get your business off the ground. In the simplest terms, you will find undervalued properties, then connect buyers and sellers so that you can earn your assignment fee. However, if you have a significant amount of starting capital, engaging in other forms of real estate wholesaling may be beneficial.
Regardless of your wholesaling method, the following three tips are essential for a good start in real estate wholesaling:
1. Obtain the Financial Resources to Start Your Real Estate Wholesaling Business
Fortunately, wholesaling real estate generally doesn’t require a significant upfront investment. Even when you double close and then purchase the property outright, you will not need to invest in renovations unless it suits your business plan.
You must have the financial resources to seek advisement from a real estate lawyer. In addition, you will need to invest in marketing to expand your reach. While social media and traditional marketing methods can be effective, they are highly impersonal when compared to the power of cold calling. Invest in lead-generating partnerships with professional cold callers to reap the benefits of conversational marketing.
2. Create Your Business Plan
A cohesive business plan is vital to develop your business. To get started, research the most profitable neighborhoods in your area, and decide which type of properties will be the most beneficial. During this process, you will also need to assess your pre-purchase procedure. The procedure explains your communication methods with the seller, property inspection procedures, and marketing activities. When creating your business plan, consider your operating expenses to ensure that your company is profitable.
3. Find Undervalued Properties
Ultimately, successfully wholesaling hinges on your ability to find undervalued properties and sell them for a profit. However, finding undervalued properties poses a significant challenge to the untrained eye. To determine whether or not a property is undervalued, you must perform in-depth market research. Following this, you’ll need to assess the values of similar homes in the same area. Wholesalers refer to this process as “running the comps,” which references the real estate term “comparable sales.”
The best way to find undervalued properties is by hiring a team of cold callers who will vet leads for you and send qualified leads your way to close the deal. However, other methods to find undervalued properties include scouring online real estate listings and driving around specific neighborhoods searching for derelict properties.
Find Sellers and Buyers with Call Motivated Sellers
The most challenging part about starting a wholesaling business is finding buyers and sellers, so why not leave this to the experts? Once you’ve created a business plan, put your words into action with the assistance of Call Motivated Sellers. We’ll sort through buyers and sellers to find the best prospects so that you can focus on other aspects of your business. Our team of professional cold callers will vet leads for you while informing interested buyers and sellers about the benefits of your wholesaling services.
Call Motivated Sellers is an American-based real estate cold calling service that can help raise your sales and provide hot leads year-round. We have years of experience cold calling in the real estate industry and access to the best information for buyers, sellers, and agents to help you close more leads.
If you’re ready to leverage the power of cold calling, Call Motivated Sellers is here to help. To learn more about our services, contact our team today!