If You Were a Grocery Wholesaler

Transcription

1

2 This report is all about getting a super-fast start on real estate wholesaling, so we re jumping right in with a comparison to make sure that we re all on the same track about wholesaling as a concept and how real estate wholesaling is far superior to almost any other wholesale business. If You Were a Grocery Wholesaler If you re a grocery wholesaler, you re working with two major groups, the manufacturers and their distributors on one side, and the individual grocery stores on the other. You have value as the deliverer of services to both sides, and these services relate to the very different objectives of your customers. Your manufacturer distributors are gigantic warehouses devoted to certain brands and manufacturers, and their business profits from massive inventories and sales of product in very large quantities. Many times this can mean pallet loads and truckloads of a certain product line, definitely not small case lots. As a wholesaler, you purchase very large quantities from a few distributors, and you warehouse them, breaking down the larger

3 packaging, such as pallet loads to a more manageable order quantity for your customers on the other side, the grocery stores. You re representing thousands of products, and stocking the shelves of your grocery store customers with case lots of merchandise that you ve stored and broken down into lot sizes these grocery stores can move within a certain period of time. And, since some of what you re delivering has specified shelf lives or expiration dates for quality, it s even more important that your grocery store customers only buy from you what they expect to sell before it s worthless merchandise or must be heavily discounted to clear the shelves. We know what you re doing for your two groups of customers, so now let s look at your cost to do it. It s pretty hefty, as you must: Front the money to buy very large quantities of product. Lease or buy major warehousing space to store it. Pay wages to warehouse personnel to break down packaging and inventory. Pay wage-related benefits and tax costs for employing people. Buy or lease trucks, maintain and fuel them, and pay drivers to deliver the merchandise. Insure your buildings, trucks, empoyees and operations. This is not a high markup business either, as you re frequently making only pennies per package at the grocery store end for your services, relying on many customers and high quantities to make it worthwhile. If You re a Real Estate Wholesaler

4 This is always fun, because there are so many advantages in becoming a real estate wholesaler that it s not really something we have to sell to our students. We just show you how it works in comparison, and you re ready to jump in for profits! You become a very important link between sellers and buyers, and you get paid well for your efforts. As with our grocery wholesaling example, you re working with two major groups as your customers. You have those who own the properties on one side, sellers, banks, investors, etc. And, on the other side you have investor buyers who want to acquire properties for a variety of investment purposes, including improving them to flip and sell at a higher price, or holding them as rental property investments. Just like there are specialty grocery stores, such as organic Whole Foods types or bulk lot retailers, there are different types of investors you ll be working with. And, your sellers are going to have different needs and goals as well, from families to foreclosure banks. The exciting part is that you ll not be doing thousands of transactions for a few dollars each. Instead, you ll be doing far fewer transactions, many for thousands of dollars in profits each. The first major advantage to real estate wholesaling is that you won t see any warehouses, employees, trucks or insurance costs. Just what overhead expense and other costs are involved in starting up your new real estate wholesaling business? How many ways can we say ZERO? You don t even need a computer, though it will help. You can do everything necessary for profits in real estate wholesaling out of your home, and the only cost you may want to take on early would be marketing, but even that s at your discretion. So, now that we know you can start on a shoestring, and that you ll be in total control of your business as a link between buyers and sellers, let s jump into the business of it! You ll get an overview of strategies, tools, resources and everything else you ll need to start your new real estate wholesaling business. We haven t mentioned how long this is going to take, but it s a forgiveable error because we see our students fast track their new wholesaling businesses in days to weeks. In fact, in less than 30 days, you can be banking profits if you use what you ll learn here. We don t call this report Accelerated Wholesaling for no reason. Let s get started!

5 The Market, the Timing and Your Goals This is going to be short and sweet: It doesn t matter a bit when you re reading this...really. If it s in a down real estate market in your area, everything here will work. Everything here will work if it s a turning market, going from good to bad or bad to good. And, if your market is improving or booming, it s still going to work. The differences in these market conditions only require a change in your strategies, targeted properties and possibly your investor customer selection. What should your goals be as you re reading this? First, we ve just told you that you re going to get started quickly, so you should certainly have some long term business goals, but your job right now, right here in this report, is to set realistic goals to implement what you learn here AS SOON AS YOU LEARN IT. It doesn t mean that every technique or strategy here is for you or your market. However, when they fit, DO something! Don t be pulling this report out again in a couple of months and wondering why you haven t been able to become a successful real estate investor. The Big Picture of the Process Visualize two file cabinets. They could as easily be buckets, drawers, or computers with databases. Your major business process as a real estate

6 wholesaler will be to fill these two file cabinets with prospects and customers. That means that one of these cabinets will be full of potential sellers and specific homes you ve located for evaluation. The other will be filled with buyers, mostly investors who want properties to buy and resell or to hold as long term rental investments. You re in the middle, passing deals between the two, but it s not just about finding and recommending, commonly called bird-dogging at the simplest level. Level One Wholesaling - Pay for Work A bird-dog at the starting compensation level is where a lot of people start. It requires less financial and investment evaluation experience, and more feet-on-the-street skills and time. Basically, you ll locate possible good deals for investors, but you ll do little evaluation and qualification of those deals, instead just bringing the addresses and basic property information to an investor and getting paid a flat fee for doing so. It s basic, but if you know your market, generally around where you live, it s a great way to get started and to bank a little money quickly. Level Two Wholesaling - Nice Income The two filing cabinets still apply, as you re locating properties to file in one of them, and you re networking and meeting investors to file in the other cabinet. Then, based on what you know about both, you ll be a matchmaker of sorts, bringing buyers and sellers together and getting paid for it. However, the real money comes with increasing your market knowledge and skills at locating properties or marketing for motivated sellers, then cultivating relationships with investors and learning how they evaluate properties and make investment decisions. Then you do some or most of the work they normally do, which means that you ll only deliver highly qualified deals to them for a correspondingly higher commission. You re still not financially involved in deals at this level, but you can cultivate eager investor clients and make nice fees. Level Three Wholesaling - Super Profits The ultimate participation level for a real estate wholesaler is realized when they can place themselves into a deal. You re truly a wholesaler, in that you actually take on some level of financial involvement or even ownership in a property. At this level, if you re proficient, you can structure your profit the way you want.

7 The critical concept which you need to adopt at any of these levels is that real estate wholesalers are needed and have value in the process. You will get paid based on the value you deliver, and you re delivering more value as you move up the three levels. Most highly profitable wholesalers work in levels two and three, as the properties available and investor requirements vary with market trends. Recognizing what s available and what investors want, you ll be in control of how you become involved and how much you are paid. Filling the Selling Side File Cabinet First, both cabinets are equally important. While building relationships with eager investors is necessary to have a destination for your deals, you won t be able to maintain those relationships over time if you re not locating great deals to deliver to them. Let s work first with the various ways in which you can locate deals your investors will not only desire, but sometimes they ll even compete over. Know Your Market Start gathering and placing in that selling side cabinet everything you can find about your market. From government and development rules to the comings and goings of companies and employers who create jobs, you need to have a finger on the pulse of the market to know in which neighborhoods the best future investments will be located. Drive your areas of interest, note which real estate agents have the most signs on properties for sale, and areas where there seem to be more foreclosures or distressed properties. Sometimes distressed properties mean good deals for your investors in that other file cabinet, while too many distressed homes in one neighborhood can mean downward pressure on prices and rents, not good for investors. Develop Relationships with Real Estate Agents Don t assume that working with real estate agents is always about retail pricing and high commissions, thus not a value for your investors. First, you re going to be able to get some really valuable real estate market information from real estate agents. With the entry of computerized Multiple Listing Databases, it s become easy for a real estate agent to create

8 customized saved searches for you. These searches automatically you with new listings matching your search criteria and price changes so that you can watch price reductions for a value. Even if you aren t seeing deals, you re getting information about what homes are selling for in your market area, always very valuable. So develop one or more relationships with agents and have them set you up with searches to report not only on listings but sales. Once you re getting sold property reports, you know precisely what s happening in your market. For working more closely with a real estate agent who actually wants to work with investors and has the aggressive attitude you need, ask several to send you from areas you specify, the deals they think are good investments fight now for a professional investor. See what they send, and you probably won t want to work with agents pushing dubious investments with pressure or only their own company s listings. Another often overlooked advantage of multiple real estate agent relationships is the can t help you dilemma. It s the dilemma a real estate agent faces when a homeowner comes to them to list their home for sale but doesn t have enough equity to pay a commission. Many agents do not want to take on the marketing of these homes, even if they may be able to negotiate a short sale (sale where bank accepts less than owed on the home), as it usually reduces their commission as well. So, you have these agents contact you when they have a listing that isn t selling and becoming critical, or they talk to a seller who isn t a good listing candidate but really needs to sell. Market for Motivated Sellers You ve seen those signs at street corners, you know the I Buy Houses signs. There are a number of things you can say on a small sign you stick into the ground at high traffic locations. We Buy Homes, Sell Your Home for Cash Now, We Pay Cash for Homes, Avoid Foreclosure, etc. Bandit Signs - You have a phone number, website URL or both on these signs, and when they contact you, it s your time to evaluate their situation and their home for investment potential. There s a whole book that can be written about how to build a

9 website to capture home seller leads, but know that if you ll read some Dummies type of books about WordPress, you can build as many websites as you want at absolutely NO COST. Just provide information about selling to avoid foreclosure, offer your expertise, and provide your phone number and an online form for contact and a more in-depth report. This gets you an address, and you can take it from there. Classified Ads - While some people consider them old-style marketing, they still work. However, they work best only when you re consistent and run ads over a long period of time. Since they re relatively inexpensive if you keep them short, you can run an ad in the same category for a long period, and the wording can be similar to those bandit signs, with a bit more information. The reason for running the same ad over a long period is that people make decisions when they re ready, not when you are. So, you want them to become accustomed to seeing your ad when they don t have an immediate interest. Once it s firmly established in their mind, they ll remember it when they do get the urge to talk about selling. Craigslist - Classifieds on Steroids Classified ads are great, but if you wanted to consistently scan every entry every day in every nearby newspaper, that s all you d be doing. There d be no time for anything else. Craigslist is free and online, and that online part makes it extremely valuable to the real estate wholesaler. The ability to enter search criteria and to word ads to be found by online searches makes Craigslist a powerful tool. If you re searching for Sellers, particularly highly motivated sellers, you ll be searching for home for sale ads with phrases like must sell, below appraisal, need to sell, etc. Run your own ads stating that you buy homes for cash, or sell your home cash fast, etc. You ll spend only minutes each day doing what would take hours in newspapers. The Direct Location Approach Spotting Deals - Just driving around can be one of your most productive deal-finding tools... IF you know what to be on the lookout for. In many cases, people who have hit the wall with their financial situation, can t pay their mortgage payments or need to move for a job in a hurry, will just walk away from their homes. They may have tried to sell and been unsuccessful, but their time has run out.

10 The signs of an abandoned home can sometimes be seen from the street on a drive-by. Of course there are the newspapers in the driveway, tall grass, general signs of not being kept up, etc. If you have reason to believe the home is vacant, you can walk up and knock, trying to get a look in a window in the process. No furniture seals the deal. If you can see the electric meter, has it been blocked or removed due to non-payment? If there s a gas meter, has it been turned off and sealed. A home that s abandoned and not yet in foreclosure or in the early stages of foreclosure is a great opportunity. If your investor competition doesn t know about it, you re in a position to do some investigation and get a jump on a great deal. Research at the courthouse can disclose a mortgage and you can contact the lender to see if you can get on the front end of a purchase deal before they spend a lot of money to secure and do work on the property. Fill Your Property Filing Cabinet Using those methods and any contacts you make with bankers, lawyers and real estate agents, build a file cabinet full of possible investment opportunities. Constantly update your files, add and remove, but always maintain current sold price data so you know the value of properties in the area. You can have a stable full of eager investment buyers, but they re only interested parties until you have inventory to offer them. The inventory is always out there. However, your value to the wholesaling process is the ability to locate all of the inventory, even if it s not listed or obvious to the rest of the investment community. Filling Up the Buyer Side File Cabinet A file cabinet full of deals is just opportunity. To turn that opportunity into profits, you ll need to fill your other file cabinet with investors with the ability and desire to buy what you re delivering. Some of the same techniques for finding sellers will help in this regard, but there are some very specific and effective ways to meet investors and cultivate relationships for profit.

11 Networking The first place to look for active investors is also one of the best places to learn about real estate investing, the mathematics of it, and the motivations of those who do it every day for income. This will be one of the local real estate investment clubs. Two websites where you can research real estate investment clubs near you are and Check them out, call or them with questions, and most of them will let you attend a meeting or two before committing to join. Real estate investment clubs are more than just investors talking about what they do. They re great repositories for books and education materials about real estate investing. They usually sponsor speakers for meetings, and they bring valuable investment education and services to members. You can learn and meet potential buyers for your deals all in one place. And, it s really fun to have a common topic of interest and exchange stories of success and even failure. There are valuable contacts to be made in many other places as well. Make it a point to develop relationships with attorneys who handle bankruptcies, real estate deals, estate liquidations, and foreclosures. Leave your business card with asset managers for lenders and banks, as these are the people who handle their short sales and foreclosures. There is a little-exploited resource in estate managers and attorneys who handle the liquidation of estates to pay off the debts of the deceased and divide up the assets with heirs. If you think about the way the process works in most states, being someone who is known to buy properties for cash in a hurry is going to be considered a valuable asset for these people. They re frequently not even attorneys. They re business associates, friends or family tasked with estate liquidation by the court because they were named in the will for just this job. They must leave their lives and get this done, and they want to do their best for the heirs, but they want to do it quickly. So, when you can approach someone liquidating an estate, they ll be open to hearing what you have to say. As real estate is usually the first asset sold due to its large cash value, you ll be an asset to their process. Research Remember those Realtor sold property reports we mentioned earlier? They re a good resource for beginning some research into sold properties and how they were purchased. Cash purchases of homes is usually a major

12 indicator of an investor. The average buyer requires financing. It isn t always the case, but it s a great early indicator of properties to check out first. Go to the courthouse and check out the records of purchases and deeds to see who s buying properties for cash and where they re buying them. Particularly when you find a buyer who has purchased more than one property for cash in an area, you ve probably located an active investor. Using the property purchase and tax records, you can locate the address of this buyer and contact them to offer your services and future deals. You know a lot about them already, as you know the dollar value of homes they ve purchased, and you know the neighborhoods they like and in which they want to own properties. If they ve owned them a few months and there are tenants in them, you may be able to find out what they re charging for rent, allowing you to get an idea of the expected return on investment they re requiring to make a purchase. Ghost Ads This is business, and one business strategy is to run ghost ads advertising a property for sale that you don t actually have on the market or even know about. What you re doing is two-fold, checking demand in the market for a certain type of home and price range, and trying to get a call from an investor buyer who you can cultivate as a customer. When you get a call about the property, you simply tell the caller that it s already sold, but that you have a business plan and strategy to locate more similar homes quickly. You d like their contact information and requirements so that you can bring these properties to their attention. Don t Stop Continuously be working these methods and any others you find to be successful in meeting buyers and investors. Once they re in that file cabinet or computer database, don t stop contacting them. Keep in touch, try to get their requirements, and if you bring them a possible deal, try to match those requirements as closely as possible, or deliver even more of a deal than they expect. The thing about contacts, prospects and databases is that they re not just a repository for information. They re a resource for information to use and build upon for future business. Everything you learn about a prospect or

13 investor goes into your file, and you should use the information to better understand your prospect and to bring them the type of deals they ll appreciate and come back for again. Property Valuation - Identifying Deals You Can Sell Now that you have a clear picture of how to locate both sellers and investor buyers, you know how to find properties that MIGHT make great investments. You ve used all of the techniques we ve mentioned to find homes in distress and motivated sellers, as well as to hook up with real estate agents and watch the market for values. AH... but what s a value? Value is relative like many things. To a retail home buyer, the value in a home can be much more than price. It includes the quality and proximity of great schools for their children. It may include the culture and entertainment available nearby. Or, it can be mostly how close to their workplace the home is located. Styling, size and many other factors are a part of the retail buyer s criteria. Now, some of those factors are also important to your investor buyers. After all, if they want rental demand, and people willing to pay profitable rents to live in a home, those factors do enter into their decision. It doesn t matter how low the price you pay for a home if you can t resell it or rent it for a profit. The trick is to understand that the investor buyer considers those other factors, but when it all shakes out, the price is going to be the decisionmaker in almost all cases. Like most businesses, it s a game of numbers, and the cost to purchase, maybe finance, and maintain a home must be less than the rent that can be charged by a comfortable margin. If you re selling to a rehab flipper, they ll take into consideration the costs to repair and rehab the property as well. They will have to resell it to either a retail buyer, but more than likely another investor for a rental property. Remember our discussion of the three major levels of wholesaling, and how your compensation will increase based in part on how good you become at delivering excellent investment deals to your buyer list. Of course, this

14 means that you ll need to know what they know and how they use it to make their purchase decisions. The better you become at evaluating neighborhoods, properties and home values, the more valuable you ll become to your buyers. You won t simply be delivering addresses for a quick low cash payment, leaving the research and valuation to them. You ll be delivering properties that you ve vetted for investment potential, market demand, and at a price that s going to make sense for an investor. Then there s the ultimate involvement as a wholesaler, when you re taking either an ownership position or locking up a property through an assignment. You stand to make the greatest income this way, but it definitely requires a thorough market valuation analysis education. So, let s see how that works! The CMA - Comparative Market Analysis Comparable Sold Properties Realtors do what they call a CMA, or Comparative Market Analysis to value properties for sellers to come up with a listing price, and they do them for buyers to help them to compare listing prices to recently sold property prices and currently listed home prices. It s definitely not rocket science mathwise, but you will want to do one thing really well... select the right comps, comparable properties. Let s say that there s a home listed for sale on the MLS or even by an owner directly at $124,000. It s a 3 bedroom, 2.5 bath home 2100 square feet in size, with a two car garage, and in a good neighborhood for rentals. You ll want to delve deeper into the CMA process and practice it with real properties, but here are the basic methods and strategies used: Comps - You ll get the data on sold properties to choose three to five comparable properties for your CMA. o In the same neighborhood or as nearby as possible is required. o With the same characteristics, such as number of bedrooms and baths, square footage (near as possible), garage space, etc. Adjustments - Adjustments are made to the prices at which these properties sold to account for differences in features and characteristics.

15 o If more bedrooms, you ll want to subtract from the price it sold for to adjust for the approximate value of one or more extra bedrooms over the number in your subject property. So, we have 3 in the home we re valuing, so if there are four in a comp, we subtract from that comp s selling price to adjust it downward to more closely match our property based on number of bedrooms. o You do the same for baths, garages, and any other features and characteristics. And, if there is a deficiency, instead of more bedrooms or a two or three car garage there are only two bedrooms or a single garage, then we ADD the value of an extra garage space or bedroom to the comp s selling price to better compare the two as closely as possible. Valuation - Once our comps are all adjusted for selling prices that represent the same characteristics for our home we re valuing, then we can use the selling price per square foot for those on average and apply it to our home to see what the market says it s actually worth. It s true that there are a number of variables, and there are decisions for adjustments that involve valuing bedrooms, etc. that are somewhat subjective, but you do the best you can with the information you have. There are numerous websites where you can check the value of home features such as extra bedrooms, and some even do it by region so you can keep it closer to home. You can see why staying in the neighborhood and choosing comparables as close to the characteristics of the home you re valuing are important. The fewer adjustments you must make, the better your result is likely to be. In our example, let s say that after adjustments and bringing our comps into line, they showed an average comparable home sold price per square foot of $55, then our subject property could be worth around 2100 X $55 = $115,500, not the $124,000 asking price. The Current Listed Market However, we shouldn t stop with that process, instead doing another CMA, with all of the same steps and processes, but doing this one on currently listed comparable homes. Why? Well, the sold homes we used for comps in our previous CMA were sold in the past. Even if you re lucky enough to find good comps sold withing the previous 90 days or so, that s as much as a three month old market dataset. It s not TODAY. We need to see if there are market trends or changes in play, as homes are coming on and going off the market daily, and at any given time there could

16 be fewer from which to choose, which would normally cause prices to rise, or a glut of similar homes for sale which gives you the buyer more choice and bargaining power. So, we find that many times we adjust our valuation of the home up or down based on the current market and competition. The good news is that you ll become proficient at these calculations very quickly, and you can ask an appraiser or real estate agent to help you with them if you want to get a faster start. Remember though that appraisers go into much more detail and they aren t trying to value a property based on what it will sell for as their primary goal. They re working for lenders, and their job is to cover the lender in case of a default on the loan. So, their valuations will often be lower in an effort to make sure that the lender can get their investment back in a foreclosure. This CMA process is quite valuable to you as a wholesaler, but it s far from the whole story. You re in the wholesaling business, so you re not working with retail values except to understand the ultimate value to an investor when they sell someday. You can t make a living wholesaling if you just do the CMAs and try to deliver a home to an investor buyer with a price equal to your CMA derived value. It s got to be less to allow for either flipping, rehab, rental positive cash flow, or a combination of these possible reasons for their purchase. The Wholesale Calculations for Offer Price Now we re going to see what we re willing to pay for a property that our CMA process tells us is worth, let s say $98,000. And, you want to do these calculations as if you re actually locking up the property with your dollars or buying it outright to flip to an investor. That s because, even if this is not the situation, it s going to get you to a number an investor is going to be willing to pay, and you ll get your fee in whatever ways and amounts you ve set up with them. Another caution here is that you don t want to leave any of these out, even if they don t seem to apply in a particular situation or deal, or with a specific buyer you have in mind. You can t be certain how any deal will develop or who your end buyer might be. So, factor these calculations into determining your offer price for a property. So, we re starting with a $98,000 valued property.

17 Real estate commission - Assume you or your buyer may be selling the home on the retail market, requiring listing it and paying a real estate commission, typically around 6%. So, take our value down by that 6% to 94% we re willing to pay. Buying a Buyer - Actually, this item is more accurately described as a cost for concessions, giving things to buyers to get them to purchase in a market where buyers are in charge. Whether it s paying some of their closing costs, providing a rebate, let s assume 3% in concessions, so now we re at 91% of value. Bargaining Adjustment - Again, this would be otherwise described as a price concession when we re selling, as almost every buyer expects to negotiate. We ve done an analysis in our market of sold prices as a percentage of listing prices and find that to amount to 97%, so we deduct another 3%, giving us a current purchase price estimate of 88%. Closing Costs - While we have closing costs when both buying and selling, they re normally significantly higher on the selling side. A number that seems to be common in our area based on title company information is 3%. We subtract that, and now we re down to 85% of the value for our offer. But, we re not finished yet. Rehab Costs - This is one that you don t need to factor in if there aren t going to be any, as is the case if the house is ready for move-in and occupancy. However, if there are going to be around $10,000 in repairs or rehab to get the house ready for sale or rental, then we need to deduct that here: $98,000 X 85% = $83,300, now less $10,000 rehab = $73,300 There s one item left, and it s a major consideration... our profit. Our Profit - Remember that we went into this as if we re the buyer and investor, so we want a significant profit for the risk and effort we re putting into this deal. So, we ve decided that we want to make a $20,000 profit. Now we can get to our final tentative offer number: $73,300 - $20,000 = $53,300 for an offer You really didn t think we were going to stop there did you? Let s be a bit arbitrary and decide to allow a bit of bargaining room, and we decide to make an offer on this property of $48,300.

18 The Formula for Success You ve just run through a formula for successful wholesale purchase offer pricing, and you ll find that you ll become really good at it much faster than you may think. And, there s no sense in paying more than the amount this formula dictates, as you ll just end up cutting your profits. Now, if you re not buying and selling, instead just delivering the deal to an investor, if you use these numbers you may cut the final calculation for your profit, maybe settling for a negotiated flat amount of $7500. You ve still delivered an excellent deal to your buyer, and you re doing it without any money from you or risk on your part. Your profits go up, and they should, based on your involvement financially in the deal. You may be happy with $5000 to $7500, or even a bit less, and no real involvement on your part other than your expertise in locating deals and valuation for profits to your buyers. However, if you want to take a more active role to run up your profits, maybe locking in that $20,000 or so in profit, how do you do that? In particular, how can you do that when you don t have the money to make a down payment or the ability to arrange conventional financing through the process from locking up a property to selling it to a buyer? We re going to look at some ways in which to have very little of your own money involved in a transaction, yet put yourself into the middle position to take a higher profit by taking more control over the deal. The Assignment Contract Instead of just delivering an address and your financial vetting of a property to a buyer and stepping out of the way for a fee, what if you want to do two things: 1. You ve located a really good deal and you don t want it to disappear while you match it to the best buyer in your file cabinet. 2. You have negotiated a price with the seller that makes this a really nice deal, and you want to increase your profits instead of passing all of the gravy to your buyer. These are valid desires, as you ve really put the effort and expertise into marketing for a motivated seller, possibly one who isn t yet known to any of the competition. You deserve more, and you want to structure the deal to

19 make more for yourself. It s impossible to make this complicated, so you ll find that I ll just give you the simple and effective way to make it happen... an assignment contract. You ve likely seen real estate purchase contracts, and most of them start right near the top of the first page with two spaces, one for Buyer(s) and the other for Seller(s). However, the difference in an assignment contract comes when you fill in the Buyer(s) names. It now has a little bit of text appended to the end after names: Buyer(s): John James Doe and/or Assigns (or assignee). It s that additional text that makes all of the difference. You re telling the Seller, and they re agreeing, that you may or may not be assigning your rights under the contract, as well as your obligations, to a third party. In the case of wholesaling, it s going to be your buyer/investor. By writing the contract this way, you have the right, but not the obligation, to pass your rights along to someone else. If you do that, you ll be doing a contract with them to make the assignment for a fee. Here s the deal: you have locked up the property, so your buyer can t get to it unless you sell them the right. If they take the assignment and sign a contract with you to that effect, you ll be passing all of your rights and obligations under the contract over to them. You ll no longer have any obligations to the Seller, and your only risk to this point is usually any earnest money you put up when you did the purchase contract with the Seller. Your deal with your buyer can be to refund your earnest money and add in the additional fee, or just to pay you a set amount. The way you handle it with your buyer varies and can be done almost any way you want that meets both your needs. The good news is that you no longer have any obligations in the original contract, as they ve all passed to your buyer. They do all of the rest of the work, pay all closing fees, and they close the deal. Normally, you ll get your fee at closing. You ll want to think about risk with regards to earnest money you deposited, as if you aren t getting it refunded until closing, your money is at risk should the deal not close. So, negotiate accordingly. Assignment contracts are great, as they lock up the very best deals that could disappear due to Seller remorse or competitive offers. You lock up your great deal, and then you re free to take it to multiple buyers for the best offer.

20 The Double Closing This is the maximum involvement situation for the wholesaler. You re not doing an assignment, instead actually signing a purchase contract with the seller with the intent of selling the property to your buyer. You ll pay for your purchase with the proceeds from the sale transaction, and closings happen at the same time or within hours of each other, the double close. Since the housing and mortgage market problems that began in 2007 and took the markets down hard, title companies are no longer in favor of these double closings, and they definitely aren t allowing the proceeds from your second close to fund the purchase. So, you can no longer let your buyer close and have their money back up to fund your purchase, even if they re happening almost simultaneously in next-door rooms. However, there s almost always a way around obstacles, especially if there are profits to be had. There is a really vibrant industry that s sprung up to help you with this situation. These individuals or companies are known as transactional funding resources, or transaction lenders. They specialize in making very short term loans to investors and wholesalers to get things like double closings done. They re good at what they do, and they know when a deal is a good one or not. You can also build a history and track record that will put you at the front of the line when you need funding for a double close. Here s the way that it works: 1. You execute a contract to buy a home for let s say $55,000, and put up whatever earnest money is required. This is out of your pocket. 2. Now you locate a buyer, and you ve structured in a great profit for you, desiring a double close. 3. You must close the purchase side with your funds, requiring the full purchase price plus closing costs. You don t have that kind of cash, so you use a transactional lender. 4. They provide the short term funds to close your purchase, and contractually are due their loan proceeds plus their fees out of the money from your sale to your buyer. 5. So, if you re selling to your buyer for $75,000, you ll get the balance due after the transactional lender gets their $55,000 and fees for the loan, generally a percentage. They do well because their risk is limited to hours or maybe one day between the two closings. You do well because you make a higher profit by

21 being the Seller in the middle. It s a win-win-win for you, your buyer, and the lender. And, this is a very popular way to fund deals. Review and Encouragement This is an exciting time for you, and you re at an exciting time for positive change in your life. You ve just learned the basics of becoming a full-blown business, making significant profits through the wholesaling of real estate. If you were about to start a grocery wholesaling business, it would still be exciting, but it would carry a lot more risk; you know those warehouses, employees, trucks and inventory expenses. Where you are right now should be so very much more exciting, as you re not going to have any of those costs. In fact, you re not going to have to spend any of your own money to begin your investing business if you don t want to or don t have money. You can start on a shoestring, stay on that shoestring as long as you want, or grow as quickly as you want. Many new wholesalers get started with almost no money and move on to major business profits and a whole new lifestyle. Bird-Dogging Remember our first level of wholesaling, the delivery of deals to buyers with little or no valuation or vetting of these properties for suitability. At the very lowest level, you may be paid a few dollars to simply provide addresses, but you didn t do much to find them, nor spend any money to make the delivery. Bird-dogging moves to another level when you do some of the vetting of properties, actually determine the probable selling price, and deliver them to a buyer with more structure that gets them to a decision faster. We re still talking only about small fees, many times under $100 or so. The good news is that it s easy to get started, and requires little or no money for preparation or overhead. Some bird dogs do much better, building relationships with their buyers with guaranteed fees of hundreds to a few thousand dollars per deal, and they still do not get financially involved. This comes about after a solid relationship is built upon consistent delivery of highly profitable deals.

22 The Assignment This level of wholesaling is in the middle of the spectrum, and it s quite popular. That s because you re not investing much of your own money, usually just risking some earnest money, yet you re locking up the purchase of a home and using your control of that asset to make more money on the other end. Many real estate wholesalers settle into this niche because their risk-toreward ratio is low, but profits can be high. Using a thorough market knowledge and the ability to negotiate a deep discount purchase using the math we gave you here, it s possible to structure tens of thousands of dollars in profits with just a few hundred dollars risked in earnest money. The Double Close This is the most-involved level, and therefore is and should be the one with the best profits for the wholesaler. The more aggressive your property location and negotiation strategies, the cheaper you re able to buy. When you can structure in whatever profit you want and have a happy buyer willing to pay it, you ve reached the ultimate wholesale business structure. You deserve more, as you ve done the due diligence to locate and value the best deals. Then you ve negotiated and set up your purchase and interim transactional funding to create a smooth flow for the deals. You deserve the maximum profit because you ve pretty much handed your investor buyer a ready-made deal. What s Next? It doesn t get much simpler than this. We ve laid out a plan for you that allows you to start NOW, spend NOTHING if you want, GROW at your own pace, and PROFIT handsomely with total control of your risk and investment in time and money. If your what s next isn t getting out and learning your market and the homes that could be your first wholesale deal, what are you waiting for? It s your life and your future. Take control! -Dean Graziosi Real Estate Expert