Wholesale Real Estate is probably the easiest yet least understood method of generating cash flow. The general challenge with understanding it has to do with definition.
I like to think of Wholesaling as an Umbrella which covers several methods of property acquisition. Now, purists might disagree with me on this but here's why I say it. Wholesale, in real estate, means the same thing as it does in any other market, you buy well under market value and often you get bigger discounts by buying volume or bulk. If you think about the retail industry it's a bit easier to see - your favorite gift shop buys it's wares from a wholesaler who buys from the manufacturer for a low-price because he's supplying your gift shop and 10 other shops too - the wholesaler gets a good reduction but he marks it up to sell to the proprietor of the shop, who marks it up to sell it to you. Now think of your Costco and Sam's Club stores - you go there to take advantage of BULK buying discounts - you might not need 75 rolls of paper towels in one big package but the unit pricing is so much better than at the regular grocery store, you just can't help yourself!
So it is with wholesale real estate - it's simply buying below market at lower per/unit pricing and then marking up to sell to either a retailer or an end-user.
So what ways can you acquire wholesale real estate?
· Bank REOs listed by real estate agents
· Pre-foreclosure/Short Sale properties listed by real estate agents
· Directly from distressed property owners: Homeowners, landlords, rehabbers
· Bulk REO purchases from Banks or other Institutions themselves
· From a Wholesaler who has already done the work for you in one or more of the above methods and is now able to sell to you for a small mark up but still well under market value.
Now let's look at cash flow. The phrase "Cash is King" could not be truer than in today's environment - everyone, and I mean EVERYONE, is looking for cash. Here are some of the ways cash rules in real estate today:
· Institutional loans, especially for investors, are all but non-existent
· Hard Money lenders more and more want "skin in the game" and rates are higher, sometimes up to 20%
· Many investors are selling off inventory just to raise cash
· Other investors are pooling cash to buy inventory
· Banks and private sellers alike love to see all cash offers
· Foreclosures force homeowners to become renters thereby increasing both the number of discount properties for sale and the number of people needing to pay rent to investors that can buy, hold and rent for income
· New investors, without cash, need ways to create cash flow but cannot yet buy rental properties themselves
· MORAL - HE WHO HAS CA$H WINS!
** Quick note here - I am speaking about residential properties here however many of the same concepts can be ported over to commercial investing as well.
So... what are the SECRETS to Cash Flow in Wholesale Real Estate?
1. Start with the end in mind - know your exit strategy - before you strike out to find a fantastic deal - what are you capable of doing with it when you find it? Can you buy it yourself? If you can buy it, will you be able to do any rehab that it needs? If you can do the rehab, can you rent it out and if you do, will you landlord or get a property management company - do you even know any property management companies? If you are going to sell it, who will buy it? How will you sell it? Do you need an agent? Do you know any agents that work with investors? How much can you mark it up? What will you do if you don't or can't sell it? These are just some of the questions you would like to be able to answer before you set out. The answers you come up with will help determine what acquisition and disposition strategies you employ.
2. Find Buyers FIRST - no matter what strategy you use to purchase a property or even what you think you will do with a property, you need to know if you can get rid of your property - a great deal is only great if someone else wants to buy it! Find out where and what the other investors in your market are buying, how much they are paying and what kind of discounts they want - this way, you won't waste your own time, money and effort in negotiating deals that no-one else wants!
3. Negotiate with knowledge - know your market - this works hand in hand with number two above but it goes a bit more in-depth. If you are investing locally or in other states, you still need to know where the deals get bought up but you should also try to get information on the market itself. What zip codes are desireable, which are not. What is the current market average? How many foreclosures and vacancies are in the area, what is the economic climate - are people working or losing jobs? Also, know what the property value is in it's current state of repair and be prepared to negotiate for the very lowest bargain you can make.
4. Let the next guy do the rehab - tv shows like Flip This House have made the idea of rehabbing seem like the thing to do - even with all the challenges those guys have on every episode, it never fails to surprise me how many brand new investors want to rehab and sell for a profit, even in this market. Unless you have very deep pockets, can act as your own general contractor, enjoy MASSIVE amounts of stress - my advice is to let the next guy rehab - you mark it up a bit, sell it to him, let him enjoy the reward of a bigger pay day while he also assumes all the risk. You just go find him 10 more deals like that one!
5. Leverage your relationships - you might be surprised at who you already know or who they know. 90 percent of success in real estate investing comes from your set of contacts and cash flow is dependent on that set of connections to be sure. Stand in any crowd long enough and someone will say "Man! If I had the funds, I would buy as much real estate as possible right now" - if you are that person or know that person then use your relationships to solve that dilemma. Assembling money is no easy task and most of us are apprehensive about how to even broach the matter because we don't want to sound like we need money. But if you go into it thinking that, that is what you'll sound like. However, if you go into it with a strategy where you are going to be expert on finding and selling great deals for a profit and you'll do the work if a couple of people can put up funds... well, then you have a value proposition that many people are searching for right now. NOTE: Setting up a private money program like this requires due diligence on your part as well as but not limited to professional guidance from attorneys and CPAs.
6. CONTROL vs. BUY - This one thing is perhaps the single biggest point to comprehend when it comes to cash flow in real estate. The absolute KEY to creating cash without USING cash is CONTROL. Did you know that a contract on a property provides you something called "equitable interest" and that you can actually SELL or ASSIGN that interest (with the owner's permission) to another party who can then close on the deal? And that you do this for a FEE? AND that you can do this with no a real estate license (subject to your state and local laws of course). This is the core of wholesaling right here - control the property long enough to find a buyer willing to pay more for it than you have it under contract for. Now, these are not generally huge spreads ($2K to $25K on average) but we are talking about a fast, straightforward, highly repeatable event here - and once you complete one or two, you'll be hooked.
So let's review.
Wholesaling means buying under market, marking up a bit and selling for a profit. You can acquire product in a number of ways such as bank owned properties, short sales, bulk REOs, distressed owners, or through wholesalers themselves.
Cash is King and today, everyone and I mean everyone, wants and needs cash. Loans are near unattainable to find, hard money is more expensive and requires more "skin in the game" than it used to, some investors are selling to raise money, other investors are pooling cash to buy properties, foreclosures force homeowners to become renters and increase the number of discount properties available for cash investors, and new investors without cash need to be able to start from zero.
The 6 secrets to cash flow through wholesaling are: Start with the end in mind - know your exit strategy, Find buyers first, Negotiate with knowledge - know your market and know your product, Leverage your relationships - everyone wants to invest in real estate, be a problem solver, and finally, but most importantly, CONTROL vs. BUY - even if you have SOME cash, don't tie it up in a deal, just get control and sell your equitable interest to someone with deeper pockets than yours - generate capital from this and then you'll be able to generate income from properties you can own.
Always remember, we are in the PROBLEM SOLVING BUSINESS.
Attract Private Investors to fund your deals so you can do more deals while using Other People's Money (OPM). For more info go to:
John <>< Future DG & DL REI Billionaire
ASPEN PROPERTIES "I BUY (ALL CA$H), HOLD, LEASE & SELL Commercial and Residential Properties" ANY LOCATION, ANY CONDITION, ANY PRICE