How to Get Involved in Wholesaling
What does a match maker and a wholesaler have in common? A LOT, actually! By definition a matchmaker is a person who arranges relationships and marriages between others. Wholesalers essential do the same thing except not for the sake of love but for the sake of creating a harmonious real estate exchange. Wholesalers are the matchmakers of the real estate world. They connect a homeowner, eager to sell their property quick, to an investor, who is equally as eager to make a purchase, through whats known as an assignment of contract. So, it is evident that in order to be good at wholesaling you are going to need to put your matching making skills to the test!
In this week’s video, I teach you the 5 steps you need to know before you start wholesaling. With these 5 steps, you will be on your way to becoming a real estate match-maker!
Step 1: Find a seller
The first step is to find a seller who is eager to sell their home and close quickly and who wants cash for their house. This might be a seller whose house is in need of a lot of repairs and they simply cannot keep up with it.
Here is an example of a property I purchased that was shabby and needed work….This is the type of house you should be looking for when wholesaling.
Step 2: Get the house under contract using the MAO formula.
Once you find a homeowner wanting to sell their house and close quickly your next move will be to sign a purchase and sale agreement between yourself and the homeowner. Before devising a purchase and sale agreement you need to know how much you can offer as a cash offer for the property. By using the MAO formula – MAO stands for Maximum Allowable Offer – you can calculate what your cash offer will look like.
AFV * .7 – repairs + assignment fee.
You calculate your maximum allowable offer by first finding the ARV (After Repair Value) of the property. To find the ARV you will need to do a bit of research. Take a look at what’s been selling in the neighborhood, especially houses that have been recently renovated and have sold within a mile of the house you are purchasing. You will then multiple your ARV by 0.7. After you determine your ARV you will subtract the cost of your repairs and your assignment fee. For most wholesalers, a typical assignment fee will be anywhere between $3,000 and $5,000.
As an example, let’s say you have a house that’s worth $200,000 (ARV). Again, this is what you think you will sell it for once you renovate it and put it on the market at retail value. You know the house needs $35,000 in repairs and you want to make $5,000 on the assignment fee. Using the MAO formula with the numbers provided, you can now calculate your cash offer.
$200,000 *.7 – ($35,000 – $5,000) = $100,000 cash offer
Step 3: Submit purchase and sale agreement to a title company.
The next step is simple. You will submit your signed purchase and sale agreement to a title company of your choosing. The title company will then run a title on the home and get it ready for closing.
Step 4: Find a cash buyer
You can now assign your contract to a cash buyer. You now have an assignment of contract between you and the cash buyer that states that you are assigning him or her the contract. The homeowner still get $100,000 and you get your assignment fee. The assignment of contract then gets forwarded to your title company so that they are informed that you have assigned the contract over to the cash buyer. In the example of the MAO formula above, you had a MAO of $100,000. You will put the house under contract for $100,000 and assign it to your cash buyer for a $5,000 so the investor is purchasing the property for $105,000.
A quick side note- I always make sure I have a backup cash buyer in case my first one falls through. Also, be prepared to purchase the house yourself if you are past your inspection period and your cash buyer falls through. You never want to put a house under contract only to tie up the seller’s property. Always make sure you have a back up plan to execute on the sale whether it be with a backup cash buyer, yourself, or a private lender.
Step 5: Close the deal.
At this point, you collect your $5,000 assignment fee and watch your match between the investor and homeowner take place!
Wholesaling is always a win-win-(win) situation for all parties involved. The seller gets their price for the house and are able to close quickly. It is a win for the wholesaler because they collect a quick profit without ever owning the house. Finally, it is a win for the investor because they purchase a house at a great deal.
To view the next post in this series, click here!
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I buy houses in Central Florida. In Central Florida I buy houses in the Counties of Brevard County, Citrus County, Hardee County, Hernando County, Indian River County, Lake County, Marion County, Orange County, Osceola County, Polk County, Seminole County, Sumter County, and Volusia County.
In Brevard County, I buy houses in Cape Canavera, Cocoa, Cocoa Beach, Indialantic, Indian Harbour Beach, Malabar, Melbourne, Melbourne Beach, Palm Bay, Palm Shores, Rockledge, Satellite Beach, Titusville, West Melbourne. In Citrus County I buy houses in Beverly Hills, Black Diamond, Citrus Hills, Citrus Springs, Crystal River, Floral City, Hernando, Homosassa Springs, Homosassa, Inverness, Lecanto, Pine Ridge, and Sugarmill Woods. In Hardee County I buy houses in Bowling Green, Ona, Wauchul,, Sweetwater, and Zolfo Springs.
In Hardee County I buy houses in Brookridge, Brooksville, Hernando Beach, Hill ‘N Dale, Lake Lindsey, Masaryktown, Ridge Manor, Spring Hill, North Weeki Wachee, Pine Island, Ridge Manor, South Brooksville, Timber Pines, and Weeki Wachee Gardens. In Indian River County I buy houses in Fellsmere, Florida Ridge, Gifford, Indian River Shores, North Beach, Orchid, Roseland, Sebastian, Vero Beach, Vero Lake Estates, Wabasso Beach, West Vero Corridor, and Winter Beach. In Lake County I buy houses in Altoona, Astatula, Astor, Bassville Park, Clermont, Eustis, Forest Hills, Fruitland Park, Grand Island, Groveland, Howey-In-The-Hills, Lady Lake, Leesburg, Mascotte, Minneola, Montverde, Mount Dora, Mount Plymouth, Okahumpka, Paisley, Sorrento, Tavares, Umatilla, and Yalaha.
In Marion County I buy houses in Anthony, Belleview, Citra, Dunnellon, Eastlake Weir, Fort McCoy, Hog Valley, Kerr City, Marion Oaks, Ocala, Ocklawaha, Orange Springs, Pedro, Reddick, Romeo, Salt Springs, Silver Springs Shores, Summerfield, and Weirsdale. In Orange County I buy houses in Alafaya, Apopka, Bay Lake, Belle Isle, Bithlo, Christmas, Doctor Phillips, Eatonville, Edgewood, Fairway Shores, Goldenrod, Gotha, Hunter’s Creek, Lake Buena Vista, Lockhart, Maitland, Meadow Woods, Oakland, Ocoee, Orlando, Orlovista, Pine Castle, Pine Hills, Southchase, South Apopka, Taft, Tangerine, Union Park, Wedgefield,Williamsburg, Windermere, Winter Garden, Winter Park, and Zellwood.
In Osceola County I buy houses in Campbell, Celebration, Champions Gate, Deer Park, Four Corners, Harmony, Holopaw, Intercession City, Kenansville, Kissimmee, Narc oossee, Poinciana, Reunion, St. Cloud, and Yeehaw Junction. In Polk County I buy houses in Auburndale, Babson Park, Bartow, Bowling Green, Bradely Junction, Brewster, Combee Settlement, Crooked Lake Park, Crystal Lake, Cypress Gardens, Davenport, Dundee, Eagle Lake, Fort Meade, Frostproof, Fussels Corner, Gibsonia, Green Pond, Haines City, Highland Park, Highlands City, Hillcrest Heights, Indian Lake Estates, Jan Phyl Village, Inwood, Kathleen, Lake Alfred, Lake Hamilton, Lake Wales, Lakeland, Lakeland Highlands, Mulberry, Polk City, Willow Oak, Winter Haven, Wahneta, and Waverley.
In Seminole County I by houses in Altamonte Springs, Casselberry, Forest City, Geneva, Goldenrod, Heathrow, Lake Mary, Lake Monroe, Longwood, Oviedo, Sanford, Wekiva Springs, and Winter Springs. In Sumter County I buy houses Bushnell (County Seat), Center Hill, Coleman, Lake Panasoffkee, Sumterville, Oxford, The Villages, Webster, Wildwood. In Volusia County I buy houses in Daytona Beach, Daytona Beach Shores, DeLand, DeBary, De Leon Springs, Deltona, Edgewater, Lake Helen, Orange City, Ormond Beach, Ormond-By-The-Sea, Holly Hill, New Smyrna Beach, Orange City, Osteen, Pierson, Port Orange, and Seville.