This is the technique that people are most familiar with. It is the buy
low - sell high strategy. It has a lot of names. Some people refer to
this as flipping
properties or "wholesaling and retailing. Another gemon term is the
"fixer-upper business or dealing in Junkers. It is a popular way to
invest because it is easy for people to understand and many have some
experience with their own homes, families, and friends.
The premise is simple in theory. Buy a property at a discounted,
distressed price (low), and then resell the property to an end user or
buyer for a greater price to make a profit. You can sell to another
investor (wholesale), or an owner occupant (retail) for more than you
paid. Just don't forget to include all of your costs, for example:
purchase costs, remodel/fix up expenses, interest, holding, resale
costs, etc. all factored in to determine your profit. If you sold it
for more, you make money and smile all the way to the bank. This
section will give you some of the essential tools necessary to make
money not only in this strategy, but in the others as well. Even if you
plan to focus on the other strategies, we regemend you read through
this guide to understand the principles of buying wholesale. I will
conclude with some real-life examples, both good and bad, so you can
better determine if this type of investment strategy is for you.
Depending on the condition of the property you purchase, it may or may
not need work to resell. There are several tracks that you can run on
with this strategy. The principles we discuss hold true for all types
of properties, single-family homes, condominiums, fourplexes, apartment
buildings, and even gemercial property. Finding the type of deals that
work for you, in your given situation, is critical. In other words, you
shouldn't plan on a major fixer-upper that needs a ton of work if you
need to turn it in 30 days to a retail home buyer, unless you know what
you are doing. I know many part-time investors who have made a ton of
money wholesaling and retailing just a few deals each year. I also know
of others that do 20 deals or more in a month. Neither option is
better. The direction you chose largely depends on your goals.
As we discuss some of the examples in this guide, you will notice that
they include lease options, seller financing, and selling paper. This
happens because as investors begee more familiar with the business,
they often gebine strategies to achieve the desired result. What
clearly starts out as a quick flip to another investor for an
assignment fee evolves into a lease-option. This happens because of the
moving variables involved in doing a deal. The buy/sell process is
somewhat fluid and staying open to options in a deal may greatly
enhance your profit potential. For this reason it is important to
realize that you are just beginning your education process in creative
real estate. If you do it right, you will always be learningas we are.
We also make mistakes. We simply move on, and in the end hope to win
more than lose. If you adopt a similar mindset, you
too will be open to more opportunities as they present
themselves. Lets talk about wholesaling and retailing in more
detail.
BUY WHOLESALE, OR DON'T BUY! There are two main aspects to real estate
wholesaling, price and speed. Since you make your money in real estate
when you buy, much of this section focuses on how to buy right. If you
buy right, you can choose your exit strategy, wholesale or retail. In
addition to the price, you really want the property sold as soon as you
buy it. The key to the whole process is to minimize your holding costs
and financing requirements. You do that by moving the property quickly,
hence the term 'flipping.' In buying properties wholesale, in most
markets, you should try to purchase at least 25-40 percent below retail
market value. This discount will vary greatly depending on if you are
in a sellers or a buyers market. Really hot, fast moving markets are
tough to get steep discounts. You can still find deals, but they move
quickly. If you make the right wholesale purchase, you should be able
to resale it immediately in a matter of days. Your objective in buying
property wholesale is to buy it at a steep discount and then quickly
turn it to another discount buyer at a wholesale price giving them room
to make some money. Typically you sell at 15-25 percent under retail,
more if the market is slow. You may earn a finders fee or
assignment fee of anywhere from a few thousand dollars to tens of
thousands, depending on the type of deal. (See the case study later in
this guide.) In order to buy a property wholesale you must have several
things working for you:
1. A motivated seller
2. The ability to close the deal now
3. Knowledge of current values
4. Networking to find the deals
For those more traditionally minded, networking is a very powerful and
effective tool. You can work through real estate agents, brokers,
friends, friends of friends, anyone who will listen to you. The more
people who know that you will buy properties, the more opportunities
that will gee to you.
If you successfully purchase a home at wholesale, ask them if they know
anyone else who is trying to or wants to sell a property. When you find
a good buyer, ask them if they know others in the market, or if they
know other properties for sale. Ask, ask, ask. The more you ask, the
more leads you will build, both buyers and sellers. This process is
crucial to your long-term success as an investor. There are many ways
to find the deals you want, but there is no such thing as a 'best' way.
If you focus only on one avenue of networking, you will be missing many
other opportunities. They key is to network wherever you are. Never
turn off your prospecting machine. Smart investors know they can always
wholesale good deals, even if they are currently out of the market.
Here are some other ideas to find buyers and sellers:
Real Estate Investor's Clubs While part of the meeting may be dedicated to
the speaker, the rest of it should be spent net-working. Get to know
others that share your interests. If they hear of a deal and are not
ready to move on it, they may let you know about it (be sure to return
the favor).
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