What I Learned from My First Failed Wholesale Deal

By Trace Trajano

I took the following story from my first home study course: “NO RISK, Quick Sale Real Estate System”:

I wish I can say that I am perfect…that I have never made a mistake…that I have never made a bad deal. But I made mistakes over my 6 years of investing in real estate and I don’t even want to count the money I lost and the money that I could have made but did not.

Even though I am embarrassed to say this, let me say it anyway: my very first wholesale deal was a dud. It did not work and not understanding the market was the reason why it did not.

I found the house by calling on For Sale signs. The house is a 3 bed/1 bath home in a lower income neighborhood in Hamilton Ohio, a city about 50 miles north of downtown Cincinnati. Based on my comparable analysis, it seems like I have a good deal. The house is worth $70,000 after it’s repaired and it needed about $10,000 worth of repairs. The asking price was $35,000 so I thought this could be an interesting deal.

The formula I was taught at the time is Ron Legrand’s 70% rule. You can calculate your MAO as:

MAO = 70% x ARV – Repairs – wholesale profit

MAO = $70,000 x 0.7 – $10,000 – $5,000

MAO = $34,000

It’s right at MAO so I offered $30,000 and if my memory serves me right, think I got the house under contract for around $33,000. SO I was happy, excited and I was already counting the money I would be making. I put the ad on the paper that said exactly like this (as per what I’ve learned from some of the real estate books I’ve read):

“Handyman special
Cash. Cheap.
Worth $70K
Yours $39,900 [phone number]”

My phone rang with some calls but it was not as many that I was expecting. I gave the prospective buyers the address to the property but a curious thing happened: no one called me back. I tried following up the buyers and they told me they were not interested in the deal. I asked my mentor for help if he knew some investors in the area and he gave me the name of an investor to call. I called him and he told me something that at the time made my heart sink. He said, “Trace I know that neighborhood and 2 other houses are being foreclosed – the one in front and the one beside it. You based your comps on houses that are one block away and that block is very different. That was not a rental area but the property you’re selling me is in a rental neighborhood. I would pass on this one. Sorry.” He hung up and I remembered looking down on that phone as I put it down and paused for what seemed like eternity.

What am I going to do now? One thing that I always relied on is my persistence in the midst of challenges. I don’t give up. I put the same ad again on the newspaper. I went to the Cincinnati Real Estate Investors meeting and I networked with as many investors as I could. I took the courage to speak in front of 200 investors about the deal I got during what we call the “Buy-Sell-Trade” session. A couple of investors approached me. One of them, let’s call him Jay, appeared very interested. He immediately went to the property that night and then he called me the next morning with the same bad news “Trace, sorry me and my partner are not interested.” Knowing that I only have a few days to close on the deal, I asked him “What price would you be interested in it? Also, what does your numbers look like?” I never sounded so desperate. “This is what motivated sellers feel like”, I told myself.

Jay said “Trace, the ARV on this house is only $60,000. Your estimate of repairs is right on. The most I am willing to pay for this property is $25,000.” A knee jerk reaction from me was “But that won’t work! I have the house under contract for $33,000.” There was a lot of panic in my voice. I was in panic because I don’t want my seller to get mad at me. Actually this house was also listed with a real estate agent.

I breathed deep and I asked calmly, “What can we do then?” I impatiently waited for his answer. “I don’t know Trace”. I immediately blurted out, “Look, I don’t want to make any money on it NOW – all I want is to salvage this deal. I will have you work directly with the seller.” I did not like what was happening and I figured, if I couldn’t make any money on this deal, at least I could salvage my integrity with the seller.

To make the long story short, my buyer worked a deal with the seller. The buyer bought the house on a land contract and the buyer rented the house out to a tenant. I lost money on that deal – by spending money on marketing (good thing I was able to convince the agent listing the house to not have any earnest money deposit) and of course, I spent my time. But I’ve learned a lot.

I’ve learned the following:

1. Understanding your market is critical.
2. There is no such thing as a national real estate market. All real estate markets are local. You have to know it down to the neighborhood level.
3. What buyers are going to pay for will vary if the area is a rental neighborhood or a re-sale neighborhood.

Knowing what I know, I would have done the following:

1. I would have researched the market first. One way to do this is note the days on the market down to the neighborhood level
2. I would have called renovators and landlords in the area first to find out exactly what they’re looking for in terms of price range, bedrooms, etc.
3. After knowing my market, then I would make the offers on handyman specials already being marketed by other investors.

Source: http://tracetrajano.blogspot.com/2009/09/what-i-learned-from-my-first-failed.html

What You Need to Know About Wholesaling Properties

By Steve Teta

Well first, what is wholesaling? As a quick overview wholesaling is taking a property that you have under contract and selling or assigning that contract to another buyer for a fee. How does this process happen? First you find a motivated seller and negotiate a sales price around 40-70 percent of the after repair value (ARV), obviously, the lower the better. You then take that agreed upon price and mark it up (depending upon how much money you want to make on the deal). You then market the property to your community’s group of real estate investors. Once you find a buyer, you simply assign the contract to them with your profit documented as an assignment fee. You then forward the contracts to your title company or closing attorney along with the buyers and sellers contact info and tell them to call you once your check is ready.

Finding Leads

There are multiple ways and marketing methods to find leads. In this article I will simply touch upon and mention some of the most common methods. Before doing any marketing to find motivated seller leads the first thing to do is figure out how much money you will have available to spend on marketing each month and create a budget. Once you have a budget you can pick and chose what you want to do for marketing.

Networking: Join your local real estate investor associations and business groups. Meet and network with like minded people and let them know who you are and what you do.

Pass out business cards and let as many people as possible know what it is that you do. You buy houses for cash & fast, etc. just let people know and leave them a card. You never know who may follow up down the road and it’s cheap!

Classified Ads: At first you can start with your local penny saver, etc in order to keep it inexpensive, then you can work your way to the local newspapers. These are classified ads and should read I’ll Buy Your House Today! CASH! Or We Buy Houses! You get the point. Also, don’t forget Craig’s list, Back Page, and other free online classified sites.

Bandit Signs: This is a simple, cheap and effective way to get your phone to ring. They work. Handwriting the signs seems to be more effective and also saves money. You should write something like I’ll Buy Your House Today! Cash!, etc.. Obviously don’t forget to put your phone number. Just hang these signs (or us ground stakes) at busy intersections, exit ramps, or at the entrances and exits of shopping centers, etc. Basically anywhere where there is a lot of cars stopped or slowing down so they can easily read them. You may consider getting an 800# and answering service to handle your incoming calls.

Flyers:

Place flyers at bus stops, on bulletin boards at local supermarkets, convenient stores, pizza shops, barber shops, bus stops, etc. Again this is simple and cheap!

Mailers: Mailing letters and postcards to various types of motivated sellers. Most of these lists can be purchased from different list providers. Most can also be found in the newspaper and local courthouse for those who have a limited budget. The types of homeowners and lists to mail to are: Pre-foreclosure, landlords, out of state owners, owners of vacant properties, people with delinquent taxes, people in bankruptcy, people getting divorced, people who have inherited a property, etc.

Billboards, Radio Ads, TV Ads: Obviously these methods of marketing can be costly but effective. When your ready to step it up to this level you should check out different services that offer vanity numbers with nationwide marketing. With these types of services you can sign up for your zip code and all the leads generate for your area will be sent to you.

Buying the Property

So now that you know how to generate seller leads what do you do when someone calls you looking to sell you their house. As far as I am concerned, this is the most important part of all of this. If you don’t buy right you will have a very difficult time wholesaling it. When a seller calls in make sure to ask the appropriate questions and gather all the necessary information about why they are looking to sell and everything about the property. You should create or get a seller lead questionnaire to help simplify this step. The next step is to look up information and comps on the property. Then inspect the property and make note of all the needed repairs, etc. Based on all the information you have gathered through your conversation with the seller and your due diligence on the property you can formulate your offer. In some cases you may want to submit a written offer and in other instances you can give a verbal offer. That is up to you. Make sure to have a standard purchase and sale agreement that can be assigned. You may want to check with a local attorney as to the correct contracts and paperwork you should use. Always allow yourself as long of an inspection period as possible. This is gong to be the timeframe you have to assign this contract to your buyer.

Selling the Property

The first thing you should begin doing before you even start marketing to sellers is building a buyers list. Your ultimate objective is to build your own buyers list and enter their names and contact information into a database so when you get a hot deal you can email it out to your list. You can build your list in various ways. It can be done by networking, using the Internet, putting out bandit signs (Handyman Special! Distressed Sale!, etc). This again will make your phone ring and you will begin to build a list of potential buyers for current and future deals. Also, when you have deals, in addition to emailing your list, you can do a voice blast to your buyers phone using services that can do that for you. The key is to have a big list of buyers. This is going to be your bread and butter. You should be continuously doing things that are focused around building and adding buyers to your list.

Okay, so you have a property and a list of buyers to market it to. Now you have a bunch of buyers contacting you about one of your properties. Remember, all we are doing here really is brokering our contract. We are putting a motivated seller in touch with a buyer and getting paid to do it. So, when they call, these potential buyers will want to do one of three things.

They will either annoy the heck out you with a bunch of questions, schedule an appointment to see the inside of the house, or make an offer right off the bat.

Obviously the ideal buyer is the third one. Think about it, we do not own the house yet, so it is going to be a little difficult with the current owner if we have 15 different people who want to see the inside of the property. If you don’t have an immediate buyer but yet a handful of people who want to see the inside then you can handle this as you wish. Some people just make an appointment with the sellers for their buyers come by and inspect the house. You can just tell the seller you are sending an inspector or your partner over to see the property. Some people don’t like doing this because of fear their buyer will go behind their back to the seller and cut them out of the deal. It does happen, but that buyer has to know it will be the last time they do business with you and word travels fast throughout the real estate investing community. If you are concerned about that happening, you could go there to meet the buyer yourself inspect the house with them if you wish. In your contract you’ve allowed for an inspection period so it should no surprise to the sellers that you have some people coming by to check out the property.

If you’ve contracted on the house at the right price then you should come across your buyer fairly quickly. If you haven’t found a buyer after a while and your inspection period is coming up then you will want to drop the price to try and move it quickly. In other words, if you’ve marked the property up $15,000 for your profit then perhaps cut it in half. Do whatever you have to do in order to make some money and make your seller happy. Understand that the key to success as a wholesaler is VOLUME. You want to be doing a lot of deals all of the time. So, if you lose one here and there, who cares. Don’t get caught up in just one deal. Go after multiple deals.

Okay, so now you have found a buyer for your property. Great. The first thing you always need to ask them is how they intend to pay for it. Cash, hard money loans and conventional financing are the three possible ways someone might purchase your house. The first two make life a whole lot easier and should be sought after the most. Conventional financing can be a nightmare but that doesn’t mean it can’t be done as a last resort. The reason is conventional lenders will not accept an assigned contract and that is exactly what we have. So in order to work with a buyer who is using conventional lending we have to write a new contract between our buyer and our seller directly. If the assignment fee you are charging is small (under $5,000) then you can just collect that from the buyer right up front. Otherwise, you will need to write up an addendum to the contract that documents your profit. As always you should consult an attorney about this and how to structure the deal. Make sure to structure it so you are still a principal in the transaction somehow (since you are not a licensed realtor).

With cash or hard money you should always get a non-refundable deposit up front (at least $2,000) which is made out to you or if the buyer insists your attorney or title company. Once you have your deposit and contracts send all the information for both your seller and buyer to the title company or closing attorney. They should be able to handle all the details of the closing. At this point the only thing you should have to do is sit back and wait for them to send you your check.

Yes, it’s true that property values have gone down in many places nationwide, and it is much harder to sell houses because fewer people can qualify for a loan.  You might have experienced depreciation with your personal residence or investment properties as a result of the housing crash, too.

But I’m here to tell you that it’s still possible to make money in real estate TODAY.  You don’t have to wait for years until the market corrects again.  Here’s what I would do:

Real Estate Money Method #1:  Wholesaling Houses

Did you know that you can make money from finding a great deal, without even buying the property?  It’s called wholesaling, and it works great in a slow market because it passes the burden of getting financing, fixing it up, and trying to sell it to someone else.

Basically, you find a house that can be bought far below market value.  Then, you find an investor willing to buy it for a little more than what you’ve got it under contract for.  You can sell your contract to them or have what’s called a “simultaneous closing” and pocket the difference in just a few weeks.

Real Estate Money Method #2: Buy & Hold

If you’ve got the means on financing houses long-term, why not buy as many as you can right now while they’re far cheaper than they used to be (and will be again)?  You only lose money on a deal when you sell, so don’t sell!

Since it’s hard to get a loan these days, many people who would like to own a home cannot, and must therefore rent.  For you, this means getting tenants is easier than before, so buying and holding will be a simpler and more profitable way to make money in real estate in the long run.

Real Estate Money Method #3: Loan Modifications

Because of the housing crash, there are a lot of homeowners who are behind in payments.  Did you know that you can get paid up to $3,000 to negotiate a “loan modification” between a homeowner and their mortgage company?  Because of this, it makes sense to contact homeowners who are in default, and then, if you can’t buy the house, try modifying their loan instead so you can still make something.

These three methods work in all market cycles, but are particularly helpful right now.  I recommend learning all you can on these topics and try them for yourself!

Click Here: http://stinkymarketreport.net — to receive a free copy of my interview with a $100,000,000 investor on making money in a slow real estate market — Dramatically increase your real estate investing profits by learning how market cycles REALLY work.  Or, for info on Alan Brymer, go to www.AlanBrymer.com

Searching for Properties Online at Lightning Speed

By Larry Goins

Setting Up Your Computer for Searching at Lightning Speed using my Ultimate Buying and Selling Machine! Internet Search System!

How to use tabbed browsing to search in half the time. Tabbed browsing basically means that you do not have to open up a whole separate window for every website that you go to. You are able to open up a group of tabs so they all load at the same time. This saves a tremendous amount of time and in this home-study course, I have included a complete set of bookmarks that can be customized to your local market so you can go to the section, for example newspapers, and it will take you to the National Directory of Newspapers where you can search and find all of your local newspapers and then bookmark in that group so you will be able to open all of those up at one time. We have about 11 different newspapers in our area that I search and I have them marked to the real estate section of the classified section of every newspaper in my market and whenever I click on that group of tabs, it opens up 11 tabs at one time and I am able to search, in about 15 minutes, the real estate classified section in 11 different newspapers in my area. I want you to go to www.Mozilla.com and download the latest version of Firefox. Once you download and install that program, you can import the bookmarks that I have included on CD-ROM for you. I have also included in the course a DVD tutorial to show you how to import your bookmarks. Once you do that then you can just go to each section and find your local access websites for each set of groups. Just to let you know, when you open your browser you will see a search bar for Google as this is the default home page for Firefox. You can change your home page anytime you want. Internet Explorers latest version also offers tabbed browsing however I like Firefox much better as it has many more features. Your bookmarks will however import into the latest version of Internet Explorer just as well.

Below is a sample of the Internet Search System Bookmarks I have included in your Ultimate Buying and Selling Machine! In the actual bookmarks I take you directly to the exact page you need to go to instead of having to look throughout the entire site to find the specific page you are looking for. Please remember that many websites change their web page locations and sometimes you will go to a dead link. If that happens, simply go to the home page by looking at the webpage listed in the address bar. From there you can locate the page you are looking for and then bookmark it.

Ultimate Buying and Selling Machine! Search System Bookmarks

1031 Tax Deferred Exchanges

Answering Services/Call Capture

Appraisal/Comparable Sales

Auctions

Bandit Signs

Bank Owned Properties

Bookmark Add-Ons

Building Materials

Commercial Real Estate

County GIS Sites

Database/Auto-Responders

Direct Mail List/Tools

Directory for Code Enforcement

Discounted Mortgages

Down Payment Assistance

Email Marketing Groups

Foreclosure Listing Services

FREE Classified Ads

FREE Credit Reports

FREE Software and more

Free Stuff/Barter

Grant Programs

Houses For Sale

Incorporating Your Business

Investor websites

List Your House For Rent

Luxury Homes

Market/Census Research

Newspapers

Outsource Labor

People Finder

Real Estate Law

Real Estate Training

Realtors

REIA Clubs

Research Resources for Investors

Self Directed IRA’s

Send a File Online FREE

Social Networking Sites

Tax Information

Tax Lien Certificates/Deeds

Ultimate B and S Machine Updates

Unsecured Lines of Credit

Vendors

Funding Sources

Attorneys

Appraisers

Title Companies

Rehab Contractors

Home Inspectors

Property Insurance

Property Managers

Accountants

Business Referral Services

Wholesalers

Text Messaging Services

In the Ultimate Buying and Selling Machine course, I have included a DVD tutorial to show you how to use each of these bookmarks.

I hope you have enjoyed this article taken from my course called the Ultimate Buying and Selling Machine! which teaches how we buy and sell 5-10 properties a month, have them sold in less than 2 hours and never leave the office or look at them. For many more articles and a 10 part ecourse on how to create your own Ultimate Buying and Selling Machine! as well as over 50 training audio recordings you can listen to online, download and collect, simply go to www.LarryGoinsFreeOffer.com where you will gain instant access to all of this and 51 Exclusive Editable real estate investing Forms and Documents all FREE! You will also get two FREE real estate investing eBooks, A free Personal Coaching Profile to help you jump start your real estate Investing, FREE Nationwide Wholesale Property Listing Notification, FREE Weekly Training Teleconferences with Different Topic Each Week, FREE subscription to Larry Goins “Almost” Weekly Investing Newsletter, FREE Admission for Two to Investor Palooza 3 Day Training Event, FREE Admission for Two to Larry Goins 3 Day Boot Camp, Plus over 31 Exclusive Articles on real estate Investing and Much More! Just go to www.LarryGoinsFreeOffer.com. Thanks and I look forward to working with you, Larry Goins

I have been in the business of Real Estate Wholesaling for over two decades and have met many people who refer to themselves as professional wholesalers. They flip houses for a living, but that is all they do. They use various means to locate a house and then their determination of the value is usually wrong. I have many of them call me and ask if I have a buyer for the property. In almost every case, they want to split their assignment fee for me to provide an investor. They rarely have a data-base of investors to buy their contract. Of course this will cost you a considerable part of your assignment fee. I do understand that there are situations where they may just be getting started or they may be a person you are networking with. In some cases you use other wholesalers that you network with to get a contract bought. You may not have any investors that would be interested in the property and one of your networking partners does have one. This is an important part of the wholesaling business. Making money using different marketing and networking strategies.

After many conversations with people that refer to themselves as wholesalers, I recognize very quickly that they have very little knowledge and have a game plan of exactly zero. No investor data-base, no marketing plan, no networking plan, no business plan and just no plan. They are people that are just trying to make a fast buck and that is perfectly okay. But they are not professional wholesalers. I would refer to them as a Bird Dog. Bird Dogs are finders and locaters of distressed property with a possibly motivated seller. In most cases they are very inexperienced and have very little skill in closing the deal . That is just fine also. You have to start somewhere. Even people that have spent excessive amounts of money with so called gurus seem to have very little skills and are confused as to how they build a good solid business wholesaling real estate properties.

Do you know about Hard Money, Rehabbing, Buy, Hold to Rent, Buy , Hold to Sell, Rental Management, Vacant Houses and their absentee owners, advertising campaigns, farming, networking, marketing, negotiating, title companies, contracts? These are skills that a good professional wholesaler would be able to implement on a case by case basis.

This is a professional business and you need to decide if you want to be well rounded and skillful or just very limited in the deals you can put together and very limited in the amount of money you can make. Experienced investors respect knowledge and they rely on your skills to make transactions go smoothly and give them good sound options when purchasing wholesale property. You also need these skills to determine the exit strategies you use to hold property for your long term wealth or rehabbing houses for tremendous profits.

You can make a great living in this business, but there are dues to pay. If some so called guru tells you that it is “so easy”, he must be talking about how to hit the Pay Pal Button.

Good Luck Everyone,

Duane Stephens

Let’s assume that John is interested in getting involved with real estate but does not have very much money or experience.  John joins a local real estate club that meets every month in his city.  He learns that one investor, named Kathy, will pay him a ‘finders fee’ if he lets them know of any properties that are available that appear to be ‘distressed’ and have owners who want to sell their property.  John thinks this is great because he drives all over town at his current job and does drive through neighborhoods many times during the week.  While driving to see a client, John spots a house on 1234 Oak Trail.  The house looks like it has not been maintained, although he sees a car in the driveway.  He tells Kathy about the property.

Kathy decides to check on the property and do some research.  She drives to 1234 Oak Trail and finds that the owners are still living in the house.  She knocks on the door and chats with them briefly.  Kathy finds out that the owners have been trying to sell the house for quite a while due to the wife’s job transfer.  The man in the house is the husband, who has been staying at the house, while his wife and kids moved to the city where the new job is located.  He wants to sell the house immediately, but because of the time of the year, some minor repairs, and other factors, the house has not sold.  Kathy runs the numbers and sees that it is a good deal.  She knows that if she can get the right terms, this is a property that one of her investor friends, Tom, would certainly be interested in.  Kathy inspects the property and negotiates a purchase agreement with the sellers 3 days later when the wife is home visiting.  Kathy uses the right contract and puts down $50 of earnest or ‘good faith’ money to secure the contract.  She also has the right conditions clauses associated with the purchase agreement, and because of this she carries very little risk.

Tom is a real estate entrepreneur who buys properties and fixes them up.  He then puts them in the retail market by listing them with a real estate agent.  He enjoys working with his crew (on occasion) for the re-hab of the properties.  More often than not, however, he lets his crews handle the rough and technical aspects of repairing properties.  He also appreciates Kathy’s work, because she always seems to find good properties that fit his criteria.  Of course, she meets with Tom regularly and knows what he is looking for.  Tom decides to buy the contract from Kathy.

Kathy is paid $4,500 for her time and effort putting the property under contract and working with the sellers.  Kathy takes $500 of the money received from Tom and gives this to John for his work finding the property.  Tom takes the property through a full re-hab after closing with the sellers.  He ran all the numbers and even inspected the property before ‘buying’ the contract.  He knows that with $15,000 of repairs the property will be worth $150,000.  He will earn the most money, but he also will put in the most time, have the most expense and carries the most risk.

What you have just walked through is the anatomy of a short term real estate flip.  In this example there were 3 different people involved in the transaction.  In case you missed it, John was the match-maker or scout, Kathy was the wholesaler, and Tom was the retailer.  Each of them played an important part in the process and each of them required different levels of knowledge and carried different levels of risk.  Yet, each of them was equally important.

For example, Kathy had to know and understand what type of properties and what type of profit margin Tom needed on his real estate transactions.  She also had to inspect the property and get a good sense of its value.  For her to put the property ‘under contract’ she has to understand how to complete the contract.  She also needed to be very familiar with the required protections needed in the contract to reduce her liability.

Tom in this situation carries the most risk and will have the most time and money involved.  Consequently, he also stands to earn the most in additional income.  He does not mind paying Kathy her ‘finder’s fee’ because she provides him with a valuable source of inventory that he can fix, update and then later re-sell to retail buyers.  Sometimes Tom finds these properties himself and puts them under contract.  Depending on the property he may handle the complete process of fixing it up and bringing it into retail sale condition and then list it with a real estate agent.  In other situations, he will simply put the property ‘under contract’ and then sell or ‘assign’ the contract to another investor.  He will do this if he needs some quick cash or if he does not have time, money or personnel to re-hab another property.

Since he knows what constitutes a good deal, he can negotiate with the motivated sellers, put the property under contract and then sell the contract to one of his friends who also re-furbish and re-hab properties.  He knows that the most important thing is ‘buying correctly’ and at the right price.  By simply selling off these contracts, Tom has a quick and easy source of cash to keep the cash flow high.  With this cash flow he will borrow less on his re-hab deals, or he can keep the cash for emergencies or unexpected cost ‘overruns’ on his fix up deals.

In the next chapter we are going to cover more details on each of the players in the short term buying and selling of real estate.

To learn more about how you can start wholesaling properties with very little cash (as little as $35 per property) please see ‘Attorneys Secrets to Quick Cash Wholesaling and Flipping Properties’.

You can also email me if you have any questions: taxenterprises@yahoo.com

Let’s start out clarifying a few points about ’short term’ investing and ‘long term’ investing.  First, understand that wholesaling and ‘flipping’ houses are for short term activities.  Traditionally, when we think of real estate investing, we envision someone buying a property and holding the property for the long term.  In this ‘traditional’ buying situation, the investor would find a good and well maintained property sold through a real estate agent, borrow the money from a bank to fund the purchase and then hold the property for a number of years.  The property might have rental income and certainly over time would increase in value.  At the end of perhaps 10, 20 or 30 years, the true investor has a property that has appreciated in value and maybe even paid off.  This is a long term real estate investor.

To the contrary, what we will be teaching you in this program is quite different.  From this point forward we are not going to use the term investor (if I can help it!) to describe the short term buyer and seller of real estate.  We will call the short term buyer and seller a ‘real estate entrepreneur’.  Thus, one involved in the short term buying and selling of real estate is in essence, building a true business, a business which supplies others in the real estate industry with an inventory of properties.  For example, unlike the long term real estate investor:

1)     The short term buyer may never obtain a loan on the property!

2)     The short term buyer may or may not perform repairs on a property!

3)     The short term buyer’s total investment in the property may be only $50 to $100 and their return might be 50 times this amount!

4)     The short term buyer may hold only a contract to buy the property and may sell or ‘assign’ this contract to another investor for a profit of $3,000 to $5,000 in 1 week!

5)    The short term buyer won’t always use a real estate agent and in many instances will buy the property from someone who is ‘motivated’ to sell!

6)    The short term buyer might buy a property that needs repairs and may spend months coordinating such repairs, and then sell the property!

7)    The short term buyer might learn about the property from a beginning investor and not a trained real estate agent!

8)    The short term buyer does not rely on market appreciation.  They rely on ‘buying correctly’ at the right price and under a very specific set of conditions!

As you can see, there are some significant differences.  The first of which is that the property is generally being sold quickly (i.e., in less than a year in most instances).  Also, you might notice that the short term buyer may never obtain a loan in order to purchase the property.  The short term buyer may only invest $50 to $100 in the property and then ‘assign’ or ’sell’ their rights to the property for $3,000 to $5,000.

My purpose for introducing these 7 fundamental differences is to change how you think of this process.  The short term buying and selling of real estate is without question more aptly a business activity than an investment activity. Take a moment and think about any successful business that you know.  As you can imagine, there are numerous parties and players in such a business.

To learn more about how you can start wholesaling properties with very little cash (as little as $35 per property) please see ‘Attorneys Secrets to Quick Cash Wholesaling and Flipping Properties’.

You can also email me if you have any questions: taxenterprises@yahoo.com

Investing in real estate is profitable, fun and there are times when it can be psychologically rewarding. The real reason why you are doing it though, your motivation, has a lot to do with total financial freedom and with the ability it will give you to dictate your own future away from money worries and pressures that have anything to do with finances.

This is why the decisions you make in your real estate career are going to affect your purchasing record and the way you operate as an investor in terms of identifying the correct market to target.

The thing to remember when you are working in real estate is that it takes almost the same amount of time, effort and attention to detail to close a small deal as it takes to close a large one so there’s no real reason you should not be closing large deals all the time and for that you need to get into the frame of mind that allows you to identify specific goals within specific timeframes.

When you set yourself restrictions like that you realise that the advantages and the returns offered by multi-family dwellings totally outweigh any perceived disadvantages. Let me explain in a little more detail. When you look at multi-family dwellings you do so with one of two specific goals in mind: a long term multiple income stream from rentals or a bigger pay-off down the road with a bigger sale.

None of these two are available to the real estate investor considering the smaller-scale single-family dwelling option. Single-family dwellings, which is what most real estate investors think about first, have a number of risks associated with them which are the same as those associated with larger projects such as multi-family dwellings, but he rewards are much smaller.

A house you keep to add to your portfolio and rent out is as prone to being vacant during a tenant change as an apartment but will offer you none of the protection of having the income from other apartments in the block taking up the slack during those vacant months. The same applies to repairs and damages. This means that if you are a little bit unlucky a couple of vacant months or a single large repair bill can wipe out your profit for the year.

Multi-family dwellings however share the risks amongst each of the tenants. This places less of a burden on each of them which makes it less likely that they will default on payments or skip out on you suddenly. The scale also makes it easy to put in place a management company which will deal with tenant issues for you and this means that you will be free from many of the perceived obstacles which you would otherwise have had to deal with had you been dealing with just a single-family dwelling.

It is exactly decisions like this which allow you to make steady progress in your real estate career and achieve the financial freedom you crave.

David Lindahl, also known as the “Apartment King” has been successfully investing in single-family homes and apartments for the last eight years. He is the author of four popular, money making home study courses “Apartment House Riches”, “How To Estimate And Renovate House For Huge Profits” “Managing For Maximum Profits” and “The Real Estate Investors Marketing Tool Kit”. He can be reached at dave@real-estate-fortune.com and www.rementor.com.

Let’s get down to business. Wholesaling is the first part of any real estate transaction. You market for motivated sellers. You field incoming calls. You determine comps. Analyze the deal. You inspect the property. If it looks like it could be a deal, you negotiate the deal. You sign the contract. You take it to closing.

No matter what techniques you are using in real estate, I think you can agree that we have to do all of these steps. If you are going to renovate, if you are going to landlord, even if you are going to buy a note, you would first have to do these same seven basic steps.

If you are wholesaling, Step #8 then is to cash your check, and then go back to the beginning and start over. Market again and go back through the process. So as a wholesaler, I just keep going in a circle there. I keep looping through these eight steps and I don’t get any more involved than that.

If you were renovating, then your eighth step is not to cash your check and start over, it’s to hire your crew and start the renovation, then after you finish renovating you would list it with an agent, wait for the resale, and then cash your check. There is nothing wrong with that. The money might be a little bit bigger. However, I tend to find that I am interested in speed. I want to keep bringing deals in, closing them, and cashing the check, even if it is smaller than it would be if I continued on and renovated the property, because I am not a big headache kind of guy. I like small headaches that go away quickly.

I like small headaches that I can manage quickly, get them out of the way and move on. Renovating to me is a big headache. There is nothing wrong with that if you are ready to tackle those types of headaches. If you are, then you should get the bigger pay day and go through those steps.

I match my business to my personality and my lifestyle and my strengths and weaknesses. I know that long ongoing projects with a lot of little details and larger headaches are not my style. I tune out, I shut down, and I kind of push it away from me and let it flounder, so I would not do very good as a renovator. I admit this, and it helps me stay focused on what I am good at, rather than forcing me to do things that will set me up for failure.

Now, going back to Step #7, if you were landlording, then Step #8 is advertise for tenants, screen the tenants, manage the tenants and toilets over time, and then collect the rent each month as the appreciation builds, and there is nothing wrong with that either. Landlording is terrific for wealth building. But, you need to have reserves and be able to weather any storms that will come your way. Property ownership is not without its problems. And sometimes those problems get very expensive. Do you have the cash to keep your head above water when times get tough?

Wholesaling is particularly good for investors just starting out because it is low risk and doesn’t require much cash beyond what you need to spend on marketing. You can go through these eight steps relatively quickly, and have a great sense of closure, feel like you’ve accomplished something, and have a great payday. That gives you a special boost of confidence that you can’t get anywhere else.

After you have done a couple of these deals, you’ll believe this business is real, and those little demons in the back of your head quiet down, your family and friends who don’t believe in you quiet down, and you can pull out checks and you can pull out contracts and you can pull out photographs to prove and show to everyone (and yourself) that you’ve done this, and it works!.

When I started, I did these first seven and then jumped down to landlording, and that is where I got into deep trouble. There was never any closure on my first deal until a couple years later when we finally managed to get rid of it and the whole episode was a massive headache. It took money out of my pocket and didn’t put any money in.

If you stick to just wholesaling, you can constantly put money in your pocket. Not to say that nothing else is good. You’ll certainly want to move on at some point and do other things and if you really want to build wealth, you are going to have to buy and hold and do landlording things, and there is absolutely nothing wrong with that.

But you need to look at what point are you in your life today? Do you need cash or do you need cash flow? Because when I was just starting out and barely had any money and I had to go borrow money to get into a deal, I was thinking more about cash flow every month. There was one time that I had to eat tuna thirteen days in a row because I was broke. And you can get good deals on tuna and then with a little mayonnaise it wasn’t that bad of a meal with a loaf of bread.

But why was I worried about cash flow and wealth accumulation when I didn’t have enough money to eat properly every day? I should have been focusing on something that met my current needs and worried about cash flow in the future.

Go to a lot of real estate group meetings, go to seminars and think about what you want to focus on.  Don’t be afraid to sort through everything and say, “I like that. I am going to follow that, this speaker’s path.” I’ve certainly had my favorite speakers and those are the people I’ve tried to model my business after.

There will be some seminars you go to and some speakers you hear and you say, “That doesn’t really sound like me.” You don’t need to be openly accepting of everything you hear. If something I say you don’t see yourself doing, that’s fine. If you do see yourself doing it on the other hand, great! Try to emulate it and get your business moving.

Who should wholesale? I would argue anybody and everybody should be wholesaling at some point in their real estate investing career. I label myself wholesaler, but I’m surprised how very few people are just pure wholesalers.

National speakers will come to town, stand up in front of you on stage and say, “How many people here are rehabbers? Want to renovate houses?” And a huge chunk of the room, hands start going up. “How many people here are landlords?” Huge chunk of the room, hands going up again. “How many people here are wholesalers?” There are five. Five or six. There are not that many people purely just defining themselves as wholesalers.

I’m not sure why. I think the name is a little misunderstood. I think people just don’t quite get that it is just simply the beginning part of the real estate process. And because it is just the beginning part of the process, everybody, whether you are a renovator or landlord or whatever, needs to do that part of the process, and so those people have a place for wholesaling in their tool box as well.

Because if you are a renovator and you can handle three renovations at the same time, what happens when the phone rings and deal #4 comes your way? You should be wholesaling it. Absolutely! I am shocked how many renovators I know that don’t do that. I have a friend who says, “I have all of these deals and I’m just letting them go because I’m just too busy to deal with them.” I told him, “Dave, #1, give them to me. I mean I’ll happily split it with you, whatever, give you a bird dog fee, anything. Or #2, if it is a good deal for you, don’t you think it would be a good deal for somebody else?”

Put that deal under contract, put it out to your list, come to a meeting and talk about it, post it on one of the online boards, and sell it. It wouldn’t be that hard to move the deal. I don’t understand why people are like that, why they don’t think about just setting the deal up for another investor and getting a fee. They might come across a good deal, however, it is not a good deal for them for whatever reason. It’s not in the right location, or it requires a little more rehab than they like to do before they rent a place out. But still, if it is going to be a good deal for someone else, get it under contract and wholesale it.

Here is more detail on each of the steps of the wholesaling process:

#1 Marketing — All that really matters to get your business going. If you don’t learn how to market to find deals, you will not be able to sustain your business. Good marketing plans are a combination of broadcasting and narrowcasting and require consistent amounts of volume. Don’t expect to get a lot of deals with just 100 postcards a month or if you don’t network and let the world know that you buy houses.

#2 Fielding Calls –  As your marketing starts to deliver a response, you need a way of collecting and analyzing that response, going through that response, qualifying those responses and generally just handling the intake – whether it comes from letters, e-mail or telephone.

#3 Information gathering and determining comps — Analyzing everything you know about the property. What is this property worth? Get comps from a realtor to confirm the value. What else do you need to know about the property? From what you know, do you want to move ahead with this property?

#4 Inspect the property — There is a certain amount of knowledge you need to gain to understand how to evaluate the renovation on a property. Your job as a wholesaler is not to give an exact, down to the penny estimation of the renovation. It is to get the estimate in the ballpark so that your numbers make sense and you can justify it to the renovator that you try to sell it to.

#5 Negotiating — Good deals are not found, good deals are made. Quite simply, if you are going to sit around and wait for your telephone to ring for somebody to call you up and offer you a deal at 65 or 70 cents on the dollar minus repairs, you’re probably going to be waiting a very long time. However, if the phone starts ringing and you get people that are calling you up and willing to sell it at 80 or 85% and you can work them down to that 65 or 70, you’re going to have a lot more deals on your plate. The better I got at negotiating and the more I studied negotiating as both an art and a science, the more deals I was closing, the better the deals were, the better all of business was. Negotiating is a critical skill.

#6 Get it under contract — You’ve negotiated and you’ve come to an agreement. You now need to know a little something about legal paperwork. What paperwork do I use? How do I explain it to the sellers? How do I have them sign it? And then once you have that, what do you do with it?

#7 Take it to your team – Take the paperwork to your attorney. I like having the attorneys do all the heavy lifting and doing most of the work in terms of title reports and getting the deal to closing.

#8 Identify a buyer — You have it under contract, you have a good deal, you know you have a good deal, now you need to advertise that deal. Call up the renovators in the club. Post it online, look for renovators who want to buy this property from you (or landlords if it is a rental property).

#9 Assignment of contract — Once you come to an agreement with the buyer you simply transfer your rights and responsibilities in your contract to the buyer. It is simply done through an assignment of contract.

#10 Control everything — That’s Step #10 but it is really “step everything.” It is the overwhelming step to keep in mind throughout this entire process. Especially at the end, especially coming into closing, and especially with the buyer and the seller, you want to be controlling everything. Be the consummate businessman, be the consummate customer service professional in that respect, and you will lose less deals and perform far better on all the deals that you do have.

#11 Go to settlement and cash your check — That brings you to the settlement. You go to settlement, you cash your check, and then you repeat the whole process. Don’t forget to ask your seller for a testimonial.

That is wholesaling in a nutshell.

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Tom Zeeb and Will Lansing are active real estate investors, national speakers and mentors who coach students how to make BIG profits so they can live the lives of their dreams. They are the authors of the highly acclaimed home-study course the “Profitable Partnerships Success Library”. For information on having Tom & Will speak to your real estate group or for home study course and other Profitable Partnerships product information, please visit www.profitable-partnerships.com email mentor@profitable-partnerships.com or call 877-COACH-50.

Wholesaling is quickly selling a property “as is” with little or no fix-up. Many times the entrepreneur never goes to settlement and will just assign (or “flip”) the agreement of sale to their buyer for a quick profit. Wholesaling can be a lucrative cash-profit business. But will it make you a “dealer”? That all depends, but first some background. Being tagged as a dealer could be a financial disaster because, unlike an “investor”, you are subject to the highest ordinary income tax rates, plus Social Security taxes, other employment taxes and possibly alternative minimum taxes. Thus, 50% or more of your hard earned profits could be drained by taxes. Moreover, dealer profits (cash or paper) are immediately taxed in full and cannot be tax-deferred in any way including not being able to use a 1031 exchange, installment sale reporting, a self-directed IRA, certain trusts or any other tax deferral strategy. Being tagged as a dealer could wipe you out! It’s like being condemned to hell!! On the other hand, if you demonstrate status as an “investor” you can be “saved” and avoid these expensive pitfalls of being a dealer.

First off, just because you start to flip properties does not mean you are a dealer. Based on numerous tax courts cases (including a Supreme Court Case); actual IRS audits; and my extensive research; with planning, even a very large number of flips (in one year) could avoid costly dealer status. Altogether, there are over 30 strategies to avoid the costly consequences of a dealer. My experience indicates that one of the best strategies is investment intent. That is, demonstrate that the primary purpose of the quick sale profits is for investment purposes and not sales speculation. For example, the primary purpose (or purposes) of the quick sale profits can be for a number of “investment necessities”, such as down payment funds to acquire long-term investment keepers, or working capital for property investment operations including preventive maintenance.

With this premise, tax follows economics as opposed to sales speculation with tax avoidance motivation. That is economics first! Accordingly, as employed here, these flips are non-dealer, investment transactions with solid economic foundation. This is a very powerful defense against any IRS attacks. Consequently, there are numerous cases and scenarios, some of which I have had first hand experience with, where even a huge number of sales in one year did not cause dealer status.

Moreover, there has never been an issue of civil or criminal fraud with the issue of investor versus dealer. Entrepreneurs have literally sold hundreds of units in a short time; claimed not to be a dealer without issues of fraud and, with the right planning and documentation, even won their case. Reason: The issue is a very arbitrary question of fact and not of law. Accordingly, asserting any type of fraud (where the burden of proof shifts to the IRS) is very difficult and almost impossible. Therefore, real estate entrepreneurs have everything to gain and little (if any) to lose. They should do so by planning in advance with dealer-avoidance strategies (especially investment intent); avoid inept advisors; and GO for it!