The Mechanics Of Wholesale Real Estate Investing

Wholesale real estate investing is conceptually very simple.  Here’s how it works:


First
,
“Investor A” finds a great real estate deal with a lot of equity.  Typically, Investor A will have spent a significant amount of time, money and expertise to find the deal, negotiate the term and get the property under contract.  By putting the property under contract, Investor A now has control of the property, and the equity in the property.

(For this example, imagine that Investor A has found a property worth $200,000 and has set a purchase price of $115,000 and he also knows that there are $15,000 in repairs, which leaves an equity position of $70,000).


Second
,
“Investor A” finds another party, “Investor B”.  Investor B recognizes that the contract that Investor A has established is worth $70,000 in equity, and so he strikes a deal with Investor A to turn the deal over to Investor B in exchange for some amount of cash (we’ll use the value of $12,000 in this example).

So Investor A is giving up $70,000 in “potential” profit in exchange for $12,000 in current profit.  And Investor B is paying $12,000 because he believes he can make more than that on the deal, since there’s a full $70,000 of equity.

This deal between Investor A and Investor B is called an “Assignment”, because Investor A is assigning the contract to Investor B.

Third,
Investor B does his “due diligence” to confirm that the deal is as good as he thinks it is.

Finally,
Investor B closes the purchase of the property, and Investor “A” receives the assignment fee from Investor B.

This is, obviously, a simplification of the process.  But this is essentially how it works – not so difficult, is it?

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3 Responses to “The Mechanics Of Wholesale Real Estate Investing”

  1. Hi Mark,

    Thanks for explaining the wholesale deal process, but I just need to be clear of it. For example you explained that there is a property selling for 115,000 15,000 for repairs, 200,00 arv,70,000 equity, now once I get it under contract, do offer the investor buyer the 115,000 or the 200,000? That is where I am stuck at understanding the rest of the deal. Now are there any other cost due besides the repair money, and also where does my propfit come from.

    Thank you

  2. All of what you say is good, however, where do you get these kinds of deals. I belong to 3 “wholesale” website listings where just about all of them are posted by other investors that already have contracts with the owners. How do you get around those situations and get to the owners, (besides my website of course). I still have yet to get a “hot” prospect yet.

    Thanks,
    Stan

    • Hey Stan,

      The question is where do you get the deals from homeowners?

      Just want to be clear.

      First you said you want to get deals with homeowners if that’s the case I’d recommend not hanging out in the wholesale investor space.

      However there is money to be made in that space by working the system – that’s a whole other article.

      However many many ways to get sellers especially in today’s day and age.

      Run ads online to extract home sellers to contact you, bandit signs, leadsumo.com is a great tool, as well you could
      do outbound and call/email the sellers when they place ads online or have signs in the yard.

      Owners are everywhere but if you’re in the sandbox full of investors you’re setting your expectations wrong, nothing wrong with hanging out with them but you have to make sure you are “Targeting” your prospects correctly to get the desired results.

      Keep pushing forward Stan

      The DM,DN

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