The Mechanics Of Wholesale Real Estate Investing
Wholesale real estate investing is conceptually very simple. Here’s how it works:
“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).
“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.
Investor B does his “due diligence” to confirm that the deal is as good as he thinks it is.
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?