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Wholesaling Houses: How To Wholesale A House

by Danny Johnson

how to wholesale a house

It seems that most people that want to start flipping houses just come into it with the intention of buying, fixing and selling. We tend to focus on the information we are looking for and are not as receptive to things we aren’t looking for. With this being the case, we may not really give much weight to the advice that wholesaling houses is a great way to get into house flipping.

I’ve had quite a few questions from people about the specifics of how wholesaling works. It just occurred to me that I’ve never written a post covering the details of wholesaling houses. We covered pieces of it and tips, but never the general overview. So here we go.

Wholesaling Basics

At its core, wholesaling involves selling houses as-is to another buyer. Typically the buyer is another investor that is going to fix up and either rent or resell the house. The best buyers are cash investors as they can move quickly and make the wholesale a piece of cake. Some people sell to owner occupants but that typically requires more work and does not work with some of the methods (which I will be discussing next).

The Process

  1. Market For Motivated Sellers

    You’ve got to find good deals. The best place to do so is by marketing to motivated sellers. One of the most important things to do to be successful at flipping houses is consistently and persistenly marketing to find deals. Without marketing, you won’t get leads. Without leads, you won’t get deals. Seems simple, but people just don’t seem to focus on this, and when you are wholesaling houses, you’ve got to have a lot of leads to get the types of deals you need to get.

  2. Get a Lead That Has Potential

    You don’t want to waste your time looking at houses where there is no chance of making a deal that will work as a wholesale. Typically, your end buyer will want to buy at no more than 70% of the fixed-up, resale value of the houes. You need to buy at that price LESS what you want to make for a wholesale fee. So, if you want to make $8,000 on the wholesale, the house will be worth $100,000 fixed-up, and cost $10,000 to fix it up, you will need to buy it for no more than $52,000.

    $100,000 (fixed-up resale value) * 70% – $10,000 (repairs) – $8,000 (your wholesale fee) = $52,000 (max offer)

    Please don’t waste your time or the seller’s time by going and looking at houses where the seller owes too much for you to be able to buy at the price you would need to buy at. Of course, you won’t know how much the repairs will be until you look at the house, but you can work the rest of the equation and get a good idea if a deal is possible.

  3. See House and Make Offer

    So you’ve determined that a deal is possible and go and see the house. Once you walk through the house and determine the repair cost, you can determine your max offer. Offer less than your calculated max so that you have room to negotiate and possibly buy it for an even better price.

    A lot of people stress over determining repair values but the fact of the matter is that your end buyer will (or at least should) do their own due-diligence. They are the ones buying and fixing the house. Your estimate is to just give them an idea of whether the deal is something that is worth it for them to look at.

  4. Put House Under Contract and Receipt At Title Company

    Once the seller agrees to a sales price, get an agreement (I prefer the term ‘agreement’ over ‘contract’) signed with the seller. Then take the signed agreement to a local title company (preferably one that you have found beforehand that handles double-closings or at least works with other investors) and have them ‘receipt’ it. This simply means that they open escrow and show receipt of your earnest money (the amount of which is specified in your agreement with the seller). They will then start the title search to determine if there are any title issues that need to be cleared up.

  5. Find a Buyer

    Find a buyer to buy the deal or house from you. Cash buyers are preferred because you will have far less hassles. I would stay away from people needing to get conventional loans. You want investors that pay cash, hard money, private money, etc.

  6. Assign Contract, Simultaneous Close, or Double-Close

    Whether you assign the contract (agreement you have with the seller) or do a double-closing depends upon the situation. More on that in a minute.

  7. Get Paid

    You get paid once the deal is closed. If you assign the contract, you won’t have to go to any closings and the title company will pay you your assignment fee.

Of course the order can differ a little. You could close on the house and then find a buyer. In this case you will have to be able to come up with the money to buy the house first. This could either be your own cash, bank loan, hard money loan, or a loan from a private money lender.

Should you build a buyers list first or after getting a deal?

You could and should also start looking for potential cash buyers before you get a deal. There are two schools of thought on this. Some feel that if you find a good enough deal, finding a buyer will be easy. I agree with that.

However, why not start looking for buyers as you are marketing and getting started? It will take some time before you will find a good wholesale deal (usually). This way you can find the buyers that are the most serious and that you feel you want to build a business relationship with. You see, most investors that are wholesaling houses have a handful of buyers that buy 90-95% of their deals. I feel it is better to start finding this group of VIP buyers as soon as possible.

Different Ways To Wholesale Houses

There are different methods used for wholesaling houses. Which one you choose depends upon the circumstances. Let’s go over them.

  1. Assigning the Contract

    This one is my favorite approach. It requires the least amount of work, liability, money, headaches, etc. The reason is, when you find a buyer for your deal, you simply assign the contract to them. The form to use for this is called an assignment of contract and can be found on the resources page for download. Once assigned, they (your end-buyer) are then responsible for everything in the contract that was assigned. They are the ones that are closing on the house, not you. You won’t ever own it. You are simply selling your agreement that you made with the seller of the house.

    When the new buyer closes the deal at the title company, your assignment fee will be paid to you from the title company (unless you got the end-buyer to give you your entire assignment fee upfront as a deposit for the deal).

    Speaking of deposits, you really want to get a good-sized ($1,000 at least) non-refundable deposit from your end-buyer. This helps to make sure they are very serious about the deal. You don’t want someone that is flaky and may not actually close. The more they pay as non-refundable earnest money, the less likely they are to walk away from the deal.

    Wholesaling houses by simply assigning contracts is the best way to go.

  2. Simultaneous Close

    A simultaneous close is where you have two transactions to do the deal. The first transaction (A) will be between you and the seller of the house. The second transaction (B) is between you and your buyer. Your buyer’s funds from the B transaction will be used to close the first transaction (A). The two transactions usually happen within hours of each other.

    Some title companies will not do simulataneous closings and some will, but will require it be disclosed to the lender (if there is one) for your end-buyer that the funds for the deal will go to pay for the first transaction (not a big deal if end-buyer’s funds are hard money). The best thing to do is find out if the title company you intend to use will allow a simultaneous close and if so, what their requirements are.

    Don’t ever just assume all title companies will handle them and handle them smoothly.

    A downside to this method of wholesaling is you will have extra costs. These extra costs include the closing costs involved in closing the transactions (which is spelled out in your agreements with the seller of the houes for the A transaction and the end-buyer for the B transaction). This can easily cost several thousand dollars depending on what you agree to pay for.

  3. Double Close

    The double close is similar to the simultaneous close but differs in that your end-buyer’s funds are not being used to close the A transaction. You need to fund the purchase (A) transaction and then sell the house to your end buyer. There are such a thing as bridge loans that are for this purpose. For a fee, a lender will lend money for the A transaction and be paid back on the B transaction. You could try to get one of the bridge loans or just use your own money or get a hard money loan or private money loan. All of these add a lot of cost to the deal, so you need to make sure there is a lot of room (good-sized wholesale fee) to cover the costs and still allow you a profit.

    The main reason to do a double close is to avoid letting your end-buyer know how much you are making. When you assign a contract, they can clearly see what you are making. When you double-close, you are signing a separate agreement to sell to them and they have no idea what you are paying for the house. This is done usually for deals where your wholesale fee is considered substantial (about $15,000 or more). Some buyers will just not like this and try to beat you up on price or cause problems. Once you find your group of VIP buyers, this will become less of an issue as they realize that you will be bringing them more deals.

With simultaneous and double closings, you don’t use the assignment of contract form as you are not assigning your contract (the agreement you signed to purchase the house from the homeowner seller). Instead, you sign another purchase agreement with your end-buyer with you as the seller. You don’t own the house but do have a vested interest in it and so can sign to sell the house as the new seller (of course, if your closing with the original seller doesn’t happen, you won’t be able to close the second transaction because you will not own the house).

Wholesaling Timelines and Tips

  • Typical timeframes

    Typically, when I’m going to be wholesaling a house, I shoot for 3-4 weeks to close when I sign an agreement to buy a house from a seller. This gives me plenty of time to make sure I have a buyer lined up and for them to close the deal. The contracts usually say something like, “close on or before [date]”, which allows closing before the date if possible.

    I have my main group of buyers that buy most of my properties so it doesn’t usually take more than a day or two to have the wholesale deal assigned (as I try to assign the contract most of the time). If you have a decent deal, but not a lot of buyers on your buyers list, it may take you a couple weeks to find a buyer. This means you must work immediately, after receipting the contract at your title company, on finding a buyer and don’t stop until you find one. The good news is that once you have a deal to push, you can grow your buyers list quickly as you advertise the deal and have buyers call you about it.

  • Best places to find deals to wholesale

    The best places to find deals to wholesale are the areas of town your end-buyers (cash buyers preferably) prefer. Ask the serious cash buyers where they want investment houses and focus on those areas. It’s really as simple as that. Don’t assume you know where people want deals. Typically, the best places are older, working class neighborhoods where more deals can be easily found. Newer, nicer neighborhoods are a lot harder to find good deals in.

  • What to do when you can’t find a buyer

    There are a lot of reasons for not being able to find a buyer for your wholesale deal. Usually it is from not having a ‘real’ deal. Not having a deal where the numbers worked for the investor buyers. Sometimes it’s because the wholesaler didn’t put in enough effort to find a buyer.

    If you can’t find a buyer, there are a couple options available to you. You could lower your wholesale fee and ask for less for the deal. You could renegotiate the deal from the seller to get the price down. Or, you could simply back out of the deal, if you put an escape clause (statement like, “This agreement is subject to agreement by my partner.”) in the agreement. This is the worst option and I hope you never have to do it. Even if you don’t make any money on the deal but can find a buyer to pay what you had agreed to pay the seller, get the deal done. You gave your word to the seller and you need to honor it.

What about wholesaling bank-owned REOs?

This post covered wholesaling houses as it pertains to buying from motivated sellers (private owners). So what about houses that are listed, like bank-owned REOs? We’ll talk about that in the near future. There are quite a few differences. Stay tuned.

Danny
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{ 36 comments… read them below or add one }

Irish April 17, 2013 at 4:48 pm

Thanks for the post. You’ve got me excited about Wholesaling and Bird-dogging.

In a previous post, you outlined 15 questions that you ask sellers. How about questions that you ask a potential seller?

In my bird-dogging, I’ve created a list of addresses of vacant homes/homes I think are vacant and I would like to reach them on the phone. Any suggestions of how to get that conversation started?

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Danny Johnson April 17, 2013 at 8:11 pm

Irish,

I’m assuming you meant ‘buyer’ for your first question. The main things you want to find out are:

Can they pay cash?
How fast can they close?
How many deals are they looking to do each month?
How many deals have they done over the last year?

You want to find as many of the ‘serious’ buyers as you can. You need people that pay cash, close quickly, and can make quick decision. It wouldn’t hurt for them to be friendly and be something that you would enjoy selling houses to.

Regarding talking to owners of possibly vacant houses: You could just tell them that you are a real estate investor and are looking for houses to buy in the area. You happened to notice their house at 123 Main St and you would like to know if they would be interested in getting a cash offer for it.

That should get their attention and will show you quickly whether or not they would consider selling it.

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Tara Brown April 18, 2013 at 9:46 am

Danny,
You don’t get your full assignment fee upfront from the buyer? We don’t do it any other way….of course we don’t get to cash it til the deal closes.

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Danny Johnson April 18, 2013 at 5:51 pm

Tara,

No, I usually get $2,000 as non-refundable earnest money and the rest paid at closing. My typical assignment fee that I shoot for is $10,000 or more.

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Brooks Conkle April 18, 2013 at 3:54 pm

Well laid out article Danny, thanks!

So you mostly do assignments? Do your buyers have an issue with your assignment fee ever?

If we’re making $5k or more, we always tend to do a simultaneous close with our title company just to avoid any potential problems. Might be unnecessary added costs, but when you’ve had a deal blow up on you, you tend to be a bit more cautious in the future…

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Danny Johnson April 18, 2013 at 5:54 pm

Hey Brooks.

Thanks.

Yes, I always try to assign the contracts to avoid the extra closing costs. I’ve got a small number of serious buyers that usually buy most of my deals so they don’t complain (at least not too much) about how much I am making. :)

I will do a double close if I feel there will be an issue (usually when making $15k-$20k or more) or I am going with a buyer that I haven’t worked with before.

Avoiding potential problems is smart.

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Junior S June 9, 2013 at 9:09 pm

Do you use the same contract for your motivated seller as well as your end buyer?

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Danny Johnson June 10, 2013 at 3:56 pm

It depends on whether I am double-closing or simply assigning my contract. If I am assigning my contract I use an assignment of contract that spells out the details of the assignment. If I am double-closing, I use the same contract with the end buyer as I did with the seller.

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Thomas I July 10, 2013 at 4:13 pm

What do you tell your sellers about who is buying the property since you assign mostly? Do they know that you are not the end buyer and do they care? Just wondering how that piece is handled.

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Danny Johnson July 15, 2013 at 6:08 pm

I only tell them that I will be looking for a buyer if the deal is tight and I’m not sure I can find one. Usually the deal is good and I don’t have to worry about it and do not tell them. They always close and the seller can care less who the end buyer ends up being (they don’t have to sign at closing at the same time so the seller is there signing alone anyway).

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Jon McLaughlin July 10, 2013 at 9:02 pm

Hey Danny,

This article has been very helpful. I have a deal under contract for $20k and two houses in same block sold for $65k+… I’m thinking of closing on house and cleaning it up and re-listing around the $70k range.. This is a home run for me as long as it goes good. Do you think it’s better to do it this way as opposed to wholesaling I know I am adding more fees for closing but my profit numbers are substantial.

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Danny Johnson July 15, 2013 at 6:09 pm

Hey Jon.

If you have the ability and those others that were sold were in similar condition and size and location, I don’t see why not to do it that way.

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Kyle Storms July 20, 2013 at 3:26 pm

Danny,

I’m a little confused by your example, in the case of assigning the contract. Are you saying that the wholesaler offers the seller $52K, and then assigns the contract to the end buyer at $60K? I’m a little confused how the $8K assignment fee is applied. Can you clarify this process a little further?

Many thanks!

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Danny Johnson July 21, 2013 at 2:21 pm

No problem, Kyle.

You are correct. Wholesaler tries to buy for $52k and signs a contract with seller. Then assigns that contract to an investor for $8k (so they sign an assignment contract with the new buyer agreeing to pay $60k with the difference being paid to the wholesaler as an assignment fee). The wholesaler’s assignment fee will be paid at closing by the title company out of the proceeds from the sale.

The end-buyer (investor) brings in enough money to buy the house at $60k. $8k of that is paid to you and $52k is paid to the seller. The title company handles paying out the funds.

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TJ September 25, 2013 at 10:37 pm

Question… How do you show the property to the end buyer before closing? Doesn’t the end buyer want to go in the house and inspect it before signing a contract? How do you manage this?

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Danny Johnson September 26, 2013 at 8:58 am

If the house is vacant, you can see if the owner will allow you to place a lockbox with the key in it for the house. Just let them know that you like to bring contractors and/or business partners by to see the house so that you can plan everything.

If the owner lives in the house or you has tenants, you will need to take A LOT of pictures and/or video. Show these to potential buyers and if someone is seriously interested, schedule to bring them by as a partner or contractor to see the house.

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sam November 16, 2014 at 8:09 am

if the seller lives in the house. Wont it be a problem if both the seller and end buyer meet before the deal is done? Can’t the Buyer potentially cut you out of the deal?

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Danny Johnson November 17, 2014 at 8:55 am

Sam,

They could. You have a contract but that means nothing to some people. This is why it is important to let people know NOT to bother the tenant. You don’t have to tell them the tenant is the current owner. Other than that, if they ever want to receive any more deals from you, they will know not to try and go behind your back.

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TJ September 25, 2013 at 10:42 pm

Another questions… Above you said that the seller and buyer do not close at the same time. So does the seller close first and then the buyer? What happens if the seller closes and then the buyer backs out? Does this ever happen, and how is that handled?

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Danny Johnson September 26, 2013 at 9:00 am

The timing of who signs doesn’t matter. All that matters is that both sign. It could happen that a buyer backs out and you should be prepared to deal with that. If you qualified your buyer well and demanded non-refundable earnest money from your buyer, they will be much, much less likely to not close.

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marvin October 30, 2013 at 11:28 am

Can you wholesale a house if the seller still owes money to the bank or must the house be owned free and clear ?

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Danny Johnson October 30, 2013 at 12:32 pm

Hey Marvin.

Absolutely. It doesn’t matter if they still owe money on the house as long as what you are offering will cover what they owe (as it must be paid off at closing).

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ms koko March 17, 2014 at 12:09 am

Can a wholesaler change the offer due to the end buyer after an contract between the wholesaler and seller

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Danny Johnson March 17, 2014 at 9:13 am

I’m afraid I don’t understand your question. Please clarify. I’m assuming you mean that you told a buyer he could buy the house at price X. Then got a contract from the seller but had to pay more and now want to change the price you had told the buyer. Is that correct?

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ms koko March 17, 2014 at 9:23 am

Quite the opposite…. the contract was at one price but the end buyer will buy for another price…how would you go about getting the seller to terminate the first contract and aggree to the one

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ms koko March 17, 2014 at 9:27 am

Can you change the sale price with your seller if contract is already signed?

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Danny Johnson March 17, 2014 at 9:55 pm

You could have them agree to the new price, change it on the original contract with them and have them initial the change.

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ms koko March 17, 2014 at 10:16 pm

What if the seller doesn’t agree to the new price and the contract is still valid. Where do you go from there?

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ms koko March 19, 2014 at 1:27 pm

If a property is with an listing agent and I go to thr agent as the buyer/investor and he gets the seller to agree to my offer will I be able to assign the contract to an end buyer?

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Danny Johnson March 20, 2014 at 9:22 pm

It all depends on the contract. If the contract does not say anything about not being able to assign it, you should be able to assign it. It’s better to have it say ‘and/or assigns’ after the buyer name.

If not possible to assign, make sure you have a title company that will do a double-close and just double close.

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Richard April 7, 2014 at 5:53 pm

Hey Danny, your article was very helpful to me. I’m a beginner in wholesale I have not done any deals just read a lot on it and very interested.
My question is before I jump in and start making offers , what should I have more knowledge in first? What exactly should i read or study more of before going out there?
Many thanks.

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Danny Johnson April 8, 2014 at 4:44 pm

Richard,

Well, the best thing you can do is go through my course Freedom By Flipping. ;)

Other than that, I would focus on learning how to find the best cash buyers and finding what kinds of properties they want and finding those types of properties to sell to them. The easiest way to wholesale is to have a handful 2-5 buyers that buy ALL of your deals. Then it is just a matter of finding more and more deals.

Don’t buy into this crap I’ve seen lately that wholesaling is harder because you have to buy cheaper than others because you are selling to other investors. The truth is there are a lot of investors that don’t buy according to the typical calculations for deals. There are a lot that have different investment strategies and can pay more for the houses as long as they are what they are looking for.

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ms koko April 8, 2014 at 8:07 pm

Hi Danny
What’s the best approach to take when trying to get a house from an agent? In other words the property is already listed but the seller is willing to negotiate but already tied into the contract

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Danny Johnson April 9, 2014 at 8:28 am

What you can do is tell the seller that they will need to either work something out with the agent if you are going to buy the house. Many agents will be at least take a reduced commission to help the seller get the house sold.

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Theo May 23, 2014 at 4:46 am

Hi Danny
Great article…just a quick question. How do you determine the value of a property. Sometimes the motivated seller might be asking too much so how would I be able to know the after repair value so I could set my price to the seller?

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Danny Johnson May 23, 2014 at 9:53 am

Theo,

Great question. It’s one that I’ve answered very thoroughly in this post: http://www.flippingjunkie.com/2013/determining-the-value-of-a-house-when-flipping

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