What Is Wholesale Real Estate To Flipping Houses: The Skinny

What Is Wholesale Real Estate To Flipping Houses: The Skinny

What is wholesale real estate in comparison to flipping houses? Here’s the skinny. In the real estate game of wholesaling you place an offer to purchase on a property that’s usually sold “as-is” hoping to catch a good wholesale real estate opportunity by acquiring the property below market value. You see the opportunity to help a seller in a distressed situation (let’s call him Danny Distress) by offering a quick solution in the form of a quick closing (quick cash for Danny), and the potential to make a profit (for yourself). Thereafter, performing detailed accurate calculations on the repair costs and ARV (after repair value) by paying very close attention to what comparable properties in the neighborhood have recently sold for. Finally, you approach the entire situation as if you were a real estate investor actually acquiring the property for yourself to flip, but instead, you acquire the rights to purchase the property (the purchase agreement), then resale those rights to another investor who comes in and takes your place.

Wholesale Real Estate, House Flipping, and Arbitrage

Wholesale Real Estate, Flipping Houses And Arbitrage

  • The Players: Danny Distress, Holly Wholesaler, Freddy Flipper, Billy ‘Buy-And-Hold’ Buyers, Donny ‘Weasel Clause’ Doubles, Bobby The Banker, and Sammy The Pimp

  • The Game: Fix-And-Flip Strategy, Buy-And-Hold Strategy, Wholesaling, Arbitrage

What Is Wholesale Real Estate: Gametime

So if you knew a seller like Danny Distress agreeing to accept $45,000 for a property and had a buyer like Freddy Flipper lined up willing to pay $50,000, you being the middleman [women] (Holly Wholesaler) pockets the$5,000 difference which is known as the spread. The actual transaction could take place all in one day through a Title Company, but the marketing effort to bring the transaction together can take time. You weigh up different exit strategies when you wholesale real estate so you can market the property to the right buyer who’s investment criteria lines up with the properties you seek. By then, through your marketing efforts when you first began, you’ll already have a large list of buyer’s searching for the exact type of property you just put under contract.

Killing Three Birds With One Stone

Everybody walks away happy. Danny Distress gets his $45,000, Freddy Flipper acquires a property he’ll turn around and flip for his own profit, and you (Holly Wholesaler) walks away with $5,000. I’ve given these numbers as an example for the sake of easy math, but the truth is that they can vary widely. In some wholesale real estate deals you might walk away with just $500 (beginners). Others could swing anywhere from $500 to $5,000 (or more depending on the spread). I’ve even heard of homerun deals that netted more seasoned wholesalers like Donny Doubles $15,000 (or more!) in a double close. In the meantime, you repeat the process through an ongoing continuous marketing effort depending on your end game.

  • # 1 End Game – Continue to wholesale properties earning cash with every transaction.

  • #2 End Game – Use wholesale real estate as a tool for building capital gains to invest in buy and whole real estate or house flipping to enter the property market.

  • # 3 End game – Use wholesaling as a tool for building capital gains to create a “leveraged” strategy earning interest through arbitrage (more on this later).

Flipping Houses – Fix And Flip Strategy

In comparison of what is wholesale real estate to flipping houses allow me to elaborate. Freddy Flipper is a part time real estate investor who wants to live more comfortably. He has no real estate license and no intentions on getting one. He works 9 to 5 as a construction worker but wants more out of life. Things like send mom on vacations, eat at fancy restaurants, buy the latest iPhones and gadgets, drive a couple muscle cars, get married, send the kids to college and retire with a nest egg. His hobby is writing TER reviews swimming through providers like Michael Phelps. You know. The usual. A true American consumer. He never planned to rely on social security and would flip his whole 401K if the right opportunity presented itself. He’s read The Book On Flipping Houses and The Book On Estimating Rehab Costs by J Scott enough to recite whole entire paragraphs. Plus he’s active at both Atlanta REIA and Georgia REAI meetings and uses networking to his advantage.

Fifty Cents On The Dollar

Freddy Flipper just acquired a distressed property for $50,000 “as-is”. His typical home rehab is in bad physical condition needing about $15,000 to $20,000 worth of repairs. The seller, Danny Distress was in a distressed situation and needed to sell quickly due to a divorce, job layoff, relocating out of town for employment, probate, foreclosure etc. Or maybe he just needed some quick cash to pay his debts and buy a World Series Of Poker tournament seat and convinced his girlfriend to move him in. Regardless, Freddy Flipper contacted Holly Wholesaler and acquired Danny Distress’s property for $50K that could be rehabbed for $20K and hopefully sold at market value (let’s say about $90K to $100K in ARV) for a profit of $20K to $30K on a fix and flip. He set his deadline for 6 months and began to schedule. When he’s done he’ll repeat the process with another property. And you can do the same.

  • The skinny: $50K (purchase) + $20K (repairs) = $70K (investment). Sell house for $100K (market value) and pocket about $30K ($100K – $70K = $30K) minus closing costs and Sammy The Pimp’s action (Uncle Sam’s cut).

Cash Flow – Buy And Hold Strategy

Billy Buyers is a licensed real estate investor on Holly Wholesaler’s Buyers List. He started off as an investor friendly buyer’s agent with Keller Williams (the most investor friendly agency). This was to gain full access to the MLS. His endgame is CashFlow through rental properties (which is also his favorite board game besides Monopoly). Knee deep in property with no turning back, he’s all about the Benjamin’s. The true American dream. His ambition is much higher than Freddy Flipper’s. He wants to be a millionaire one day often daydreaming of swimming through cash like Scrooge McDuck’s Money Bin. He likes muscle cars too but prefers a BMW or a Mercedes. His favorite show is Shark Tank and also any “flipping show” on HGTV. He started off residential planning to eventually branch out into commercial property.

What’s Under The Hood?

Billy Buyers read everything Freddy Flipper has read, plus Think & Grow Rich, Cash Flow Quadrant, and he’s even got his eyes on The Banker’s Code. He uses powerful FREE tools like Rehab Valuator to automate his business (and knows How To Use It!). Also utilizing paid services like Investor Carrot for his online marketing and lead capturing. He knows these invaluable tools are tax write off’s that will make his investing life much easier, and most importantly, much more profitable. He’s a heavily active PRO member on BiggerPockets who eats, sleeps and breathes real estate investing. He owns several apartment buildings and a restaurant that he’s about to franchise to help brand his signature sauce and sell it in stores nationwide. A true producer. A #PropertyCashier.

  • The Skinny: $50K (purchase) + $20K (repairs) = $70K (investment). Rents for $400/month Cash-Flow. He’s already calculated maintenance, insurance, and costs, to be covered by the rent leaving him a profit every month (positive cash flow). He knows rent price has to be low enough (yet just high enough) to allow rent to provide a reasonable return.

  • He now has yet another house with positive cash flow that he can use as collateral to secure a loan on a 4 family flat (4 unit apartment building) bringing him 4 times the rent if he chooses to go that route. Rinse and repeat.

Wholesaling: Exit And Entrance Strategy – Coming And Going

Now that you know what wholesale real estate is, Wholesaling is actually the third exit strategy in the fix and flip, buy and hold trifecta. Consequently, some have successfully used it as an entrance strategy into real estate investing. There are many investors who were once in your shoes (doing exactly what you do) who have actually went on to make wholesaling a full time occupation also. Marketing is the lifeblood of wholesaling. You’re not so much in the real estate business as you are in the marketing business. You don’t even need a license to do it. In wholesaling you calculate the repair costs, ARV, and profit potential just as any other investor would. You acquire a purchase agreement for a buy and hold or fix and flip strategy. In fact the wholesaler’s have a better advantage if they see the deal through the eye’s of the investor or end buyer they are marketing to. They should approach the deal from that perspective because it’s so critical to get the numbers right.

Calculate.Then Re-Calculate.

Getting the numbers right means you know exactly how much it will cost to rehab the property, and exactly what the ARV will be, so you must know exactly what recent comparable properties have sold for. Because this is exactly what real estate investors on your buyer’s list expect from you when you wholesale real estate. Why? Because they want to know PRECISELY how much MONEY they’ll make on the deal BEFORE acquiring it. You make an offer on the property based on your calculations, placing it under contract. In conclusion you swap places with an investor and let him take over from there. As mentioned before. The difference between how much the seller wants for the property and what your end buyer will pay is your profit. Simple. In the right market under the right circumstances, someone with skills and experience can earn $100,000 a year wholesaling. Without ever acquiring a single physical property. And so can you with the wealth of knowledge and resources on this page.

Conclusion: The Ultimate End Game

I got introduced to real estate investing back in the early 2000’s by Paul Roger’s Choice Success Group in St. Louis Missouri. He personally got me started on the teachings of Robert Kiyosaki. CashFlow quickly became my all time favorite game and the Cash Flow Quadrant quickly became my all time favorite book. I set a goal to make it to the B or I quadrant thinking that was the ultimate end game. The ultimate exit strategy in the game of life. Unfortunately I let ‘analysis-paralysis’ prevent me from taking action but I continued to study and learn. Most noteworthy, years later I was re-introduced to real estate investing in Atlanta by a mentor named Ron Dimmock. He worked in a partner program called Generational Wealth Partners. They introduced me to Wholesaling and how to partner up on deals. I then began to re-educate myself and pick up where I left off and haven’t looked back since. Consequently I began to discover another end game. One far more powerful than anything in the Cash Flow Quadrant. One that can potentially generate you more income than ALL 3 exit strategies combined! The Holy Grail of Cash Flow. The Encore. And without further ado, I present to you …… Bobby The Banker’s exit strategy.

The Ultimate End Game.

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