There are various ways to make money in real estate, and wholesaling foreclosures is one route where investors can make good money. To wholesale means that you enter a contractual agreement with a seller to purchase their property, and then you essentially sell your position in that contract to someone else.
This method of real estate has been gaining momentum with investors, as even beginner investors can do this effectively. You don’t need a license to wholesale foreclosures and the turnaround time is very fast. You get in, you get out, and you walk away with a good chunk of money.
Benefits of wholesaling
There’s not a lot of risk when you wholesale as you don’t need to rely on your credit. There’s many opportunities, and you don’t have to mess with fixing up the property. You can also make some fast cash profits. The properties are owned by a bank, rather than an individual, and banks usually want to get rid of that property as soon as they can, which gives investors an advantage.
Disadvantages of wholesaling
It’s not easy to find wholesaling deals that get you a decent amount of return. You might get 1 to 4% when you wholesale foreclosures, which does count for something. However, if you’re looking for 20 percent, you’ll want to use a different investment strategy.
Another disadvantage is that time is not on your side when wholesaling. You’ve got to find that buyers pronto.
Steps to wholesale foreclosures
In our Foreclosure Investing Mastery Course, I talk in depth about the wholesale foreclosure process, teaching step-by-step. Here is a brief look at the steps covered when wholesaling:
- Locate – Go and locate a foreclosure that is of interest to you.
- Analyze – Determine the after repair value (ARV) and fair market value (FMV)
- Control – Present the offer and counteroffers. You gain control with a Purchase and Sale (P&S) agreement or option agreement. Include contingencies in the P&S agreement, such as an inspection or partner clause.
- Find Buyer – Find an investor or buyer before the sale of the home, preferably with cash ready to close.
- Close – Head to closing and repeat the process with another home.
Purchase price
Whoever buys the home from you will need some room to make some money too, as they’ll be looking to sell to a retail buyer. This usually comes down looking for the purchase price to be equal or less than 70% of the fair market value or 80% if the home is super expensive. If the home needs 10% in repairs, then you’re looking for purchase price to be equal or less than 60% of FMV.
You’ll need to find a super good deal to come out with a 3 to 5% profit. If you can’t get the numbers to come out where you’re getting that type of profit, you might want to keep looking for deals where you will. Talk to your realtor about closing costs, because they can differ in various areas, and you don’t want them cutting into your profit.
As I mentioned, I cover this in much greater detail in Module 4 of our Foreclosure Investing Mastery Course, so be sure you check that out before beginning your wholesaling foreclosures journey. There’s a lot of helpful information there, as I take you step-by-step through the process.
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