Can You Keep a Secret (Seriously!)...?

Simple question: Would You Buy a House at Costco…?

Simple answer: You would if you knew how!

What on earth am I talking about? Why, wholesaling real estate of course! Now shhhh…don’t let anyone hear you reading this because I’m about to unleash the secret way that you can build long-term wealth by investing in real estate WITHOUT HAVING TO PAY RETAIL PRICES!!

The Wholesale Purchase:

Do you shop at Costco or Sam’s Club? What about Carmax? Or Marshall’s…or T.J. Maxx?

If you don’t like to pay retail for the “little things” like food, cars, your clothes, etc., then why on earth would you pay retail for the biggest purchase most people ever make?! It makes no sense at all to the value investor. Every once in a while you may find a “deal” on the MLS (Multiple Listing Service), but smart investors who are investing for long term-term wealth know there is a better way. In fact, they often use their self-directed ROTH IRAs or 401(k)s so the profits from their investment all grow TAX FREE! Yes, you can totally do this too, and I’ll teach you how in a later chapter.

DISCLAIMER: The kind of real estate investing we’re going to talk about here does not apply to the purchase of your primary residence. If you have fallen hopelessly in love with the house of your dreams, there is no hope for you – you will undoubtedly pay too much for the property. Yes, I have done it myself…and yes, pleasing my significant other was involved, so that’s my alibi! However, if you can remove your emotions from the equation and just focus on the numbers of the deal, then buying properties Wholesale is the way to go.

Sounds good so far, right? Now you’re probably asking how this works, and the best way I know how to explain it to you is to just explain our business model and give you some examples. Please send your questions via the comments and we’ll answer them promptly.

STEP 1 - MARKETING

This will come as no surprise to the seasoned investor, but the whole process starts with marketing to homeowners. As wholesalers, we market to a very specific set of demographics within our targeted geography. This includes buyers in distress who need to sell their homes and need to sell fast. Sometimes the homes are in distress too. Either way, when we buy someone’s house, we provide a valuable service to them by paying a fair price for taking the home “as is” and letting them move out on the date of their choice.

Now, the purpose of this article is not to teach you how we negotiate our deals will sellers (that’s a whole separate chapter!), but suffice it to say that we acquire our properties at significant discounts below market value. Some of these properties we will keep as long term investments. Others, need a lot of work and occasionally we will rehab/renovate them ourselves so we can re-sell (flip) them for a higher price. However, on a lot of the properties we acquire…we just want to make some fast cash. This is where you come into the picture. We call this “flipping paper” or wholesaling the deal. Basically it works like this:

 Motivated Sellers contact us to buy their house (via Direct Response Marketing)

 We make an offer / the seller accepts / we put the house under contract and set a closing date (typically 30 days from the date we sign the contract)

 We send you an email detailing the fair market value of the subject property based on recent sale comps, our asking price for the property (this will be a fair amount higher than what we have contracted to pay for the property), the equity spread, estimated closing costs, estimated repairs, pictures, and usually video clips too…basically everything you need to decide if the property is something you want to pursue.

 We usually get enough response in the first 72 hours of “posting” each deal that if you snooze…you really do lose.

 We “assign” the deal to the first Buyer/Investor who contacts us and pays a non-refundable deposit (typically $2,000…this shows us you’re serious). The balance of the assignment fee (usually somewhere between $5,000 and $15,000…but could be upwards of $50K depending on the nature of the deal) can be paid at Closing. There are specifics on exactly how the money needs to change hands that we address once you have expressed interest in one of our deals.

 At closing, you will need to show up with the following funds. We don’t care if you pay all cash, get a traditional mortgage, or use borrowed funds from a hard-money lender. Sometimes we can even offer some financing on the property ourselves, but you will still need to produce at least some of these funds at closing.
o Cash due to seller
o Closing costs
o Remainder of assignment fee

It’s really that simple.

The Seller gets a fair price for their house, doesn’t have to do any repairs, and can move out on the date of their own choosing.

The Wholesaler (“US”) makes a fair profit for their trouble of finding a seller, finding a buyer, putting the two together and executing the transaction. Good wholesalers invest heavily in their marketing to optimize these processes. They don’t get rich off any single deal…but by executing a large volume of deals that are modestly profitable they can make quite a respectable living.
The Investor (“YOU”) acquires an asset that has inherent value (equity) built-in to property, and/or cash flow potential if your goal is to “hold” the property and landlord it yourself.

Probably the most important thing you can do to help you make the most of your real estate investing is to clearly define what kind of an investor you are, and this is really going to come from identifying your investment goals. Here’s a few questions to help you get focused on your goals.

1. How will you fund/finance your investments?

a) I Have Loads of Cash
b) I Can Borrow Loads of Cash from Family/Friends
c) I Can Borrow From Banks (Have Terrific Credit & Down Payment Saved Up)
d) I Will Borrow From Hard-Money Lenders (High Interest Rates; Loan To Value Criteria)

2. What will you do with your properties?

a) Occupy – Move into them!
b) Rehab/Flip – Fix them up and then resell them.
c) Landlord – Rent them out for cash flow.

3. What’s most important to you?

a) Cash Now
b) Cash Later
c) Minimizing Cash Needed
d) Target Profit ($ amount or % ROI…?)

4. What is your investment horizon?

a) 30-60 days
b) 6 months
c) 1 year
d) 3-5 years

5. How much work do you want to put into each property?

6. How many properties to you want to acquire this year?

Does that help? Once you know exactly what you’re looking for, your chances of finding it skyrocket! If you don’t know what you want…I GUARANTEE you won’t achieve it! So get focused on what you want, and REFUSE to ever pay RETAIL for real estate again. You can do it!

Coming in the next installment…

No-Money Down Deals using Seller Financing, Lease Options, and Rent-To-Own Programs!