In this Lesson you learn the following:



Definition of wholesaling

The history of wholesaling

Why it is legal

How to do it with no cash or credit.

Definition

Wholesaling is a term that has been around for years. It is most commonly used when goods are traded such as groceries and other products sold at retail outlets. There are 3 parts to this. The original owner or producer of the goods would sell to the wholesaler, the wholesaler would find retail outlets to sell goods to at wholesale prices and retail stores then charge retail prices to their customers.

History

It has only been until the last few years that this term has been associated with real estate. The way that it works in real estate is that a wholesaler will market to find properties at a substantial discount. They would then turn to their buyers (an investor list they have created) and sell them the property for more than they paid. The wholesaler could make a few thousand to several thousand dollars. It is like being a broker that makes more money on the transaction and does not need a license.

Legal

"Is this legal you say? This sounds like flipping." Call it what you want to it is completely legal. The only way it becomes and has become illegal is if you falsify information. Never overstate value or pay someone to overstate value, lie or advise for a buyer to lie on a mortgage application or hide details that could affect the value of the property. As long as you disclose everything and stay legal you will be fine.

Wholesaling with no Cash or Credit

This is the fun part. How do you get paid, especially if you do not have any money or credit? That is the easy part. You can do this a few ways.

The easiest and cleanest way is to assign the contract. You get a property under contract and sell the contract to another investor. If the property is worth $50,000 in as is condition and you have it under contract for $40,000 then ask for a $10,000 fee. It is illegal to get compensation if you are not licensed in a transaction unless your name is on the contract or you have a certain interest in the property. If your name is on the contract then you have an interest and you can do what you want with your interest.

The second way to do this is to become a bird dog. That means that you locate properties for other investors but they put the contract together. You just get a fee for introducing the buyer and seller. You can only receive a fee from the Buyer and not the Seller. Receiving it from the Seller is practicing Real Estate Sales without a license.

The way that I typically wholesale properties is to do a double closing. With this technique you put a property under contract. You then find a buyer that will write a contract with you as the seller. You then buy the property and sell the property on the same day typically 30 days after you contract with the original seller. The difference between your purchase and your sale less any expenses is your profit. There are tax advantages to doing it this way that you should consult with your accountant.

There is one other way to wholesale properties that is a little more risky and takes some money. The only reason that I like this method is that you can take your time a little more and maximize the value of the property. With this technique you actually close on the property, clean it up, maybe spend a thousand or two and resell it. I have done some of my best deals that way. I am making $30,000 next week on a deal that all I did was cleanup, some minor foundation work and had layers of wallpaper taken of the walls and painted. By spending a couple thousand dollars I was able to get at least $10,000 more for the property than if I had not done the minor cleanup and repairs. More risk equals more reward. I used this technique to do my best wholesale deal of $39,000 in just a few days of cleanup.